Balancing Carbon and Profitability in Aviation: A Risk and Policy Perspective

This study examines the intricate relationship between carbon emissions and sustainable financial performance in the global airline industry, a sector increasingly scrutinized for its environmental impact. Building upon the win–win hypothesis, trade-off theory, and emerging perspectives on non-linear environmental–financial linkages, this study explores how firm profitability is influenced not only by emission intensity but also by contextual factors such as temperature anomalies and the adoption of Sustainable Aviation Fuel (SAF). Using panel data from 29 major airlines headquartered across seven global regions, the analysis reveals a curvilinear relationship: while increased emissions are initially linked to higher profitability, likely reflecting operational scale, excessive emissions may diminish financial returns. The findings also underscore the moderating role of temperature anomalies, which can intensify both the initial benefits and the subsequent costs of emissions. Furthermore, the adoption of SAF appears to mitigate the financial risks of emissions under heightened climate-related pressure. Although initially costly and negatively associated with profitability, SAF investment shows potential long-term benefits, suggesting a non-linear payoff structure. Overall, the findings suggest that firms in carbon-intensive industries must carefully calibrate environmental strategies and investments to achieve long-term financial resilience. The study offers new insight into how internal decisions and external pressures jointly shape the emissions–performance dynamic.