Welfare Effects of Electric Aircraft Introduction in the Italian Air Transport Market: A Structural Approach

We measured the social welfare effects of the introduction of all-electric aircraft using data from the air transport sector in Italy. The estimation of the welfare effects was done through a structural model typical of empirical industrial organisation work, in which equilibrium is estimated through the interaction of demand (from passengers) and supply (from airlines), and its perturbation due to the introduction, in some routes where it is technologically possible, of electrically powered aircraft. This model makes it possible to estimate the social welfare effects and the relative contributions of consumer surplus and airline profits. The structural model uses data from eight years: 2014–2019 and 2022–2023. We find that, net of global environmental effects, the introduction of electric aircraft improves social welfare when the new technology reduces marginal operating costs. Given the technology currently available, the welfare effects remain limited because electric aircraft can operate only on routes with strict constraints on range and capacity. Relaxing these constraints substantially increases the potential gains but also introduces greater uncertainty, as results rely on progressively more speculative assumptions. A further contribution of this work lies in the flexibility of the proposed methodology, which can easily incorporate more accurate technological parameters as the technology evolves.