Sustainability and financial performance: How efficiency mediates the ESG-financial performance relationship in the Airline industry

The growing emphasis on environmental, social, and governance (ESG) performance has raised critical questions about its integration into business strategy and its implications for firm performance. Despite the increasing prevalence of ESG metrics in corporate reporting, empirical evidence linking ESG adoption to strategic value remains limited. This study investigates whether and how ESG performance enhances business operational and financial performance in the U.S. airline industry. Leveraging panel data from major U.S. airlines between 2006 and 2022, we employ Data Envelopment Analysis (DEA) and fixed-effects panel regression to assess the relationship between ESG performance, operational efficiency, and financial performance. Our findings reveal that improvements in ESG performance lead to higher efficiency and better financial results, with efficiency playing a mediating role. Additionally, among the ESG dimensions, enhancements in environmental and governance practices exert a stronger influence on efficiency than social initiatives. This research highlights the strategic importance of ESG integration, offering actionable insights for managers and policymakers aiming to foster long-term value through sustainable business practices. By bridging the gap between ESG performance and business outcome, this study contributes to a deeper understanding of how sustainability can be leveraged as a source of competitive advantage.