Low-cost flights could soon be a thing of the past due to new EU carbon emissions charges.
he rules are an extension of the EU’s existing Emissions Trading System regulations.
Aircraft carriers offering flights throughout Europe are required to seek a permit from the ETS for carbon dioxide emissions created.
While this paperwork doesn’t currently cost airlines any money, a new law means that next year the free permits will begin to be phased out.
The permits will be reduced by a quarter in 2024 and in 2025 they’ll be halved, before being completely eradicated by 2026.
As a result, airlines will need to foot the bill for their CO2 permits. This charge is being introduced to put financial implications in place for carriers’ carbon emissions outputs.
As reported by the FT, Bernstein analyst Alex Irving estimates that passengers may see a €10 increase in flight prices.
“The cost of complying with the EU ETS would rise to €5bn in 2027 for the six largest intra-EU carriers, up from €0.5bn in 2019,” he said.
“Airlines cannot absorb that… and will need to increase prices.”
It comes as Ryanair has already been warning of rising prices, with CEO Michael O’Leary last month saying he expects average fares to rise this year by “the high single digits” in percentage terms compared with 2022.
“People are worrying that prices are going to rise in the summer – which I think they will,” he said.
Fare increases are being driven by inflation, rising fuel costs, capacity constraints and other factors like the rerouting of flights to and from Asia to avoid Russian airspace, due to its invasion of Ukraine.
A recent report by American Express Global Business Travel said airfares in Europe would climb 6pc in business and 5.5pc in economy this year.
Despite this, however, demand for travel remains strong – with Ryanair alone forecasting 185 million passengers this year, putting it well on track to reach its ambitious 225 million passenger target by 2026.
TUI, the world’s biggest packaged-tour operator, said bookings for summer were 20pc higher than a year ago.
Airlines footing the bill for their CO2 permits would further alter “the economics of the sector”, Director general of Airports Council International Europe Olivier Jankovec said at the UK Airport Operators Association’s annual conference in January.
“It is going to result in increasing costs for airlines, increasing fares and lower demand,” Mr Jankovec said.
“Flying via EU hubs like Amsterdam, Paris or Frankfurt becoming about 23-29 per cent more expensive in 2035,” he added.
Deutsche Bank analyst Jaime Rowbotham told the FT “that Ryanair, easyJet and Wizz Air would spend a cumulative €785m on carbon allowances in their 2023 fiscal years, equivalent to about €2.60 per passenger journey.”
That amount “could rise to €2.25bn by the middle of the decade”, Mr Rowbotham added.
– Additional reporting by Pól Ó Conghaile
