Several industry watchers pinned last week's widely adopted
$6 roundtrip transatlantic fare increase on the European Union's new Emissions
Trading Scheme. If analyst expectations come to pass, the airlines have only
just begun.
While the ETS program's expense for individual airlines
varies greatly, OAG in an analysis released this week estimated that carriers
would need to bump up fares by 3 percent on average to counter the new cost
item. As such, OAG predicted "a significant proportion of ETS costs"
would be passed on to air passengers.
OAG is not alone in that assessment. Deutsche Bank airline
analyst Michael Linenberg this week wrote that he expects airlines "to raise
air fares as a means to preserve their razor-thin profit margins."
Several major airlines last week matched a $6 roundtrip
transatlantic surcharge imposed by Delta Air Lines and some SkyTeam partners,
according to FareCompare.com CEO Rick Seaney. They included Air Canada, Air
France-KLM, Alitalia, American Airlines, British Airways, Lufthansa, United and
US Airways, according to FareCompare.com data. Virgin Atlantic remained a
notable holdout. Although Seaney and various media reports attributed the
increase to ETS, airlines generally have not commented on the rationale. Before
matching Delta, Lufthansa said it would pass along the cost of ETS and that its
fuel surcharges would "reflect both the price of oil and the cost of
acquiring emission rights."
Still, a $6 roundtrip increase falls well short of the 3
percent fare increase anticipated by OAG, which therefore expects additional,
incremental price increases in the future. "The potential effect of the EU
ETS on the airline industry in 2012 will be small as this will be a
probationary year for carriers, but cost pressure will rise in 2013 as the
emissions cap (and therefore the amount of free allowances) is tightened,"
the company wrote. The International Air Transport Association estimated the
2012 cost of ETS at €900 million, growing to €2.8 billion by 2020.
While fare increases likely would be the first response by
airlines looking to mitigate the additional expense of ETS, OAG noted they also
could modify route networks to avoid connections through increasingly costly
EU-based points.
"Whilst this is not an option for EU-based passengers,
European airports may become less competitive for passengers coming from
outside the EU to transit through to an end destination outside Europe,"
according to OAG. "This would benefit those airports in non-ETS affected
countries just outside the EU as well as those airports such as Dubai, Abu
Dhabi and Doha that have configured their businesses around the transfer of
passengers across the globe."