European Emissions Plan Could Trigger Airfare Hikes

Airlines have warned that fares may rise after European governments last agreed Friday to include aviation in the European Emissions Trading Scheme, beginning in 2012. The plan requires airlines flying to or within the European Union to reduce their CO₂ emissions by 3 percent in the first year, then by 5 percent. Carriers that produce more CO₂ than they are allowed would have to buy and trade permits to offset their emissions.

The International Air Transport Association has said ETS would cost airlines €3.5 billion. The Association of European Airlines has not yet issued an estimate, but information manager David Henderson said, "The question is whether we can pass the costs on to our customers. Given the current state of our industry, there is no way we can absorb further costs, but we don't see how we can pass the costs on to our customers either."

Torsten Kriedt, director of intelligence and innovation for BCD Travel's Advito consulting unit expects the airlines to pass on the costs. "Another 2 to 5 percent increase will not deter corporate customers, except where high-speed rail is an alternative," he said. Kriedt said the fees and surcharges imposed by airlines on travelers this year have shown that business travelers will absorb higher prices if necessary because many of their trips remain nondiscretionary. "The question is, how will the cost be passed on?" said Kriedt. "Will it be included in corporate discounts?"

The United Kingdom & Ireland's Institute of Travel Management, which is committed to helping reduce CO₂ emissions caused by business travel, welcomed the decision. Chief executive Paul Tilstone said it would not necessarily lead to higher fares. "The whole point is about either adding cost or airlines changing their technology, which would drive costs out as emissions come down," he said.

"All other sources of CO₂ emissions are included in ETS. This is a difficult decision, but if we are going to do something about global warming, then we have to make those decisions," said Tilstone.

However, ITM wants the British government to review its imposition of an air passenger duty that could cost as much as £80 per flight in light of the imminent inclusion of aviation in ETS. Otherwise, said Tilstone, this would amount to a double taxation on airlines.

AEA supports Europe taking a lead in including aviation in emissions trading and does not object to a 3 percent target for CO₂ reduction. However, Henderson described ETS as "heavy-handed," and said it would discourage other regions of the world from following suit. Both AEA and IATA said the European Union could achieve much greater emissions savings—12 percent, according to AEA—by creating a single European airspace.