Airline passengers face higher fares under new EU emissions rules

Airline passengers are facing higher fares under newly strengthened EU rules designed to tackle aviation emissions to combat climate change, in a sign that the era of super low-cost air travel may be about to end. The threat of higher fares comes as carriers put up prices to help them recover from the coronavirus pandemic after renewed demand for flights with the end of travel restrictions. The EU wants to require carbon-intensive industries to pay more for their pollution with ticket prices likely to rise up to E10 per return flight due to increased levies on aviation emissions, according to analysts. EU lawmakers have given initial approval to an update of the bloc’s carbon pricing rules, which forces industries including aviation to buy enough allowances to cover their pollution under the emissions trading system. The rules phase out the current practice of allowing airlines to obtain a significant proportion of the permits they need for free by 2026. The total number of allowances in the system will also fall over time, which analysts expect to drive up the cost of polluting. Olivier Jankovec, DG of airports industry body ACI Europe, told an industry conference that the EU was going through “a major policy reset” that would change “the economics of the sector”. “It is going to result in increasing costs for airlines, increasing fares and lower demand.”  Airlines for Europe, the industry lobby group, said that “sustainability legislation such as the EU’s . . . could see flying via EU hubs like Amsterdam, Paris or Frankfurt becoming about 23-29% more expensive in 2035”. It said this could lead to up to 17% fewer passengers travelling through EU hubs. Ryanair boss Michael O’Leary has previously said that rising environmental taxes, alongside higher oil prices, meant that the era of “absurd[ly]” cheap fares is over. The cost of complying with the EU ETS would rise to E5b in 2027 for the six largest intra-EU carriers, up from E0.5b in 2019, Bernstein analyst Alex Irving estimated. “Airlines cannot absorb that . . . and will need to increase prices,” he said. Passengers would end up paying between E8 and E10 more per return flight, he estimated. Deutsche Bank analyst Jaime Rowbotham forecast that Ryanair, easyJet and Wizz Air would spend a cumulative €785mn on carbon allowances in their 2023 fiscal years, equivalent to about E2.60 per passenger journey. That could rise to E2.25b by the middle of the decade, he said. <br/>