Airlines Fighting to Survive

There is a fight going on within the airline industry which is only the first skirmish of a major battle. The conflict is over the EU bringing aviation inside its Emissions Trading Scheme (ETS). Research by Thomson Reuters Point Carbon has concluded that it will cost airlines €1.1bn when they join the EU ETS next year rising to €10.4bn by 2020. Chinese and US airlines are particularly concerned at having to buy carbon allowances in order to fly into European destinations. The current outcry, aimed at Europe’s policy makers, is nothing compared with the fight to come as the tax-free status of aviation fuel for international flights comes under the spotlight.

That aviation fuel for international flights is free of tax is not widely advertised. It is neither in the interests of the airlines to point it out, nor in the interest of government to show how impotent they are to change the international legal framework, nor is it likely that airline passengers will vote for higher ticket prices. However society cannot remain indifferent forever to this major anomaly. It can be expected that eventually it will be removed and taxation of aviation fuel introduced to at least match the taxation on other transport fuels.

The measures being brought in under the EU ETS, presented as total consolidated costs, look huge but these figures are only massive because the industry burns such colossal quantities of fuel. The purchase of carbon allowances equates to just a few cents per litre of aviation fuel. The Sunday Times reports that the costs could be recouped by BA with an increase of 50p per ticket. Other estimates put the additional cost to airlines at between €2 and €9 per round-trip flight between European destinations. This is hardly going to make a dent in the affordability of flying, or the profits of the airlines, so it seems odd that resistance to this modest measure is so strong. The answer is to be found in my book Fly and be Damned (orders already being taken on Amazon).

I admire the tenacity of the airlines in defending the status quo. If the fight over the UE ETS dominates the headlines, it deflects attention from the bigger battle over tax-free fuel. To lose the skirmish over the EU ETS, after a bruising fight, might persuade policy makers to back off from further action. On the other hand, policy makers might read my book and see through the policy stalemate to take the action needed to launch aviation into the 21st century.