For How Long Will Airline Ticket Prices Remain Increasing?
BY: Luka Trcek
You probably already knew that the days of outrageously cheap short-haul flights to Europe are over. After all, summer airfares between the U.K. and the continent are currently a third more expensive than they were a year ago, according to travel search engine Kayak. However, two recent reports clarify that this is not just a temporary upheaval.
As airlines deal with a significant decarbonization challenge and more stringent climate compliance rules, this is the new reality of air travel.
Two significant changes to the European Union’s Emissions Trading System (ETS) are the first headwinds. For every ton of carbon dioxide emitted into the atmosphere on flights that take off or land in the European Economic Area, the United Kingdom, or Switzerland, the airline must receive enough emissions allowances. Currently, they receive about half of these allowances for free. However, this agreement expires in 2026 as the percentage of allowances they must cover starts in 2024. Their carbon costs will effectively quadruple as a result in just three years.
The cost per unit of carbon emissions has also increased significantly recently; it reached a high of €100 ($111) for the first time in late February, and it doesn’t appear to be decreasing. According to a report by Bernstein’s European transport expert Alex Irving, these measures will cost European airlines roughly €5 billion by 2027.
Aircraft are responsible for 2.5% of global CO2 emissions. Therefore, aviation must become a net-zero emissions industry over the next three decades. By investing in future aircraft and infrastructure, improving operational efficiency, and using alternative fuels and carbon reduction technologies, the European sector will reduce emissions in line with the plan Destination 2050.
Reaching net zero by 2050 will cost a staggering €820 billion, according to a study by research groups SEO Amsterdam Economics and the Royal Netherlands Aerospace Centre that was commissioned by organizations representing the aviation sector.
According to both reports, the industry will not be able to cover these costs on its own. Operating profits for the continent’s six largest point-to-point carriers (Ryanair Holdings Plc, EasyJet Plc, Wizz Air Holdings Plc, Vueling, Eurowings and Transavia) are estimated to fall by 77% as a result of the changes to EU ETS alone. As a result, ticket prices will have to rise, which will inevitably destroy demand. “If it were possible to charge more without spoiling demand,” Irving writes, ” airlines would have already been doing so.”
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