Airlines will soon have to pay for their CO2 permits under new EU regulations that will phase out free permits for aircraft carriers.
While the permits are not currently costing airlines money, they will be reduced by a quarter in 2024, halved in 2025 and phased out completely by 2026. The new charges are part of the EU’s Emissions Trading System regulations, and have been introduced to make carriers more accountable for their carbon emissions.
Analysts have predicted that flights could rise in price by €10 as a result. Ryanair has already said it expects fares to rise this year due to inflation, rising fuel costs, capacity constraints and the rerouting of flights to and from Asia to avoid Russian airspace.
CEO of Ryanair, Michael O’Leary, has said that he expects average fares to rise this year by “the high single digits” in percentage terms compared with 2022. He explained that people are already worrying that prices are going to rise in the summer, which he believes will be the case.
A report by American Express Global Business Travel has also indicated that airfares in Europe are predicted to rise 6% in business and 5.5% in economy this year.
While airlines will have to cover their own CO2 permit costs, there is no guarantee that this will translate to higher ticket prices. Some experts have suggested that airlines will instead have to adjust the price of airfare and include carbon costs in the overall ticket price.
However, analysts have warned that airlines could spend €785m on carbon allowances in their 2023 fiscal years, equivalent to around €2.60 per passenger journey. That figure could rise to €2.25bn by the middle of the decade.
The Director General of Airports Council International Europe, Olivier Jankovec, has said that the cost of CO2 permits for airlines will alter the “economics of the sector”, and would result in increasing costs for airlines, increasing fares and lower demand.
Despite this, however, demand for travel remains strong, with Ryanair alone forecasting 185 million passengers this year, well on track to reach its ambitious 225 million passenger target by 2026. Bookings for the summer from TUI, the world’s biggest packaged-tour operator, were 20% higher than a year ago.
The charges will be introduced as a way of holding airlines accountable for their carbon emissions and their contribution to climate change. The goal is to make travel more sustainable in the long term.