The chief executive of IAG, Luis Gallego, has indicated that European airlines are likely to face pressure to increase ticket prices in a bid to cover the costs associated with reducing carbon emissions. His comments come as the industry transitions towards the use of cleaner, albeit more expensive, sustainable fuels, a move Gallego warns could dampen demand for air travel.
He suggested that the stringency of the European Union’s net zero targets, particularly its insistence on sustainable sources for at least 6% of jet fuel by 2030, could compromise the competitiveness of European airlines. Whilst acknowledging the necessity of decarbonisation, Gallego advocated for a harmonised global approach to avoid undermining European aviation.
Sustainable Aviation Fuel (SAF) derives from various non-fossil fuel sources, such as waste cooking oil and crops, and can dramatically decrease carbon dioxide emissions in comparison to traditional jet fuel, by up to 70%. However, its production remains low, with less than 1% of total aviation fuel consumption in the last year attributed to sustainable sources, thus resulting in a higher price tag than conventional jet fuel.
IAG, which owns five airlines including British Airways, Iberia, and Aer Lingus, accounted for 12% of global SAF consumption last year. Gallego highlighted the urgent need to increase the availability of SAF and reduce its cost, a task he believes should involve greater government support from both the UK and EU.
In addition to the cost of SAF, airlines are grappling with the increased expense of carbon emissions under the EU’s emissions trading scheme, which is reducing the free allowances it grants to airlines.
Following the recent decision by Lufthansa to introduce a surcharge on tickets to finance cleaner fuels and decarbonisation efforts, starting next year, Gallego stressed the imminent price elevation in air travel. Lufthansa will charge a supplementary fee of between €1 and €72 per ticket from next year.
His remarks followed the European regulators’ conditional approval of Lufthansa’s acquisition of a 41% stake in Alitalia’s successor, ITA.
The CEO welcomed the ruling, hoping it bodes well for the endorsement of IAG’s planned acquisition of Air Europa by authority figures. He perceived this as encouraging news, signifying the European Commission’s recognition of the importance of amalgamation for enhancing the airline industry across Europe.
Gallego hinted at the possibility of IAG’s expansion beyond Europe’s borders, potentially through the purchase of a South American airline to meet the increasing demand for Europe-South America flights. He disclosed that placing a bid for Portugal’s national airline, TAP, might be another viable option. Gallego reiterated that IAG consistently considers alternative solutions should the Brussels authorities obstruct the Air Europa agreement.
©The Financial Times Limited 2024.