British Airways Owner: Sustainable Aviation Fuels to Raise Fares, Lower Demand

The airline industry in Europe will have to raise fares to offset the more expensive clean fuels as the sector looks to slash emissions, Luis Gallego, chief executive officer of British Airways’ owner, IAG, told the Financial Times in an interview published on Thursday.

“Flying is going to be more expensive. That is an issue, we are trying to improve efficiency to mitigate that, but it will have an impact on demand,” Gallego told FT.

The airline industry is looking to reduce emissions but the current alternative to petroleum-based jet fuel, the sustainable aviation fuel (SAF), is more expensive, and probably will be for the foreseeable future, industry officials have said.

Due to the EU’s net-zero targets and stricter emissions control and requirements for a higher share of sustainable fuels to be used by airlines, the European companies could lose some of their competitive edge, Gallego told FT.

Just last month, the Germany-based Lufthansa Group, the biggest airline group in Europe, said it was introducing a so-called Environmental Cost Surcharge of up to $77.76 (72 euros) per flight to cover part of the costs for using additional volumes of sustainable aviation fuel (SAF). The surcharge of between $1.08 (1 euro) and $77.76 (72 euros) now applies to all tickets issued from June 26, 2024 with departure from January 1, 2025 from the 27 EU countries as well as the UK, Norway, and Switzerland. 

“The surcharge is intended to cover part of the steadily rising additional costs due to regulatory environmental requirements,” Lufthansa said at the end of June. Despite investing a lot in new technology and fuels, Lufthansa “will not be able to bear the successively increasing additional costs resulting from regulatory requirements in the coming years on its own,” it added.

Last year, Willie Walsh, Director General at the International Air Transport Association (IATA), said that the airline industry would be ready to embrace the fact that SAF would always be more expensive than oil-based jet fuel.

By Charles Kennedy for Oilprice.com

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