Lufthansa warns of ticket price increases as Europe implements Emissions Trading Scheme (ETS)

German carrier Deutsche Lufthansa is warning that flyers will face higher ticket prices as it refuses to shoulder the almost €130 million (approx US$ 170 million) additional costs it faces thanks to the European Union’s new Emissions Trading System (ETS) which took effect on new year’s day, January 1.

In a statement the airline explained its reasoning based on the requirements of the new ETS.

From the beginning of this year, all airlines are required to hold emission rights in the form of CO2 certificates for flights to and from Europe. In 2012, 82 per cent of the necessary certificates will be awarded to airlines free of charge. Airlines will have to purchase another 15 per cent of the certificates, with 3 per cent being reserved for new airlines.

As these allocations are based on average emissions for the years 2004 to 2006, the Lufthansa Group will have to buy at least 35 per cent of the certificates it needs to represent its growth in recent years. Judging by the average trend in certificate prices, Lufthansa expects to incur additional expenses of EUR €130m in 2012.

As competition is tough – especially from non-EU companies, whose operations are only subject to limited emissions trading rules – Lufthansa will have to pass on the costs via higher ticket prices, as recommended by the EU. Lufthansa will therefore include the cost of purchasing the certificates in its existing fuel surcharge as of the beginning of 2012. However, it has no immediate plans to increase this surcharge.

Carsten Spohr, Member of the Executive Board of Deutsche Lufthansa AG, said: “Climate change is a global challenge. This means we also need a global solution. The incorporation of airlines in the EU Emissions Trading Scheme means that European operators are now facing additional costs which will make flying within and via Europe more expensive for passengers. It will also distort competition and impact on the sustainability of the aviation industry if it proves impossible to implement with the competitive neutrality promised by policy makers. However, given the huge resistance at international level, it is unclear just how the situation will develop.”

Lufthansa last raised its fuel surcharge for European and long-haul flights on 15 December 2011 by three to ten euros. In the future, the surcharge will reflect both the price of oil and the cost of acquiring emission rights.

About Devesh Agarwal

A electronics and automotive product management, marketing and branding expert, he was awarded a silver medal at the Lockheed Martin innovation competition 2010. He is ranked 6th on Mashable's list of aviation pros on Twitter and in addition to Bangalore Aviation, he has contributed to leading publications like Aviation Week, Conde Nast Traveller India, The Economic Times, and The Mint (a Wall Street Journal content partner). He remains a frequent flier and shares the good, the bad, and the ugly about the Indian aviation industry without fear or favour.

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