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British Airways owner IAG warns airfares must rise to fund carbon cuts

Company’s chief Luis Gallego expects cost implications of switch to cleaner fuel to hit passenger demand

British Airways planes at Heathrow Airport. Photograph: Steve Parsons/PA Wire

Thu Jul 4 2024 - 08:27

Airlines in Europe will be forced to raise prices to fund the cost of cutting carbon emissions, the boss of Aer Lingus and British Airways owner IAG said. Luis Gallego said switching to cleaner, more expensive sustainable fuel would “have a big impact” on the industry and put some people off flying.

“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,” he said.

He added that European airlines could become less competitive because of the bloc’s tough net zero targets, which include a requirement for 6 per cent of jet fuel to be from sustainable sources by 2030. “We agree with decarbonisation...but I think we need to do it in a consistent way worldwide not to jeopardise European aviation.”

Sustainable aviation fuel (SAF) is made from a range of non-fossil fuel sources, from waste cooking oil to crops, and can emit 70 per cent less carbon-dioxide than traditional jet fuel. But very little of it is being produced – less than 1 per cent of total aviation fuel consumption last year was from sustainable sources – meaning it is far more expensive than jet fuel.

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IAG itself used 12 per cent of the world’s SAF last year across its five airlines, which include British Airways, Iberia and Aer Lingus.

Airlines have called for more government support in the UK and EU to increase the supply of SAF and drive down costs for consumers. “The reality is we do not have [enough] SAF, and the SAF we have is very expensive,” Gallego said.

He also highlighted the rising costs of carbon emissions under the EU’s emissions trading scheme as the free allowances given to airlines are reduced.

Last month Lufthansa became one of the first airlines to announce a surcharge on tickets to fund cleaner fuels and decarbonisation. The Frankfurt-based group, which operates Eurowings, Swiss and Austrian Airlines as well as the German flag-carrier, said it would charge a fee of between €1 and €72 per ticket from next year.

Gallego was talking after European regulators gave conditional clearance for Lufthansa’s acquisition of a 41 per cent stake in Alitalia successor ITA on Wednesday. He welcomed the decision which he hoped was a sign that regulators would also give the green light to IAG’s proposed takeover of the Spanish carrier Air Europa. “I see that this is positive news because it means that the European Commission sees the value of consolidation, to have a stronger airline industry in Europe.”

Gallego also suggested that IAG could expand outside Europe for the first time, including by buying a South American airline to tap into demand for flights between Europe and South America.

A bid for Portugal’s national airline TAP was another possibility, Gallego said, adding, IAG “always has other options on the radar” if the Air Europa deal is blocked in Brussels. – Copyright The Financial Times

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