Business

Lufthansa fares up on carbon
costs

On ground: In this July 28, 2010 file photo, planes of German Lufthansa are parked at Munich's airport, Germany. (AP/dapd/ Joerg Koch)
On ground: In this July 28, 2010 file photo, planes of German Lufthansa are parked at Munich's airport, Germany. (AP/dapd/ Joerg Koch)

Passengers travelling to Europe on German airline Lufthansa can now expect to pay more for their flights.

Lufthansa said yesterday that it would raise ticket prices to offset rising costs from a European Union (EU) carbon emissions scheme that kicked in on Sunday. It is the first carrier to announce that it will raise fares due to the new scheme but others – including Singapore Airlines – have not ruled it out.

The EU will monitor carbon dioxide emissions from all flights to and from the EU under its Emissions Trading Scheme.

Each airline is allowed to emit some carbon dioxide for free each year, but they will have to buy "carbon credits" from other airlines or industries if they exceed their allowance.

Based on the average trend of carbon pricing, Lufthansa expects to incur an additional €130 million (US$168 million) in costs this year.

Citing tough competition from other airlines, it said it would "have to pass on the costs via higher ticket prices, as recommended by the EU".

It said it would tag the cost of buying carbon emissions onto its existing fuel surcharge from the start of this year.

The surcharge will now reflect both the price of oil and the cost of acquiring emission rights, though Lufthansa said it has no immediate plans to increase the surcharge for oil prices.

The airline last raised its fuel surcharge for European and long-haul flights by €3 and €10 respectively on Dec15.

Said Lufthansa executive board member Carsten Spohr: "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."

Other airlines have yet to follow suit. A Singapore Airlines (SIA) spokesman said it is not yet ruling out additional options for recovering the extra cost.

She added that SIA is constantly working to improve its fuel efficiency and reduce carbon emissions through fleet modernization, fuel-saving initiatives and more efficient flight operations. This will reduce carbon charges and their financial impact, she said.

About 9,000 SIA flights will be affected each year. Its spokesman was unable to provide any cost estimates.

Finnair's director of sales for Singapore and South-east Asia, Petteri Kostermaa, said his airline has not made any decision on whether to transfer the additional costs to its fares. The airline operates a daily flight from Changi Airport to Helsinki.

He noted, however, that the airline business is "not in very good shape" due to high oil prices and a general softening of the air travel market. This puts considerable pressure on airlines to pass the carbon costs on to passengers, he said.

According to Kostermaa, the European Commission estimates that the additional cost to airlines per passenger will be around €40 for long-haul flights, or about 2 to 7 per cent of the price of an air ticket from Singapore to Europe.

A spokesman for British Airways said it is still examining the impact of the Emissions Trading Scheme and considering its response.

"While we are well placed to participate in the EU ETS, there is concern that the scheme will add billions to the industry's cost base," she said.

A Qantas spokesman said it is required to buy the carbon credits on about 30 per cent of its emissions from flights into and out of the EU.

"We anticipate that this will have some impact on fares, though we have not yet finalized our policy," she said. (mtq)

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