Emirates warns EU tax bill to spur ticket price hikes

Dubai airline warns will ‘almost certainly’ pass on costs of carbon trading scheme to flyers

Emirates said the scheme could see it face charges of up to $719m by 2020

Emirates said the scheme could see it face charges of up to $719m by 2020

Emirates, the world’s largest long-haul airline, has warned passengers to brace for higher ticket prices as it grapples with an EU carbon trading scheme set to cost UAE carriers nearly $1.5bn.

Dubai’s flagship carrier said it expected the plan aimed at capping airlines’ carbon emissions to cost it about $52m this year and well in excess of $650m by the end of the decade.

Abu Dhabi’s Etihad Airways said in August the ETS scheme, which came into effect on Jan 1, could see it shoulder charges of up to €500m ($719m) by 2020.

 “We always try to make our fares as competitive as possible, [but] the additional costs of the programme will almost certainly have to be passed on to customers,” Emirates said in an emailed statement. “In 2012 it will cost the airline over €40m ($52.2m) to purchase additional emissions allowances to comply with the scheme, and well over €500m in the period to 2020.”

The Dubai-based carrier said it has not yet decided how it will manage the cost burden.

Under the EU's plan to put a price on pollution, airlines now have to buy permits to help offset greenhouse emissions from jetliners operating in, to and from Europe.

Airlines will face fines of up to €100 for every tonne of carbon dioxide they emit above a fixed limit; part of an EU bid to cut pollution by five percent through 2020.

The scheme has spurred outrage among global carriers, who say the cost of compliance could run into millions of dollars in an already tough economy. Aviation trade bodies in the US, China, India and others have attacked the scheme on the grounds that it infringes their sovereignty.

Emirates said it would comply with the scheme but was “heartened by the growing, united opposition of some 30 of the world's most important economies.”

The scheme will take a significant toll on the balance sheet of fast-growing Gulf airlines. The region’s largest carriers - Etihad, Emirates and Qatar Airways – have rolled out ambitious expansion plans that include ramping up capacity on their European routes.

The majority of airlines are likely to ramp up air fares as a means of coping with the additional cost burden in a competitive market, said Saj Ahmad, chief analyst at Strategic Aero Research.

“I think it’s inevitable that fares will rise as airlines will have to cover the ETS costs,” he said.

The emissions scheme is seen by some critics as a way to pour new cash into the coffers of the EU as the trading bloc struggles with a widespread debt crisis among its member states.

Ahmad said the scheme could “backfire spectacularly” if Gulf carriers retaliate by shifting their multibillion-dollar plane orders from European aviation giant Airbus to rival Boeing.

“We could see Airbus orders being threatened as a price of retaliation for the ETS costs. As we know, Emirates, Etihad and Qatar Airways all hold big Airbus orders and this may well be used as a trade-off,” he said. “What Europe seems to forget is that GCC carriers can effectively hold Airbus to ransom. Almost a third of the shrinking A380 backlog is solely with Emirates.”

Some 85 percent of the poor-selling A350-1000 orders are split between Etihad Airways, Qatar Airways and Emirates, he added.

The emissions row may come to a head in March 2013, when airlines will be asked to surrender enough permits to cover this year's carbon emissions or else face stiff penalties.



Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

NOTE: Comments posted on arabianbusiness.com may be printed in the magazine Arabian Business

Please post responsibly. Commenter Rules

Posted by: Jon

Add them on to the fares that you charge people flying in from other countries. If I am to book a return flight from Dubai on Emirates it is more expensive then those if I book a return flight from the UK.

Emirates is not competitive in the pricing stakes any more, and the service has dipped considerably as well.

Posted by: Ed B

Emirates should learn to stop complaining. Its for all airlines, and is for good reasons. Especially the comment about being competitive made me laugh. How can Emirates say that. They are one of the most expensive and profitable airlines at the same time... I would expect that the customer expects Emirates to absorb this cost and live with it. In the end, there is competition... we can always choose who we fly.

Posted by: JKC

Ed B, when it comes to airlines complaining, Emirates isn't alone. Every carrier has raised their frustration. Now for the fact that you though carbon tax was good, please explain it to us how good is it. Its only politics, intellectually the carbon tax is no good for anything other than help suffering EU nations pay off their debt.

Posted by: Red Snappa

Just means that more people will take the layover to save money on other airlines in order to get to their destination, if you need a direct flight then everybody has to pay. But put the prices up too much and you'll find loyalty counts for nothing, unless you give septuple points on the card for a flight at top price, so cost of loyalty programme rises too.

Cost of Emirates Holidays to and from Europe will go up of course, tell you what passengers Europe to Egypt are rocketing given all the half price deals, cheap is beautiful in Europe immediately after the festive season.

Posted by: mck

Let us be realistic, all airlines have to deal with this, not just ME carriers, secondly it should be noted that the airlines internally have long decided to increase ticket prices...using the carbon issue as a wonderful excuse. At the end 50 million US over 60 million travellers/tickets is ONE dollar per ticket, anything higher will be another ripp-off by the already most expensive airline on the globe. (paying twice the business class fare compared to any other EU airline is already outrageous....)

Posted by: AleT

Absolutely right, another excuse to raise ticket prices, nothing more.
As for Mr. Ahmed (Strategic Aero Research?) ME hold Europe to ransom!!! the ME countries cannot even speak for themselves when the Iranian hold them to ransom over 10 miles of water.
Every airline has to pay and that is that, if they are not careful the competition/threat to profits is from the ME carriers.

Posted by: Lionheart

Well said mck . The truth is there's always been an uneven playing field with Gulf Airlines having the best of both worlds .
You can buy as many planes as you want but if you're not competitive you won't fill them.
Emirates fares are very very high and people will jusy vote with their feet as we've seen with the influx of people flying Qatar Airways . Emirates is a far better airline but Q.A just trumps them on price.
Gulf airlines have always been bullish about their potential and growth and aircraft acuisition but now we'll see the whinging and moaning . It comes in cycles people and this cycle is coming to an end !

All comments are subject to approval before appearing

Further reading

Features & Analysis
The cost of the US laptop ban

The cost of the US laptop ban

Aviation analysts and airline bosses are warning of significant...

Q&A: The laptop ban and what it means when flying from Dubai and Abu Dhabi

Q&A: The laptop ban and what it means when flying from Dubai and Abu Dhabi

Couldn't a laptop with a bomb inside still pose a danger within...

After all the hype, what's the future for Hyperloop One

After all the hype, what's the future for Hyperloop One

Los Angeles-based Hyperloop One may have struck a deal this month...

Most Discussed