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
By Shane McGinley
Wed 04 Jan 2012 11:34 AM

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.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.