Clean air turbulence over Europe

Photo by Michal Janek on Unsplash

The European airline industry is about to become much more exposed to developments in the EU carbon price.

Up until now airlines have been cushioned from the full impact of meeting compliance; policymakers wary of ‘carbon leakage’, global disagreements over the cost, and state support for national champions have all been used as arguments to shield airlines from the full cost of their emissions.

The next few years should give a strong insight into how these companies will react as free allowances are removed. That’s important because it might give us a clue as to how industrials will respond when their access to free allowances are taken away by the middle of the next decade.

The financial performance of the airline industry and individual airlines has been closely linked to the price of jet fuel. As carbon becomes a greater proportion of their operating costs, the hedging and investment strategy of the airline, coupled with their ability to pass costs onto the end consumer will become more important in determining margins.