Flying will become “a thing for the rich and privileged” as airlines face significant tax increases on jet fuel, with some destinations set to become more expensive than others, according to Jet2’s boss.
Speaking at the Jet2holidays conference in Turkey this week, Jet2 CEO Steve Heapy said the aviation sector produces less carbon dioxide than other sectors, including meat production, but airlines still have to pay more carbon taxes.
For decades, a tax exemption on jet fuel has allowed airlines operating in Britain and the EU to keep prices artificially low. Now a growing list of environmental taxes are being imposed on aviation as governments work towards 2050 net zero targets.
What exactly will change and which destinations will become more expensive?
Carbon permits and a ‘huge’ tax increase
Under the UK Emissions Trading Scheme (ETS), the cost of a permit per tonne of carbon dioxide had risen by a factor of almost 16 in just five years. Heapy said Jet2 eliminates about 2.2 million tons of CO2 per year. In 2018 the permit cost £5 per tonne. Today that has risen to £78 per tonne, he said.
The aviation industry may have been subject to tax exemptions on jet fuel until now, but this could be about to change: Heapy warned that the introduction of a “huge” EU-wide tax on jet fuel could mean higher ticket prices for consumers.
“Imagine your tax rate goes to 70 percent – that’s what’s going to happen to jet fuel,” he warned this week.
The increase in airfare is already underway and there are many factors at play, including renewed demand for travel post-pandemic, airlines making up for lost revenue, an increase in air passenger rights (APD) and a spike in oil prices as a result of the Russian crisis. invasion of Ukraine and, more recently, the war in the Middle East.
Change is already happening. Earlier this year, easyJet announced that average fares (from January to March 2023) had increased by 31 percent year-on-year. Johan Lundgren, the budget airline’s CEO, said the increase was due to significant cost increases, particularly the price of jet fuel. Ryanair’s fares rose by 20 percent in 2022 and by another 15 percent in 2023.
Ryanair will slim down routes in Portugal
Heapy’s words come just days after Ryanair said it would reduce its services from Britain to a number of destinations in Portugal due to higher airport charges.
“We have recently fallen victim to the ANA/Vinci monopoly, which has increased airport charges extraordinarily for next year,” said Ryanair CEO Michael O’Leary. ANA Aeroportos de Portugal manages 10 Portuguese airports.
Ryanair closed its base in Ponta Delgada in the Azores for this reason this winter and warned that a further reduction in flights to Portugal could be in store.
“If ANA continues with these latest monopoly price increases until 2024, Ryanair plans to downsize one of its two aircraft in Madeira and significantly reduce our flight schedules to and from Faro and Porto for summer 2024,” O’Leary said.
Portugal will increase its airport charges by an average of 14.6 percent in 2024, which equates to approximately €1.60 per passenger, per flight. This, O’Leary said, would “damage Portugal’s competitiveness” and “crowd out much-needed tourism growth”.
Madeira could suffer a double blow. Because it is located in the outer regions of the EU, it has always been exempt from the EU Emissions Trading System levy. However, this exemption will be lifted as of January 1, 2024 (for flights from other EU member states), which will likely lead to higher ticket prices. The Canary Islands will also be affected by this change. Heapy predicts this could increase the cost of flying to these destinations by £25.
The beginning of ‘green fuel’
The introduction of Sustainable Aviation Fuel (SAF) could contribute to an increase in flight costs. The topic was in the news this week, when Virgin made its first transatlantic flight using the jet fuel alternative.
Willie Walsh, director general of IATA and former CEO of British Airways, said: “It will mean higher rates because sustainable aviation fuel is more expensive than traditional aviation kerosene. And if we make the transition to net zero, it’s going to cost some money.”
There are additional concerns about the scalability of SAF, with suggestions that it could never be applied to more than a limited number of flights.
The increase in airline ticket prices will not only affect the tourist’s wallet, but also the destination itself. A 2022 Deloitte report entitled ‘Flying Towards a Sustainable Future’ predicted that Spain’s emerging set of aviation tax measures could mean a loss of as many as 11 million international tourists per year.
There are certain destinations that already cost more to reach.
Based on the average ticket price between 2017 and 2022, the cost of flying from Britain to Istanbul increased by 69.4 percent, according to OAG data. Other cities that have seen a significant increase include Amsterdam (31.1 percent), Rome (33.3 percent) and Santander (60.9 percent).
The overall cost of package holidays is also increasing. Which one? A comparison of average package holiday prices in six popular destinations shows that a week’s holiday will increase by an average of 30 percent year-on-year in 2023 – to £867 per person. A seven-night trip to Italy cost an average of £616.68 per person last year. This year the same trip would cost £757.53 – an increase of 23 per cent.