Carbon emissions policy setback: EU suspends scheme

THE European Union (EU) has succumbed to international pressure to suspend the Emissions Trading Scheme (ETS) that it introduced on January 1 this year. The ETS rules that airlines that land at EU airports will have to pay a carbon emissions tax.

Among the chief protesters are the United States, China and India – the last two countries actually banning their airlines from participating in the scheme.

Imperfect as the ETS may be, its suspension is a setback in the efforts to combat pollution and global warming. The EU commission on climate change had earlier said it was going ahead with the implementation only because international agencies such as the International Civil Aviation Organization (ICAO) had failed to come up with any proposal. There is little evidence that while airlines brag about their commitment to the green effort, they are keen on any framework that would add to their operating costs, in spite of the EU’s argument that the ETS would add but only between four and 24 euros (US$1.27) to the price of a long-haul flight. To the airlines, it is 17.5 billion euros (US$22.3 billion) collectively over eight years.

EU Climate Commissioner Connie Hedegaard, Courtesy reuters.com

The EU is prepared to allow the ICAO another go at working out an acceptable framework, with EU climate commissioner Connie Hedegaard saying, failing which the ETS would be reintroduced a year from now. Having taken a step backward, it may be difficult to re-implement the veiled threat in the absence of a compromised solution emerging. The game belongs to ICAO – no doubt an unenviable task – so long as it can demonstrate progress, a little each time even if it is the mere act of meeting and agreeing to disagree, and the commitment to continually meet again to try and resolve previous disagreements.

Meantime, will Australia succeed where the EU has failed? The proposed date of its implementation of a similar scheme by July this year has come and gone. And lest it be forgotten, Qantas and Virgin Australia announced early in the year that they would be adding a carbon tax to the fare. Travellers would be wise to check out the component costs of their tickets – another controversial policy that makes you wonder why so many airlines are finding it so hard to be honest about what they are charging their customers for!

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Qantas goes green

THE red kangaroo is flying green. It has announced a feasibility study to commence in May into the potential for an Australian sustainable aviation fuel industry, backed by funding from the Australian government.

This was heralded by the airline operating Australia’s first commercial flight powered by biofuel on April 13. The flight operated from Sydney to Adelaide and back. To show the Qantas group’s commitment to using sustainable aviation fuel, two Jetstar flights also flew, powered by the same fuel, from Melbourne to Hobart and back on April 19.

The biofuel is a 50:50 blend of biofuel – derived from recycled cooking oil – and conventional jet fuel certified for use in commercial aviation. Its ‘life cycle’ carbon footprint is said to be around 60 per cent smaller than that of conventional jet fuel.

Recognizing the global call to reduce carbon emissions and the pressure on airlines to meet carbon emissions standards or pay a penalty for non-compliance – beginning with the European Union’s carbon emissions trading scheme, and a similar scheme soon to be introduced in Australia – Qantas chief executive said: “Alternatives to conventional jet fuel are vital to the Qantas aviation industry meeting ambitious targets for carbon-neutral growth and emissions reduction.” The Qantas study would tell how that could be achieved in Australia.

It is not really a matter of choice. Qantas makes an early move, and shows that action speaks louder than words.

Qantas raises fuel surcharge yet again, spinning the same stock explanation

AREN’T we tired of listening to the same stock explanation every time an airline announces increases in the fuel surcharge? The announcement is usually prefaced by how much the prices of jet fuel have gone up, and a reminder to the public that fuel makes up the biggest component in an airline’s operations. And before you call the move unreasonable, the airline will have you know that the increase never fully covers the full impact of the soaring fuel cost, in fact barely.

The latest round of known increase comes from Qantas, which will raise the surcharge for international flights on April 12. Yes, yet again, making it an annual affair. And it is the same story that has been used before by all and sundry in the industry.

You hear it so often that you simply go “blah” these days. You no longer care to question or seek to understand. Raising the fuel surcharge is in reality increasing the fare, because ultimately it is the bottom-line number that matters – the full fare of the ticket to include all taxes and surcharges.

Short of more innovative methods to prop up the business, airlines are falling back on surcharges. Qantas had already in February imposed a carbon tax – to compensate for penalty costs imposed on the airlines by the European Union for failing to meet set carbon emissions standards vis-a-vis a carbon emissions trading scheme.

So much about such charges being cost recoveries, they are really revenue earners. The downside is that they may reduce travel or cause a loyalty shift. For Qantas, its home clientele for international operations has fallen to 20% compared to its stronger domestic market of 65%. More Australians are travelling with competitors such as Emirates and Singapore Airlines, therefore making it more expensive is not going to help.

Pressure on European Union to rethink carbon trading scheme

AN apparent move by China to block Airbus deals in retaliation against the European Union`s implementation of the carbon emissions trading scheme to all airlines operating to and from the EU territory has given gumption to Airbus to plead for a rethink by the authorities. The Airbus petition has the support of six European airlines, namely British Airways, Virgin Atlantic, Lufthansa, Air France, Air Berlin and Iberia.

China has already banned its airlines from participating in the scheme – which poses a headache for the EU which has so far shown no willingness to concede although the implementation date was January 1. While the EU could prevent Chinese carriers from landing within its territory, such action would have political ramifications.

The United States is also opposed to the scheme and some other countries too have voiced their displeasure but would comply.

Australian flag carrier Qantas along with compatriot Virgin Australia have already announced a carbon surcharge to be added to the ticket fare, perhaps also largely in preparation for a similar carbon trading scheme to be implemented in Australia by July.

Singapore Airlines chief executive Goh Choon Phong said: `We will comply but we don`t think it is an equitable measure.”

The external protest is now boosted by pressure from within. Airbus and its supporters are citing possible job losses. Airbus chief executive Thomas Enders said: “The measure is threatening more than 1,000 jobs (at Airbus) and another thousand through the supply chain.”

Does the EU have a Plan B or will the issue go the way of reciprocity the way that freedoms of the air have been negotiated? The unfavourable current economic conditions might provide the EU with an excuse – if it needed one – to placate some key trade partners without conceding its objective. But it is slippery ground. To get back up again may be as difficult, especially when the renewed call for a global solution through an international agency is bound to be plagued with differences that can only stall the process.

Doing nothing is an option, as the EU waits and sees.

Increased fuel surcharge and new carbon tax may reduce air travel

SINGAPORE AIRLINES (SIA) will raise its fuel surcharge from March 8. The increase also applies to SilkAir flights. Qantas has already done so from February for domestic and regional airfares and from February 15 for international flights.

With all the news about how many airlines are reporting fall in revenue because of the rising fuel price, this should not come as a surprise. It is a fact that the price of jet fuel has gone up, and today reached a record level following reports of a pipeline explosion in Saudi Arabia.

SIA said: “The adjustments will offer only partial relief from the higher operating costs arising from increases in the price of jet fuel.” The explanation is not new. It is not an argument to be refuted. The challenge it will face – as will the other airlines that are likely to follow suit – is customer retention in the face of higher fares (including fuel surcharges).

Just as several airlines are reporting improved passenger traffic in January and starting the year on a promising note after the dismal results of the last quarter of 2011, the industry may be faced with another round of travel cutback.

It will cost even more to fly Qantas because the Australian flag carrier will be imposing a new carbon emission surcharge following the implementation of the carbon emission trading scheme by the European Union (EU) in January and a similar plan by the Australian government in July. The fee will be applied on a per sector basis. For domestic and regional flights, based on a carbon price of A$23 per tonne, it will range from A$1.82 to $6.86. For flights operating into Europe, tickets purchased from 15 February will be subject to an A$7.00 carbon surcharge.

Qantas’ subsidiary budget arm Jetstar will also see higher fares.

Virgin Australia will similarly be imposing the new carbon surcharge which ranges from A$3.00 to A$6.00 for domestic flights. The airline, which operates codeshare flights with Etihad Airways from Abu Dhabi to various destinations within the EU, will be adding a carbon surcharge of $3 per passenger from 1 March. However, the fee may fluctuate.

Expect other airlines to follow suit but with the exception of carriers from China, which has banned its carriers from participating in the EU’s carbon emission trading scheme and from raising fares on that account. However that turns out, the cost of air travel is certainly heading north, and this may not be the best of time for airlines to push it without some cautionary discernment.

China defies EU on carbon emissions scheme

CHINA is putting its words into action, banning its airlines from participating in the European Union (EU)’s emissions trading scheme (ETS). This was a course of action voiced by the United States before the scheme was effected, but was then clearly not accorded much respect by the EU authorities which asseverated that they would not bow to pressure by the US.

Would it be different this time? And how would the EU respond?

The EU could call China’s bluff and assert its sovereign right to implement the scheme within the EU. This would mean compliance by airlines that wish to operate to its ports. But barring non-complying airlines, particularly if it is a blanket application to all the airlines, is likely to impact adversely the travel business between the two regions, result in repercussions in other areas and invite retaliation beyond the boundaries of aviation.

China’s move may embolden other nations, so the EU may not find the problem escalating.

On the other hand, the EU can ignore all manner of censure, protest and threat, and allow business as usual until a solution is found. This is not uncommon, particularly in matters of political dispute.

But is a compromise possible?

China said the ETS could cost its carriers 95 million euros (US$124 million). Observers may agree that in view of the present state of the industry, this may not be an appropriate time to implement the scheme. To demonstrate its concern, China has at the same time prohibited its airlines from increasing their fares or adding new charges because of the scheme, contrary to how the affected carriers of other nations would be passing on the additional cost incurred to their passengers. According to the EU, the cost of air fares would rise between 2 and 12 euros per passenger – as if that is the way it should go.

It will be interesting to see what happens next. A way out of the discord is imperative, as it has become too a matter of saving face.

Full-fare disclosure gains momentum

JUST as the United States kicks in a new regulation on January 24 requiring airlines to publish the full fare including taxes and surcharges in their sale pitch, Australia is taking Malaysian budget carrier AirAsia to court for misleading advertisements.

According to the Australian Competition and Consumer Commission, AirAsia’s website did not show the full disclosure fares for some routes out of Melbourne, Perth and the Gold Coast. The commission said: “Businesses that choose to advertise a part of the price of a particular product or service must also prominently specify a single total price.” As a consequence, AirAsia may be fined.

The new rule introduced by the US Department of Transportation (DOT) has already been in force within the European Union (EU) although there, it applies only to EU carriers. Now Canada is working on a similar implementation which Canadian carriers have argued is unfair because foreign carriers are excluded. Quite rightly so, why should any airline targeting the same market be exempt?

More disturbing is how all these arguments actually lend weight to the new rule to protect the right of the consumer. Indeed, are there no ethical considerations in the business of making money?

After the EU, North America and Australia, it should be expected that the rule should gain momentum in other regions, especially if it applies to all carriers. The absence of universal applications is apt to raise concerns about unfair competition. So, recalling all that fuss about not leaving the carbon emissions issue to the International Civil Aviation Organization (ICAO) to come up with a global procedure (instead of the EU going ahead on its own to introduce the carbon emissions trading scheme in this specific case), this may be an opportunity for international aviation agencies to not later regret being sidelined.