Airlines will try to pass on the costs of European Union carbon allowances to customers and probably fail because there is so much price competition in the industry, said the International Air Transport Association.
“Airlines will try to recover” the cost of allowances, Antony Tyler, chief executive officer of the industry association, said today in an interview in London. It’s naive to think they will succeed, he said, because airlines are largely price takers when it comes to setting fares, rather than price makers.
The EU last week set benchmarks to calculate the distribution of free carbon-dioxide permits among domestic and international airlines when they join the bloc’s emissions- trading system next year.
The EU decided in 2008 that international aviation should become a part of the world’s largest cap-and-trade program after airline discharges in Europe doubled over two decades. U.S. carriers including AMR Corp. (AMR)’s American Airlines and United Continental Holdings Inc. are challenging the carbon plan in court, arguing the EU exceeds its jurisdiction.
The plan is “misguided” because it’s not global and creates market distortions, Tyler said.
The industry’s global sales will advance 6.4 percent next year to $632 billion, according to IATA forecasts. Net profit will fall 29 percent to $4.9 billion, providing a profit-to- sales margin of 0.8 percent, it said.
