Should Airlines Raise Ticket Prices To Fund Sustainability Initiatives?

Investments are starting to roll in as more and more understand not only the urgency in reducing global CO2 emissions but also the growing market potential in decarbonizing aviation technology. However, it will also take an economic commitment from airlines to reach net-zero by 2050. Should the passengers pay for those efforts through raised ticket prices – and are they willing to?

Earlier this week, Air France and KLM announced they were raising ticket prices to help cover the cost of adding more sustainable aviation fuel to their flights. Since January 1st, Air France is obliged, along with all other carriers refueling in France, to use on average 1% SAF to power their flights.

While investment has begun picking up,, SAF production is far from what is needed to bring down prices to levels compatible with airlines’ business models. Thus far, governments seem eager to deal out mandates but not as keen on footing the bill for a pivot towards more sustainable air travel.

What are governments doing?

In September 2021, the Biden administration proposed a Sustainable Aviation Fuel tax credit for the Build Back Better Agenda. Meanwhile, also last year in October, the UK announced a £180m commitment to support domestic SAF production.

An overhaul of the European Tax Directive (ETD) will bring in a minimum taxation rate of €10.78 per gigajoul for fossil-based aviation fuel increasing incrementaly from 2023 to 2033, with SAF maintaining a zero taxation rate.

This brings up a different question on potentially soaring ticket prices. Furthermore, it raises the ethical dilemma of a pay-to-pollute principle where air travel will become accessible only to those who can afford it, fostering greater social inequality. Industry experts are also afraid it will detract from other sustainability efforts.

Willie Walsh, Director General of the IATA, says taxes which result in increased prices will divert money away from decarbonization efforts.

Just how much more expensive will it be?

Filip Cornelis, aviation director at the European Commission’s transport department, says that it is clear that ticket prices will rise as a result of the bloc’s ambitions to make air travel greener.

“We’ve calculated that the SAF mandate on its own will increase the fuel cost for airlines by about 3% by 2030, with an impact on ticket prices of about 1%,” Cornelis said in October last year as quoted by Euractiv.

By the middle of the century, by when the EU will require airlines to use a minimum of 63% SAF, with a specific sub-mandate of 28% for synthetic kerosene. The European Commission expects this to result in an overall increase in price of air tickets of 8%.

Are people willing to pay?

According to a study conducted by researchers from Harvard and the Embry-Riddle Aeronautical University published in Technology in Society in 2019, the higher the reduction in greenhouse gas emissions from the flight, the more customers were willing to pay.

However, when it reached as much as a 15% increase in price, readiness dropped. Perhaps surprisingly, given that long-haul accounts for most of aviation’s emissions, passengers were more willing to pay a higher price for short-haul travel, particularly women.

Reserach shows passengers are willing to pay a premium to reduce emissions – but up to a limit. Photo: Getty Images

In either case, until carrot-or-stick initiatives come to fruition, hopefully resulting in increased supply of SAF and the emergence of other decarbonization technologies at scale, someone has to pay the premium associated with flying more sustainably.

Most additional airline costs trickle down to the end consumer, ie the passenger, anyway, so why should SAF or the financing of other sustainable initiatives be any different? Particularly as it is in the best interest of the planet. At least in the eyes of this reporter, it should be clear by now that time is a luxury we do not have. However, it seems maybe a slightly higher ticket price could just potentially buy us a small amount.

Photo: IATA