IAG Chief Executive Luis Gallego has warned that funding the green transition means "flying is going to be more expensive". Meanwhile, Lufthansa Group has announced an Environmental Cost Surcharge to help with the additional costs of meeting environmental regulations.
Air France-KLM has had a sustainable aviation fuel (SAF) levy of between EUR2 and EUR24 since 2022. However, Lufthansa Group's environmental surcharge, of between EUR1 and EUR72, is also aimed at defraying other green transition costs.
European airlines face a greater range of such costs than most other regions.
As with fuel surcharges, the effectiveness of environmental surcharges in genuinely raising additional revenue is debatable. Price elasticity of demand for aviation probably means that surcharges lead to erosion of the underlying fares.
However, they send a signal to governments and regulators. They may help to stem the tide of taxes imposed on aviation in the name of the environment, but which effectively divert funds away from financing the green transition.
