Future of Travel TFI

Strategy development and forecasting in aviation, travel and tourism

Future of Travel TFI


Policies designed to offset the effects of climate change are an important issue for airlines and tourism destinations. Any price placed on the cost of carbon emissions may have an affect on air fares and on the overall cost of travel.

The extent of the impact however requires assumptions as to increases in oil prices or the carbon price, the share of airline costs accounted for by these items, the amount of the cost increase passed on to consumers through higher fares and/or surcharges (which is less in a competitive or price-sensitive market) and the impact of the consequent price increase on passenger demand.

To add to the complexity, the question will be to what extent do the various approaches overlap and exist side-by-side, as opposed to being part of a coordinated global system.

EU: Emission Trading Scheme

The European Union (EU) Council adopted a directive on 24 November 2008 that included aviation activities in the EU greenhouse gas emission allowance trading system. All flights starting and/or landing in Europe (including intercontinental flights) were to be included in the Emission Trading Scheme (ETS) from 1 January 2012, with some limited exemptions. Airlines would pay a carbon price by purchasing allowances to cover the proportion of the carbon emissions generated by their flights to and from the EU. Virtually all airlines with operations to, from and within the EU fell under the scope of the proposed ETS, including non-EU airlines.

However following strong opposition from a large number of non-European countries the European Commission announced in November 2012 that it would “stop the clock” on the implementation of the international aspects of its ETS to aviation by deferring the obligation to surrender emissions allowances from air traffic to and from the EU by one year. Allowances would not be required to be surrendered in April 2013 for emissions from such flights during the whole of 2012. The system would continue to cover emissions from flights within and between the 28 EU member states as well as Iceland, Liechtenstein and Norway.

In October 2013 the International Civil Aviation Organization (ICAO) Assembly agreed to develop a global market-based mechanism to address international aviation emissions by 2016, and to apply it by 2020. In response the ETS was amended for the period 2013-2016 to cover only emissions from flights between aerodromes in the European Economic Area (EEA). Under the amended regulation airlines operating within the region are required to report 2013 aviation emissions by 31 March 2015 and to surrender a corresponding amount of allowances by 30 April 2015.

The ETS charge is levied on the carrier, not the passenger. Individual airlines decide how to deal with the additional cost.

UK: Air Passenger Duty

The UK Air Passenger Duty (APD) was introduced in 1994 as an environmental tax, with several increases implemented over the following years. The APD is levied on the passenger with the rate varying according to passenger destination and the class of travel. In 2007 the UK government doubled the APD in a controversial attempt to reduce carbon emissions by discouraging travel.

From November 2009 the APD was restructured around four distance bands instead of two (based on the distance from London to the capital city of the destination country). Passengers flying in economy class to long haul destinations (Band D) have seen the APD rise from £40 in 2009 to £97 by 2014; standard rates have increased over this period from £80 to £194.

With effect from 1 April 2015, the two higher bands of APD for long haul destinations will be abolished, and all long haul flights beyond 2,000 miles will be taxed at the Band B rates of £71 per economy passenger, and £142 for other classes of travel.

In further amendments, the APD on economy flights for children under 12 will be abolished from May 2015, and for under-16s from March 2016.

The APD is on top of the EU Emissions Trading Scheme. For flights from the UK to an EU/EEA airport the passenger is subject to the APD (currently £13) plus any charge the airline may impose to offset costs resulting from implementation of the ETS.

Other European Taxes

Three other major EU countries levy some form of air passenger/travel tax; Germany, Austria and France. The Netherlands abandoned its air travel tax in 2009. The Irish tax was abolished from April 2014.

  • Germany’s departure tax was introduced in 2011, branded as an environmental initiative and reportedly in place until the commencement of the EU ETS. Current levels of tax vary from €7.50 per passenger for domestic and inter-Europe flights, to €23.43 for medium-haul and €42.18 for long-haul services.
  • The Austrian Air Transport Levy charges per passenger are €7 for short-haul, €15 for mid-haul and €35 for long-haul flights.
  • The French “solidarity tax” ranges from €1 for a short-haul economy flight to €40 for a long-haul business flight (with revenues earmarked for development aid).