Air fares are set to rise across Europe as airlines fund the cost of cutting carbon emissions, the boss of British Airways owner IAG warned.
Switching to cleaner, more expensive sustainable fuel would “have a big impact” on the industry and put some people off flying, chief executive Luis Gallego told the Financial Times.
“Flying is going to be more expensive. That is an issue, we are trying to improve efficiency to mitigate that, but it will have an impact on demand,” he said.
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Gallego added that European airlines could become less competitive because of the bloc’s tough net zero targets, which include a requirement for six per cent of jet fuel to be from sustainable sources by 2030.
“We agree with decarbonisation . . . but I think we need to do it in a consistent way worldwide not to jeopardise European aviation,” he said.
Sustainable aviation fuel (SAF) is made from a range of non-fossil fuel sources, from waste cooking oil to crops, and can emit 70% less carbon dioxide than traditional jet fuel.
But less than one per cent of total aviation fuel consumption last year was from sustainable sources — meaning it is far more expensive than jet fuel.
IAG used 12% of the world’s SAF last year across its five airlines, which include BA, Iberia, Vueling and Aer Lingus.
Airlines have called for more government support in the UK and EU to increase the supply of SAF and drive down costs for consumers.
“The reality is we do not have [enough] SAF, and the SAF we have is very expensive,” Gallego told the newspaper.
He also pointed to the rising costs of carbon emissions under the EU’s emissions trading scheme, as the free allowances given to airlines are reduced.
Lufthansa Group last month became one of the first airlines to announce a surcharge on tickets to fund cleaner fuels and decarbonisation.
Gallego was speaking after European regulators gave conditional clearance for Lufthansa’s acquisition of a 41% stake in Alitalia successor ITA on Wednesday.
He welcomed the decision, which he hoped was a sign that regulators would also give the green light to IAG’s proposed takeover of the Spanish carrier Air Europa.
“I see that this is positive news, because it means that the European Commission sees the value of consolidation, to have a stronger airline industry in Europe,” he said.
Gallego also suggested that IAG could expand outside Europe for the first time, including by buying a South American airline to tap into demand for flights between Europe and South America.
A bid for Portugal’s national airline TAP was another possibility, Gallego said, adding, IAG “always has other options on the radar” if the Air Europa deal is blocked in Brussels.