European Airline Sector "New proposal on EU ETS could weigh into aviation"...

Research evidence excerpt

European Airline Sector "New proposal on EU ETS could weigh into aviation"...

European short haul low cost airlines besides a

potential impact on the cost of buying ETS certificates we don’t see a financial impact.

For the network long haul carriers we do see a financial impact. Below we show the

current carbon that is exposed to ETS. We think capacity exposed to the ETS scheme

would go up materially. In terms of carbon impact though we do not think this is

proportionate to the capacity exposed given on a per unit basis flying longer distances

results in lower per unit exposure and burn. Furthermore, we will see more efficient fleet

enter over time. We will need to get more of a steer from the airlines over results season.

European airports - potential consequences

Using Germany as a centre point we calculate a radius of 5,000km includes Central and

North Africa, Central Asia, Middle East but it excludes most of North America and Asia

routes. For airports we see two headwinds to traffic if the new rules are implemented in

2029 as planned: i) headwinds to traffic growth/slightly lower traffic on direct routes

affected to reflect demand elasticity - we expect a marginal impact; ii) lost transfer traffic

for some of the intercontinental routes as in some cases re-routing options may be more

economical. Overall our first analysis suggests the impact is likely to be of moderate

headwinds.

For what concerns the European airports we note Frankfurt has the highest proportion

of transfer traffic (>50% of total traffic) with around 2/3 of this traffic touching

intercontinental routes. Nevertheless the exposure to Africa is only ~4-5% of total

capacity and Middle East ~5%, limiting the proportion of routes that will be impacted by

the incremental ETS charges.