Travel will be greener but more expensive: Lufthansa raises prices as a result of new regulations

If you decide to travel on holiday with German airline Lufthansa, your tickets will bae slightly more expensive.This is because it has now introduced a surcharge of up to €72 for tickets departing next year. You'll pay extra if you're travelling from countries in the European Union (EU) or Britain. This initiative is to cover increased costs resulting from new EU environmental regulations.

Price increases

Lufthansa (LHA) has announced the introduction of an Environmental Cost Surcharge (ECS) in an attempt to cover the additional costs resulting from new EU regulatory rules. According to the carrier's official release, the surcharge applies to all flights from EU countries, including the UK, Norway and Switzerland purchased from 26 June 2024 with departures from 1 January 2025. The amount of the surcharge depends on the route and the fare, with short- and medium-haul flights costing between €5 and €7. For long-haul flights, passengers will pay between €18 and €36 more for business class and €72 more for first class. The regulation applies to almost all Deutsche Lufthansa subsidiaries, with the exception of Eurowings. According to Reuters, Lufthansa CEO Carsten Spohr has previously warned that achieving the targets will be challenging and will be reflected in higher prices for passengers. Apart from the current fare surcharge, no further increases are expected.

This is due to regulations

Lufthansa explains in its report that the surcharge is to cover the cost of new requirements for Sustainable Aviation Fuel (SAF) quotas, which will apply from the beginning of next year. The SAF requirements, under the European Union's "Fit for 55" program, mandate an increasing proportion of SAF at airports, from 2 percent in 2025 to 70 percent by 2050. The new regulations join other existing regulations that carriers must comply with, such as the EU Emissions Trading Scheme (EU ETS) and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The EU ETS regulatesCO2 emissions in aviation through certificate trading, while CORSIA, offsetsCO2 emissions in international aviation through the purchase of certificates, which in the 2024 to 2035 period would be 85 percent of 2019 emissions.

Different positions

Air France-KLM (AF) has taken a similar stance on fuel regulations, introducing a surcharge of between €4 and €12 as recently as January 2022. However, according to Reuters, the airline is considering other measures with potentially higher charges. An Air France-KLM spokesman told the news agency that the surcharge would apply to all flights outside Europe as well, in order to cover expenses transparently. Charges were also introduced by the Singapore government earlier this year. The opposite position has been taken by UK low-cost carriers easyJet (EZJ) and Wizz Air (WIZZ), which are not planning similar measures. EasyJet is focusing on hydrogen technology as part of its sustainability efforts, while Wizz Air is calling on governments to focus on financial support for the airline industry so that passengers are not affected. American United Airlines (UAL) and Southwest (LUV) will also be able to fly without additional surcharges. Despite the fact that some companies have decided not to burden their passengers, experts are inclined to believe that other airlines will join Lufthansa at a later stage.

 

Investing in a greener future

Lufthansa has been investing heavily in a greener future for several years with the aim of reducing carbon dioxide emissions and achieving zero emissions by 2050. This goal, confirmed by the SBTi (Science Based Targets Initiative), makes Lufthansa the first European airline with a science-based CO2 reduction target in line with the goals of the 2015 Paris Climate Agreement. Other initiatives include using aircraft that consume 30 percent less fuel than older models, improving air traffic management and fuel efficiency, and offering sustainably produced food in eco-friendly packaging. In addition, the carrier is giving passengers the opportunity to get involved in sustainability efforts through green fares on European and North African flights. It also supports research and development in SAF and related technologies and uses artificial intelligence to improve climate research and improve climate and atmospheric models.

Actions are failing

Although flying has been back in full swing for some time after the pandemic period, this has not reflected too positively on the company's stock. The company's stock market value is currently hovering near all-time lows from November 2022, when it stood at EUR 5.42 per share. Compared to the 5-year high it reached in November 2019, this represents a decline of more than 68 percent. The stock has gone through a relatively volatile period, briefly breaching the €10 per share level in March and April last year, with the value standing at €5.69 per share on 26 June 2024.* The company's market capitalisation stood at $7.28 billion (€6.81 billion), down more than 31 per cent year-on-year, according to Companiesmarketcap.com.*

Snímek obrazovky 2024-07-08 v 11.12.43

Lufthansa share price development over the last 5 years (Source: Tradingeconomics.com)*

Olivia Lacenova, Principal Analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.

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