Fuel prices and the ETS dilemma. The troubles facing air traffic

The aviation industry is facing one of the most challenging periods in its history. The price of fuel, which accounts for up to 35 per cent of an airline’s costs, has doubled since the outbreak of the war in the Middle East. Prices have risen from $750 per metric tonne to levels consistently above $1,500 per metric tonne. Airlines have hedged against fuel price fluctuations for 6 or 9 months, but it is clear that the prolonged nature of the conflict is causing these hedges to expire.

It is precisely for this reason that Michael O’Leary, Ryanair’s chief executive, has warned that prices could even rise by 20 per cent next year, when the effects of fuel prices will be fully felt in the airlines’ accounts. In addition to this, we are already seeing some route adjustments by carriers during the winter period, as well as the restructuring of the weaker airlines.

There is also another factor driving up costs for airlines, though in this case only European ones. We are talking about the ETS, the mechanism used to put a price on pollution, but which is having an increasingly significant impact on European carriers. We are talking about figures in the region of hundreds of millions of euros for the largest airlines.

With the price of emissions at over 80 euros per tonne, the impact is therefore very significant for European carriers. From 2026 onwards, airlines must purchase 100 per cent of their ETS allowances, as the free allocation period has come to an end. There is also an increase in costs for airlines, relating to SAFs (sustainable aviation fuels), which will be passed on in some way to European travellers.

By 2030, the use of SAF for flights will reach 6 per cent, but this fuel costs up to five times as much as traditional fuel (which is already very expensive). It would make sense to use ETS proceeds to try to bring down the cost of SAF by extending allowances – that is, ETS allowances allocated free of charge to airlines using eligible sustainable fuels – but the Commission seems to be at a standstill on this issue.

Returning to the ETS, it is clear that the system is currently affecting air traffic and, consequently, European passengers; however, this also creates a potential competitive imbalance between European and non-European hubs. This competition is becoming increasingly fierce, given that we have airports in many parts of the world that continue to grow and have ever-increasing capacity. In Italy, airports are ready to make new investments to make our airports increasingly attractive, but they are often held back by bureaucratic issues.

We therefore have increasingly significant issues on the table. The rise in costs for airlines is linked to the sharp increase in fuel prices, but also to the increasingly expensive ETS scheme, as well as the obligation to have ever more SAF. These cost increases coincide with the urgent need to expand airport capacity, as despite recent events the number of passengers in Italy has risen from 163 million in 2023 to 205 million this year.

Growth may well slow down, but we need to be prepared for the increase in global traffic we are currently seeing and ensure our airports are ready to welcome ever-increasing numbers of international tourists.