Key Takeaways

• • Lufthansa becomes the second airline in Europe to introduce a surcharge to comply with various EU mandates.
  • It has levied an environmental cost surcharge to cover the cost of RefuelEU, EU ETS and CORSIA obligations
  • This surcharge equates to €21-24 per ton of carbon.

• The surcharge is likely more than sufficient to cover the obligation.
• Given that the Lufthansa Group ranks among the top five airlines globally by revenue, other airlines may emulate this approach.

Lufthansa becomes the second airline in Europe to introduce a surcharge to comply with various EU mandates

On 25 June 2024, the Lufthansa Group introduced an Environmental Cost Surcharge on all its flights departing from the European Union, the UK, Norway, and Switzerland. It is pertinent to note that intra-EEA (European Economic Area) flights have been under the scope of the EU ETS since 2012. The surcharge also applies to all its brands/subsidiaries, such as Austrian Airlines, Brussels Airlines, Edelweiss, etc. The surcharge will be levied on departures on/after 1 January 2025.

The surcharge is added to each ticket on a distance and cabin class basis. Accordingly, the surcharge is levied as follows:

Table 1: Emission Surcharges (in EUR)

Source: Introduction of an Environmental Cost Surcharge as of 26 June 2024 | Lufthansa Group

It is pertinent to note that this is not the first time an airline has levied such a surcharge. In 2022, due to a French law mandating a 1% SAF requirement, Air-France KLM levied a similar surcharge. Travelers in economy class paid between one and four euros more, while those in business class paid between 1.5 euros and 12 euros, depending on the distance to their destination.

Covering the cost of RefuelEU, EU ETS and CORSIA obligations

According to Lufthansa, the primary driver of this cost increase is the need to comply with various EU mandates, such as the Sustainable Aviation Fuel (SAF) mandate as part of RefuelEU Aviation, and their obligations under the EU Emissions Trading System (EU ETS) and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

As per the press release, compliance with these regulations requires significant investment in sustainable aviation fuels, which are more expensive than conventional fuels. Additionally, the EU ETS necessitates the purchase of emissions allowances, which imposes a further financial burden on the airline.

Since 2012, flights within the European Economic Area (EEA) have been required to surrender EU ETS emissions allowances to cover their emissions. The application of the EU ETS to flights outside the EEA was initially suspended in 2012 to allow the International Civil Aviation Organization (ICAO) to develop a global market-based measure i.e. CORSIA. As CORSIA has taken shape through its pilot phase; relevant provisions have been implemented into EU law to account for extra-EEA aviation emissions.

Additionally, in line with other modes of transport, such as maritime via the FuelEU Maritime Regulation, the EU also notified the RefuelEU Aviation regulation, which mandates a specific percentage of the availability of sustainable aviation fuel (SAF) in every EU airport. As of today, this requirement stands at 2% from 1 January 2025, 6% from 1 January 2030, to 70% in 2050 in a phased manner.

Surcharge equates to €21-24 per ton of carbon

We converted the emission surcharge on each flight based on the rates in Table 1 into a cost of carbon equivalent.

To simplify our calculations, we assume that an Airbus A320neo and an Airbus A380 are serving short/medium-haul flights and long-haul flights, respectively.

Further, it is crucial to consider the seat configuration, as the emission surcharge varies by cabin class, as shown in Table 1. This ensures accurate revenue projections by accounting for the different surcharges applied to economy, business, and first-class seats on both short/medium-haul and long-haul flights

Table 2: Estimated total surcharge generated per flight

Source: cCarbon calculations, assuming a 70% Passenger Load Factor.

We also derive the emissions over a theoretical 2000 km (short/medium-haul) and 5000 km (long-haul) flight using EUROCONTROL’s 2023 version of the Small Emitters Tool (2023-SET).

Table 3: Emissions from both types of flights as per calculations from 2023-SET

Source: cCarbon calculations

Given our results from Table 2 and Table 3, we can derive an equivalent surcharge per ton of emissions by dividing the total emissions per flight by the total surcharge cost per flight (Data in Table 2 divided by data in Table 3).

Table 4: Surcharge per ton of CO2e for short/medium and long-haul flights

Source: cCarbon calculations

Expectedly, a long-haul flight would have a lower surcharge per ton as long-haul aircraft like the Airbus A380 might be more efficient overall in terms of emissions per kilometer traveled compared to smaller, short/medium-haul aircraft like the Airbus A320neo. Additionally, the highest fuel burn rate is during taxiing, take-off, climb, descent and landing.

The surcharge is likely more than sufficient to cover the obligation

Table 5: Comparison of surcharge vis-à-vis obligations (in Euros/Ton)

Source: cCarbon data, SAF and CORSIA – Dueling Pathways for a Sustainable Aviation Industry – cCarbon Analyst Note, June 2024, Finding the Flight Path – Sustainable Aviation Fuel vs CORSIA Offsets – cCarbon Webinar, June 2024

At first glance, the surcharge may appear higher than the obligations. However, we suspect that the airlines are also factoring overheads associated with managing this obligation and creating systems for the future. As the SAF blending and CORSIA obligations increase, the airlines may also be sensitizing their passengers to these costs. To be able to effectively compete in a crowded airline market, they may seek to create efficiencies elsewhere to counteract these costs. All this remains to be seen.

As industry leaders like Lufthansa set the precedent, more airlines worldwide may follow suit in implementing similar levies to comply with regulations like the SAF mandate for European airlines and CORSIA for international operators.

CC.info Readers Digest:

• Global Sustainable Aviation Fuel Outlook 2030
• Finding the Flight Path – Sustainable Aviation Fuels vs CORSIA Offsets
• EU ETS Demand Supply Outlook 2030
• Charting New Waters: The EU ETS Extension to Maritime Transport
• European Union- ETS Market Outlook
• EU ETS Forecast Dashboard

Analyst Contact:

• Mitul Kaushal (mkaushal@ckinetics.com)