5 Min Read
HONG KONG/SINGAPORE (Reuters) - China's airlines will refuse to pay any charges under the European Union's new carbon trading scheme, while other Asia Pacific carriers, already battling a weak travel market, are likely to pass on the extra cost to passengers.
The EU's Emissions Trading Scheme ETS.L was launched in 2005 as one of the major pillars of the bloc's efforts to combat climate change. From January 1, all airlines using EU airports are included in the cap-and-trade scheme.
"China will not cooperate with the European Union on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax," Cai Haibo, deputy secretary-general of the China Air Transport Association CATA.L, told Reuters by telephone on Wednesday.
CATA represents the country's four major airlines: flag-carrier Air China Ltd (0753.HK) (601111.SS), China Southern Airlines (600029.SS) (1055.HK), China Eastern Airlines (600115.SS) (0670.HK) and Hainan Airlines (600221.SS).
Chinese airlines would consider taking legal action against the EU over the move to charge for carbon emissions on flights to and from Europe, Cai said, adding they would take their time on this, mindful that U.S. airlines recently lost a legal challenge against the ETS, and given that collection of the tax from airlines will not be until March 2013.
"We are now walking on two legs -- first, we would not rule out the chance of taking legal action and, second, to resort to the government for retaliatory measures. Several departments have been looking into this," Cai said.
CATA estimates the scheme will cost Chinese airlines 800 million yuan in the first year and more than triple that by 2020.
Germany's Lufthansa (LHAG.DE), the world's second-largest long-haul carrier after Dubai's Emirates, warned passengers on Monday to brace for higher ticket prices as it refuses to shoulder the costs of the carbon trading scheme.
The EU says its ETS, which already applies to other industries, is the fairest way to cope with aviation's contribution to global warming and cuts through years of inconclusive efforts to come up with a worldwide alternative.
Hong Kong-based Cathay Pacific Airways Ltd (0293.HK) and some other Asian airlines, facing a sluggish economy and weak cargo demand, said they may impose surcharges or increase airfares to counter the ETS impact.
Delta Air Lines (DAL.N), the No. 2 U.S. carrier, slapped a $3 surcharge each way on tickets for flights between the United States and Europe.
"It's inevitable that increased costs will be passed on to passengers. We will share the details at the appropriate time," said Carolyn Leung, a spokeswoman for Cathay Pacific, whose CEO has said the ETS would add about HK$50 to a ticket between Hong Kong and Europe.
Singapore Airlines Ltd (SIA.L) (SIAL.SI), the world's second-most valuable airline, said it would try to offset the impact of the ETS by improving fuel efficiency and reducing its carbon emissions, which would lower the carbon charges.
"However, we're not yet ruling out any options for recovering the additional cost," SIA spokesman Nicholas Ionides said in an emailed response to a query for this article.
Tony Tyler, director general of the International Air Transport Association (IATA), has said the ETS would cost airlines 900 million euros in 2012 and the industry will not generally be able to pass this on to consumers because the market is too weak.
The IATA forecast a 49 percent fall in 2012 industry-wide profit to $3.5 billion on the back of a weak global economy and stubbornly high fuel prices.
Reporting by Harry Suhartono in SINGAPORE, Alison Leung in HONG KONG, Narayanan Somasundaram in SYDNEY and Edmund Klamann in TOKYO; Editing by Matt Driskill and Ian Geoghegan