Delta Adds USD$3 Surcharge On US-Europe Fares

January 4, 2012

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Delta Air Lines said it has added a USD$3 surcharge each way on fares purchased in the United States for flights between the US and Europe, a move that would help offset the cost of the EU's new Emissions Trading Scheme.

Delta is the first major US airline to raise the price of US-to-Europe flights since the European Union's carbon law kicked in on Sunday. Europe's highest court last month backed the controversial EU law to charge airlines for carbon emissions on flights to and from Europe.

A spokesman for Delta said the surcharge was added on January 2, but he declined to say whether its purpose was to shift the burden of the EU requirements to its customers.

It remains to be seen whether other carriers will match the Delta surcharge. Unmatched surcharges and fare increases can fail if rivals do not launch similar price increases.

"When airlines raise prices they're testing two things: the appetite of their competition and the appetite of consumers," said Rick Seaney, chief executive of Farecompare, which tracks air fares. "If either one of these two baulk, they typically have to roll back those increases."

Airline experts have said US carriers must add the cost to ticket prices or risk eroding their margins on trans-Atlantic flights.

Seaney said he was not aware of other carriers that have matched the Delta surcharge. Antitrust laws prevent US airlines from publicly discussing their future pricing.

Germany's Lufthansa, however, told passengers on Monday to brace for higher ticket prices because of the EU scheme to tackle climate change.

Under the EU plans, airlines touching down or taking off in the 27-nation European Union and three neighbouring nations must account for their CO2 emissions.

The United States, China, India and others have attacked the scheme, saying it infringes their sovereignty. They argue that the EU should not act alone. Some have warned of counter-measures.

Airlines for America, the US airline industry group that challenged the EU law, said it was reviewing its legal options. The group has estimated that the emission law could cost the US airline industry USD$3.1 billion between 2012 and 2020.

Other industry experts say it will be difficult to gauge the overall impact of the scheme.

"There's not a question that our airlines are doing things to prepare for the obligation," said Nancy Young, vice president of environmental affairs for Airlines For America, in an interview on Friday.

"Our airlines have shown by their actions that they are respecting the rule of law," Young said. She said carriers have invested money in measuring their carbon emissions on flights to and from Europe.

Young declined to speculate on whether carriers were likely to pass the new cost on to passengers immediately. She said some global airlines are considering whether it is feasible to avoid landing in Europe during some of their connecting flights to dodge the EU charge.

"You're seeing airlines are looking into that," she said.

The US airline industry is struggling to maintain its financial footing after a years-long downturn that has been exacerbated by volatile oil prices.

Airline capacity cuts in recent years have enabled them to charge more for tickets, but at least five recent attempts to raise fares have failed since October, according to data from Farecompare.

(Reuters)