Churchill once described the US and the UK as two countries divided by a common language. In aviation, Europe and the US are two major international markets divided by a common ocean. And the two markets are oceans apart figuratively, as well as literally, at the moment.
For domestic US travel, the recovery is all but locked in. What is stopping it is not the market or demand, but the ability of airlines (and airports) to gear up for the recovery. True it is that Europe too is having that issue, but there are a few more significant issues that the airlines of Europe face that, so far, at least, have been handled differently in the US.
First, and away and above the most important of these, is sustainability and emissions. In Europe generally, these are articles of faith; the airlines are expected to play their role. The European Commission has determined that the continent, or the parts of it where its remit runs, will be ‘Fit for 55’. No, not 2055, that would be too obvious. Fit for 55 means that industry in Europe will be required to reduce its emissions by 55% by 2030. To make this happen, the Commission is mandating the use of Sustainable Aviation Fuels (SAFs) and market-based measures, such as its emission trading scheme, as well as, for aviation, the International Civil Aviation Organization’s global off-setting scheme, CORSIA. Additionally, the Commission intends taxing fossil-based fuel.
US airlines are also getting on-board the need for SAFs, but without a mandate. But, the availability of SAFs will become a big issue, soon, if there is to be rapid take-up of them. The CEO of Lufthansa recently noted that all of the SAFs available in the world at the moment would not power his airline for four days. Add to the market forces that shortage will induce as well as the costs of taxes and market-based measures European airlines are expected to adhere too and there will, inevitably, be cost implications.
Europe’s Eurocontrol (an inter-governmental agency overseeing European air traffic coordination) is soon to release a study that will show that reducing CO2 emissions by 55% by 2030 (compared to 1990) is within reach. However, even in the most benign scenario of new technologies and available SAFs, as well as industry-driven efficiencies, will likely increase costs to between €32.9 and €45.7 billion by 2030. Counter-intuitively higher levels of revenue, driven by increased passenger numbers, is the most efficient scenario to reach net zero emissions by 2050 as that will allow for investment in new technologies. There is, in other words, a need to distinguish between flying and emissions.
In any event, airfares in Europe are very likely to rise, even assuming benign conditions elsewhere – which is not the case, of course, with the situation in Ukraine exacerbating already rising oil prices and inflation generally. That, at least, is a concern shared across the Atlantic. But the mandating of SAFs and the imposition of taxes has Europe’s airlines feeling under attack.
At the recent Airlines for Europe annual summit, this topic was front and centre. There are a few issues that then come into focus. The first is that of ‘carbon leakage’. The big European full-service network airlines, like all airlines operating from Europe, will be required to pay tax on their legs that start in Europe. For Europe’s carriers, that has two problems. First, for a flight into a hub – say Paris, or Frankfurt – there will be tax to pay, as there will be for all that airline’s competitors, and then if from there, the passenger goes on to, say, Singapore, there will be tax to pay for the long-haul flight as well. If, instead, that passenger flew via Istanbul, or the Gulf, there is unlikely to be a connecting flight to a European hub, and tax to be paid only on a much shorter long-haul sector.
Secondly, Europe, unlike America, struggles with its history as a grouping of fragmented sovereign States, each with their own air traffic control agencies, each with their own industrial issues, procedures and unions. Air traffic control services are both more efficient and cheaper in the US. Not only are flights more expensive to manage in Europe, the fragmentation means that there are fewer direct flights, more holding and more delays, which means more emissions. Europe’s airlines calculate that they can save 10% of their fuel, and thus costs and emissions, with a full and complete reform of ATM around Europe. Europe may have a single aviation market, but after 15 years of trying, it still does not have a single European sky.
Just as all politics is local politics, all aviation is local aviation. What divides the US and Europe in aviation terms is more than an ocean. Europe’s big airlines have particular struggles that are all but invisible in America.