What Would an EU Aviation Fuel Tax Mean?

The EU is considering a tax on aviation fuel. Airlines would pay a tax on aviation fuel purchased within the EU, with a rate of about 0.33€ per litre (1.24€ per gallon) being suggested. Although the EU apparently already calculated that the tax would lead to a 10% drop in air-travel around the EU, I thought it would be interesting to explore the effects in more detail.

Price of Long-Haul Flights to/from Europe

Long haul flights consume enormous quantities of jet fuel, and the taxes could add over 90 000€ to the cost of fuelling an Airbus A380 for very long-haul routes. However bearing in mind that most routes are shorter and that the tax would not apply to the EU-inbound flight when the aircraft would been fuelled outside of the EU, we might expect an increase per passenger of 100-200€ for a return flight in economy class.

Interestingly, there are a handful of long-haul flights technically within the EU, such as Paris to La Reunion (9370km/5830mi), which would then be subjected to the tax when refuelling the aircraft at both ends. The price of these flights would rise more significantly.

Price of Inter-European Flights

Here there is a huge variation depending on the length of the flight, the efficiency of the aircraft and the capacity of the aircraft. An almost-full Boeing 737-800 on a 45 min flight might only see an increase of 15€ on the per passenger return ticket price, whereas a 60% full Bombardier CRJ700 flying a two hour route would see an increase of over 60€ per passenger for a return ticket.

Outlook for Airlines

Given the recent bankruptcies of Thomas Cook, Adria, Air Berlin and Monarch and the obvious financial difficulties several other airlines find themselves in, it seems unlikely that the EU will find the political willpower to push through these changes in the short term.

Nevertheless an eventual EU tax on aviation fuel would have an uneven effect on European flights:

• Flying on thin routes with small aircraft within Europe would become more expensive. Many of these routes would probably close and some regional airlines too. Interestingly the EU governments currently subsidise some unprofitable regional flights, so a solution would need to be found if these routes were to be kept.
• Old aircraft with high fuel consumption would no longer be competitive and would need to be retired. Legacy airlines with old fleets would need to invest in new aircraft.
• The very cheapest parts of the low cost market in Europe would cease to exist, with even the most competitive airlines having to raise the price of their cheapest tickets by around 100% to start at 25€ for one-way flights. This would lead to a downturn in bookings.
• Long-haul travel to destinations outside of Europe would become significantly more expensive and airlines would doubtlessly see a dip in demand for leisure travel.
• Business and first class travel would probably be largely unaffected since the price increases are relatively small in comparison to the prices already paid for short notice or flexible fares. Airlines with lots of business and first class travellers would not worry.

Notes on Price Calculations

Price impact was calculated using the following values:

Note the passenger count is the actual number of passengers carried, not the aircraft capacity and the fuel quantity only refers to the actual fuel consumed on the route, not the fuel at aircraft start.