Lufthansa to raise fares by up to 72 euros as environmental costs increase

By Joanna Plucinska, Ilona Wissenbach and Tim Hepher

(Reuters) -Lufthansa will add an environmental charge of up to 72 euros ($77) to its fares, the airline group said on Tuesday, joining at least one European rival in doing so as the industry battles to cover the cost of new EU rules on reducing emissions.

Airlines have warned for years that regulations requiring them to use more expensive sustainable jet fuel could drive up costs.

Ticket prices have already surged in recent years in the post-COVID travel boom, raising fears that further increases could start deterring travellers from flying.

Fares will go up between 1 euro and 72 euros, depending on the type of ticket, on all flights departing from European Union countries, Britain, Norway and Switzerland, the German airline group said. Some of the increases are effective from June 26 for departures starting from Jan. 1, 2025 onwards.

It said the charge would "cover part of the steadily rising additional costs due to regulatory environmental requirements" such as sustainable aviation fuel (SAF) made from bio-based materials - regarded as crucial to making flying less polluting.

Lufthansa shares hit an intraday low after the news, but recovered later in the day.

Aviation is deemed responsible for about 2% of the world's emissions but is considered one of the hardest sectors to decarbonise as fuel for flights cannot be easily replaced with other kinds of power.

RIPPLE EFFECTS

European regulators introduced rules that ask fuel suppliers to ensure 2% of fuel at EU airports is SAF by 2025, rising to 6% in 2030 and 70% in 2050, with many arguing these measures will increase costs for the sector.

"I think it is logical to assume that other airlines will follow Lufthansa's lead as it looks to pass on the increasing cost of environmental regulations in the EU," said Dudley Shanley, an analyst at Goodbody.

Air France-KLM imposed an SAF contribution charge in January 2022, it said, adding up to 12 euros on business fares and up to four euros on economy fares at the time. It is now considering broadly similar measures to Lufthansa, a person familiar with the matter said, indicating a charge that could be higher.

"We have a SAF contribution in place, applicable to all flights (not only on departure from Europe) to transparently reflect the additional cost of incorporating sustainable aviation fuel," an Air France-KLM spokesperson said in an emailed statement.

British carrier easyJet, which has focused much of its environmental strategy on carbon reductions using hydrogen technology, said it wasn't planning to follow Lufthansa's footsteps.

"We don't apply legacy carrier surcharges and have no plans to do so," an easyJet spokesperson told Reuters.

Wizz Air also said it would avoid additional surcharges, adding in a statement that "in order to avoid burdening passengers with higher costs we urge governments to provide incentives to enable the aviation industry to achieve its environmental goals more effectively."

In the United States, both United Airlines and Southwest said they don't have an environmental surcharge.

COST WARNINGS

British Airways owner IAG and Ryanair did not respond to a Reuters request for comment on whether they would introduce similar measures to Lufthansa.

IAG shares were down 1.8% at 1527 GMT, while budget carrier Ryanair's extended gains after the news to trade up 2.3%.

Singapore's government also introduced a levy on flight tickets earlier this year to help fund the additional cost of SAF.

Lufthansa CEO Carsten Spohr warned last year the EU targets would be hard to achieve and hinted that higher costs would be passed on to customers.

The price hike, which the airline called an "Environmental Cost Surcharge", will cover part of these costs for 2025 and will apply for all airlines in the Lufthansa group except for Eurowings tickets sold directly by the company, a spokesperson said.

On short and medium-haul flights, the fares will go up by up to five euros in economy and seven for business class.

On long-haul flights, the costs will go up between 18 and 36 euros for business fares and up to 72 euros for first class fares from 2025, Lufthansa confirmed to Reuters.

A spokesperson said the move was not tied to Lufthansa's high labour costs after strikes this year, which led the airline to issue a profit warning ahead of first quarter results.

He added the additional costs weren't expected to go up further for now.

($1 = 0.9321 euros)

(Additional reporting by Paolo Laudani and Shivansh Tiwary; Editing by Mark Potter and Emelia Sithole-Matarise)