Rising Jet Fuel Prices May Curb Demand for EU Carbon, ICF Says

Rising jet fuel prices may trim airlines’ demand for European Union carbon permits, according to ICF International Inc. (ICFI)

Carriers may cut routes that are marginally profitable when jet fuel prices rise, said Samuel Engel, vice president at ICF SH&E, an airline advisory company.

“Higher jet fuel prices are a shock to the economy,” he said yesterday in an interview at the Aviation Carbon 2012 conference at Heathrow airport.

The EU expanded its carbon market this year to include flights into, out of and within the region. Jet fuel for immediate delivery in northwest Europe has risen 12 percent to $1,057.25 a metric ton since Dec. 19, when it fell to a 10-month low of $948 a ton, according to data compiled by Bloomberg.

Some airlines will probably cut marginally profitable short-haul routes because of carbon trading and fuel costs, Engel said.

AirAsia X Sdn. said Jan. 12 it was cutting 10 weekly services to London and Paris from its hub in Kuala Lumpur, citing costs associated with the European Union emissions trading system and escalating taxes.

EasyJet Plc Chief Executive Officer Carolyn McCall said the economic slowdown will foster mergers as weaker airlines find it “very, very difficult to cope.”

The reduction in capacity resulting from takeovers and bankruptcies will be “good news for the industry,” McCall said at an event at the Aviation Club in London. “There’s no question that there will be more consolidation,” she said.

Lufthansa Plans

Deutsche Lufthansa AG of German currently has no plans to cutback routes, said Aage Duenhaupt, a spokesman in Frankfurt. “There is still a growth plan for this year and we are looking to expand our business with the opening of a new airport in Berlin,” he said today by phone.

“Just because oil prices are up, it is too simplistic to say that routes will be closed,” he said. “Since we are investing in more efficient airplanes, that will make us more more environmentally friendly.”

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net; Rupert Rowling in London at rrowling@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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