Explain the Importance of Carbon Taxes for the Airline Industry

Explain the Importance of carbon taxes for the airline industry. Can Ryanair and British Airways respond in the same way? What is “Carbon Tax”? In the past, polluting was free. Generating pollution has a cost, which is a cost on earth natural environment, our economy and earth way of life. A Carbon Tax changes this. Instead of being able to pollute for free, polluters must pay for a price for every tone of carbon pollution is created. How does “Carbon Tax” affect the flight industry? Industry must factor in the cost of carbon pollution in the business, just as flight companies factor in flight building and labor cost.

Carbon tax has a great deal of importance in the airline industry. In 2008 the EU passed legislation to include aviation in the ETS. This means that from January 2012, overall CO 2 emissions of the aviation industry have been capped: Operators emitting more than their allocated amount of CO 2 will need to reduce emissions or - more likely - procure extra allowances. Therefore all operators flying to and from the EU will have to surrender one allowance for every tone of CO 2 emitted on a flight to and from (and within) Europe. The challenges of the ETS for airlines go beyond the immediate legal obligations.

The costs for emission allowances will effectively introduce an additional commodity price risk into an operator's business strategy. Costs per passenger will increase but whether these costs can be passed through to customers depends upon the competitive position of the company compared with other operators. Increased ticket prices may reduce air travel and bring the substitution effect – Some passengers will choose not to fly as a result of increased fares and may divert to alternative modes of transportation. How does British Airways response to Carbon Tax?

British Airways, the first airline to start a carbon offset scheme back in 2005, has gone live with an upgraded, user-friendly scheme that will enable passengers to offset the emissions from their flight in a one-click process at the time of booking online. British Airways suggests that airline passengers should pay carbon tax to combat climate change. By looking at the responses and speeches from management team of British Airways, the company was putting out the “green” message, and to engage with customers on the environmental issue. Carbon tax also drove British Airways to find new ways to reduce carbon pollution.

For instance, 60 flights to the United States from British Airways will experiment with using Global positioning system (GPS) to track more direct routes and smooth take-offs and landings to avoid wasting fuel. Quicker landings also avoid keeping flight in holding patterns, which has unwanted pollution effects. As aviation companies grapple with high jet fuel prices, the search for alternatives to petroleum will keep British Airways focused on alternative sources of energy in order to remain competitive. How does Ryanair response to Carbon Tax? Ryanair has a “no frills” business strategy, with low cost, high efficiency and low price strategy.

Rayanair opposed the scheme when carbon tax was levied in 2012. The former head of communications, Stephen McNamara claimed that the continuation of this eco-loony tax would damage traffic, tourism, European competitiveness and job opportunities. And Rayanair believes that they are already the greenest in the industry. The price response to the ETS has been for airlines to add surcharges to the cost of flights. Within the Europe, the company has announced a surcharge of 25p per passenger per one-way flight. In theory the ETS should be less burdensome on efficient operators such as Ryanair.

However, the ETS will always represent an additional cost to airlines, and this is likely to be the reason for the opposition of Rayanair to the scheme. Conclusion A carbon tax will spur an airline to be more energy efficient. Efficiency is the foundation of Ryanair’s business strategy. Ryanair already hammer costs at every turn, get as much as they can out of their staff and equipment and provide nothing they don’t have to for passengers as they’re paying for the trip alone and not the experiences. Ryanair has plenty of plans up their sleeve to get even more from their ‘assets’ and tackle reduced emissions.

The likes of removing one or two more toilets from each plane to make way for extra seats, widening the doors on planes to allow passengers to disembark in twos to shortening the turn-around time at airports. There are also talks of having a standing area on flights. These are just some of the increased efficiencies that Ryanair use as a response to a cap on emissions. British Airways and Ryanair are targeted to different market segments. The target market of British Airways is more like loyalty customer who would care about brand image.

In the totally opposite way for Ryanair, their target market is more like price- sensitivity. However British Airways offer the international airlines, and the price of the carbon tax affected by the airway distance, as one of the biggest international airline company, who conscious of their brand image embraced the costs they felt are necessary for the environment. To make sure the company would have a position in the market, the ways that British Airways responses to carbon tax are more likely in long-term strategies, instead of dealing with the price competition.