The Australian government yesterday announced plans to raise excise tax on aviation fuel as of next year, slashing airline profits significantly and raising the cost of air travel as result.
The move is part of the build up to an emissions trading scheme which
sets tax according to the carbon price and should be up and running by July 2015. Estimates from Australian Aviation magazine put the actual per litre cost increase in the region of 50% over the next three years.
Domestic airlines will be hard hit by full exposure to the fuel excise and will not have access to transitional assistance or compensation arrangements. However international airlines will be excluded from the carbon price scheme.
The elevated fuel prices will raise operating costs significantly. Referenced by The Australian, Deutsche Bank says that based on a AU$23 (US$24.5) per tonne carbon price, Virgin’s profits would fall 20% in the 2013 financial year while Qantas’s profits would fall by 10.8%. Qantas released a statement this morning saying the carbon price system will have an estimated cost impact of approximately AU$110-115 million on the Qantas Group in the financial year ending 30 June 2013.
Meanwhile, JP Morgan warned that up to 25% of this cost may be passed on to the passengers. Speculation was affirmed by Qantas which said; “In the context of the significant challenges facing the global aviation industry, the Qantas Group will be unable to absorb the additional costs associated with the carbon price and there will be a full pass-through to customers.”
Based on the estimated additional costs, the airline expects that the price of a single domestic flight sector will increase on average by approximately AU$3.50 in FY2013. It added that fare increases will vary depending on sector length and will be communicated transparently to consumers.