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Breakingviews - Greta Thunberg will clog EU budget-airline engines

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LONDON (Reuters Breakingviews) - Europe’s airlines are flying into a carbon cloud. New European Commission boss Ursula von der Leyen’s continental Green New Deal puts the sector firmly in the cross hairs. Her most obvious ammunition is removing the free rides airlines get from fuel tax and emissions credits. A bigger threat to the industry, though, comes from Greta Thunberg.

Airlines currently account for less than 3% of CO2 output globally, but this will climb as air traffic grows and power stations and cars switch to renewables. Unlike other sectors, functional green alternatives like bio-jet fuel or electric planes are years, possibly decades, away. Until then, airline bosses have carbon offsetting – basically paying for projects like tree-planting to suck up CO2 – as their sole defence against regulators and teenage Swedish activists.

Budget carrier easyJet’s pledge to spend 25 million pounds on annual offsets is a case in point. But that’s unlikely to spike von der Leyen’s green guns. Her easiest riposte would be to make airlines pay jet-fuel duty. Assuming regulators used the existing commercial levy, that would add 21 euros to every 1,000 litres of fuel, a roughly 5% increase. Another would be to ditch the free credits airlines get for Europe’s carbon-trading regime. At the current 24.6 euros per tonne of CO2, that’s worth 114 million euros to Ryanair, 12% of 2020 forecast operating profit.

And then there’s Thunberg. In 2019, her flight-shaming movement contributed to a 4% decline in passengers through Sweden’s airports, according to operator Swedavia. Map that across Europe and carriers have a big problem. Assume a 5% jet-fuel duty and no free carbon credits, and easyJet’s 580 million euros of forecast 2020 operating profit drops to 465 million euros. But chuck in a peak-Greta 4% decline in passengers and it nosedives to just 150 million euros. Ryanair’s more than halves to 437 million euros.

And these two are just the tip of the iceberg, carrying only a third of the 700 million intra-Europe flyers in 2018. Extrapolate their combined lost operating profit to the rest of the industry, and that’s a nearly 3 billion euro hit continent-wide. On Ryanair’s 16 times multiple for 2020, it would mean 48 billion euros of market value disappearing into thin air.

Such a perfect storm may not hit, of course, and airlines would doubtless push back. But as evidence of climate change and its cost mounts, the industry looks increasingly exposed.

This is a Breakingviews prediction for 2020. To see more of our predictions, click here: https://bit.ly/2QCkYW5

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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