Delta among airlines expected to raise fares to offset carbon caps, Moody’s reports

By David Pendered

Delta Air Lines is among the airlines that are expected to raise fares in the coming years to offset the cost of caps on their carbon emissions, according to a report released today by Moody’s Investors Service.

Aeromexico_Delta Tails

Delta is expected to raise fares to comply with pending rules on carbon emissions, according to a new report by Moody’s Investors Service. These are tails of planes flagged by Delta and its partner, Aeromexico. Credit: delta.com

Carbon caps are expected to lower operating income from 4 percent to 15 percent by 2025. By 2030, the impact is forecast to be from 7 percent to 35 percent and could reach 68 percent by 2040, according to the report.

These impacts could have a crushing impact on the commercial aviation industry. The operating margins in the industry have a historic range of 2 percent to 5 percent in most years, according to the report.

For that reason, Moody’s predicts that airlines will pass the cost on to customers. The fare increases could be added to all passengers, domestic and international, which would amount to an increase of $1 to $10 per passenger. If the carbon cost is passed along to only international passengers, the rate increase could be from $3 to $26 per trip.

Of note, Moody’s also predicts a rise in the cost of carbon offsets, though it did not put a price on them.

Delta announced its first-quarter profits on April 12. Company president Glen Hauenstein predicted revenue growth for the full year will be in a range of 4 percent to 6 percent. Hauenstein put the growth rate into context by saying it was the, “best revenue momentum since 2014.”

Moody’s cited Delta because of the high number of international routes it serves.

Hauenstein singled out Delta’s international service in his remarks, saying, “improvement in all our international entities” contributed to the revenue growth.

Glen Hauenstein

Glen Hauenstein

Delta did not immediately respond to a request for a response to Moody’s report.

International routes are to come under caps in coming years – 2021 for voluntary caps and 2027 for mandatory caps, according to the Moody’s report.

The caps are set by the aviation regulatory authority of the United Nations, the International Civil Aviation Organization. The United States is a member of ICAO. The ICAO has adopted a plan called the Carbon Offsetting and Reduction
Scheme for International Aviation. It sets a hard cap on carbon emissions at 2020 levels.

Here’s how the program will work, according to the report:

  • “CORSIA is being implemented through three-year compliance periods; purchase of offsets will be required only at the end of each period. For example, for the 2021-2023 period, emissions for airlines’ international flights will be verified during 2024 and the required amount of offsets will have to be purchased sometime in 2025.
  • “Airlines have the choice of either purchasing offsets beginning in 2021 or waiting until 2025. Individual airlines’ forecasts for carbon offset prices could influence the timing of their purchases. … From 2030, airlines’ offset requirements will be determined by a mix of their own, and the industry’s, emissions growth rates.”
Delta on runway

Delta Air Lines is working to reduce its environmental footprint. A new report from Moody’s Investors Service predicts the airline industry faces rising costs to meet international restrictions on greenhouse gas emissions. Credit: Kelly Jordan

Delta has adopted a carbon emissions policy and has implemented a number of programs to offset its carbon emissions, according to a number of reports on its website.

In January, the company announced a joint program with Duke University. The two entities bought 5,000 carbon credits that are intended to offset all of Duke’s business travel on Delta in 2017. The program involved buying and planting 1,000 trees in the Raleigh-Durham area. Duke is located in Durham, N.C.

According to the Delta report:

  • “A single carbon offset is equal to one metric ton of CO2being removed from the air, while the 1,000 trees being planted locally will generate the removal of an additional 5,000 metric tons of CO2 from the air during their lifespan – together, that’s like neutralizing the carbon footprint of around 9,000 roundtrip flights between Atlanta and Los Angeles. The program is being facilitated by North Carolina-based Urban Offsets.”

 

carbon emissions

The global aviation organization has set environmental goals of 2 percent fuel efficiency improvement by 2050 and no increase in carbon emissions after 2020. Credit: icao.int

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

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  1. […] Delta among airlines expected to raise fares to offset carbon caps, Moody’s reports By David Pendered, Saporta Report, 18 April 2018 Delta Air Lines is among the airlines that are expected to raise fares in the coming years to offset the cost of caps on their carbon emissions, according to a report released today by Moody’s Investors Service. […]Report

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