Implications of EU Emission Trading Scheme for Competition Between EU and Non-EU Airlines

MVA Consultancy and CE Delft have been commissioned by DGTL to examine whether, in the event of the Emission Trading Scheme (ETS) being applied to civil aviation flights departing from and arriving at EU airports, there might be appreciable opportunity for non-EU carriers to strengthen their competitive position vis a vis EU airlines. The study shows that any effects on the competitive positions of airlines are ex-pected to be small, unless the price of allowances increases very substantially above current levels. For most carriers in most markets, cross-subsidisation would not result in higher profits and would therefore not be in the interest of the carriers. However, it is not possible to rule out completely that some non-EU car-riers could engage in cross-subsidisation of their routes to/from the EU, if they also operate in markets where they can earn supra-normal profits. It has been shown that these opportunities are limited and, since this would be strongly de-pendent upon strategic behavioural choices by individual carriers, it is not possi-ble to establish whether this situation would be aggravated by the inclusion of aviation in the EU ETS. Additionally, EU carriers could be competitively disadvan-taged in some markets, as a consequence of the location of non-EU carriers hub airports. For some non-EU carriers, their hub locations provide opportunities for passengers to substitute transfers at these hubs for transfers at EU hubs, or even direct flights, so that the impact of ETS costs on their fares is reduced.

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