International Consolidated Airlines Group SA’s British Airways will be able to offer cheaper fares than its peers, reported The Sunday Times on Saturday, as its investment in ‘green’ fuel unlocks prices at a 40% discount to market rates.
The London-based owner of British Airways, Aer Lingus and Iberia revealed the group is currently paying less than 60% of the market rate for sustainable aviation fuel.
This follows the firm’s recent £2.6 billion push into green fuel, and its decision to enter long-term contracts with green fuel suppliers.
The Sunday Times said net-zero fuel quotas are expected to drive up fares over the next few years, as the price of SAF is currently between two and seven times higher than traditional kerosene.
SAF is claimed to reduce carbon emissions by up to 80% compared to traditional jet fuel.
German airline group Deutsche Lufthansa AG has already introduced a supplement of up to €72 per ticket to offset this anticipated increase in fuel costs.
Virgin Atlantic, meanwhile, has announced a $24 surcharge to fund minimum green fuel quotas, and warned that a return trip to New York could cost $40 more per person as SAF usage increases.
IAG Head of Sustainability Jonathon Counsell said that investing in SAF early would give the group a ‘competitive advantage’ over its rivals, The Sunday Times reported.
IAG has committed $3.5 billion to its SAF programme over more than a decade.
‘Few industry watchers believe IAG’s strategy will reduce fares in the medium to long term; but the hope is that some of the savings of discounted contracts can be passed on to customers,’ added the Sunday Times.
IAG spent €7.6 billion on fuel in its last financial year, making it the group’s single largest expense.
IAG executives said that increases in the SAF mandate each year would also benefit the FTSE 100 group by making it hard for new airlines to start up, The Sunday Times reported.
The UK mandates 2% of jet fuel must be SAF this year, rising to 10% by 2030 and 22% by 2040.
EU rules also require carriers to include 2% of SAF in their fuel mix starting this year, which then rises to 6% in 2030 and soars to 70% from 2050.
Shares in IAG closed down 2.1% at 325.90 pence each in London on Friday. The stock is up 86% over the past year.
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