As Australia repeals carbon tax, Qantas removes its domestic flight surcharge but says fares won't drop
Mon 14 July 2014 – Ahead of a move that would make Australia the first country in the world to remove a legislated price on carbon, Qantas said it has officially dropped the carbon surcharge it introduced on domestic fares in 2012. The repeal of the carbon tax by the incoming Australian coalition government was expected to have been voted through by now but ran into problems when one minority party removed its support, insisting on an amendment that industries paying the tax had to pass on the saving to consumers, a stipulation that now appears to have been accepted and the legislation is expected to be approved within days. However, the airline, which had a carbon liability in its 2012-13 financial year of A$106 million ($100m), says its attempts to pass on the tax to customers failed due to strong competition in the domestic market and so fares will not be reduced. Rival Virgin Australia says it too had been unable to recover the costs of the carbon tax for similar reasons and would also not be lowering fares as a result.
The carbon tax cost pass-through announced by Qantas in 2012 was based on flight sector length, ranging from A$1.82 to A$6.86 per passenger per sector (see article). At the time, the airline said it could not afford to absorb the cost but now says market conditions changed and the cost of the tax went to its bottom line.
“We initially added a carbon surcharge to fares in 2012 to attempt to recover the cost of the tax by passing it on to customers. In the event, our all-inclusive fares actually dropped after the carbon tax came in because the domestic market was so competitive – so we were not able to recover any of our costs,” a Qantas spokesman told GreenAir.
“The surcharge effectively became an administrative mechanism for us to keep track of our carbon liability. Given the Government’s intention to repeal the tax and back-date it to 1 July, we chose to go ahead with removing the surcharge last week, but there won’t be any change to the prices that customers pay as it’s an administrative step only.”
He said the cost to the airline of its carbon liability in the 2013-14 financial year would be reported in the company results to be announced on 28 August.
Virgin Australia said it too had been unable to raise base fares and recover the cost of the carbon tax “due to the aggressive competitive environment”, and so would not be reducing fares as a result of the repeal. The airline said it had never planned a carbon surcharge similar to Qantas.
In a statement, it said: “The carbon tax costs have been absorbed and have not been added to the ticket prices. The tax had a A$47.9 million ($45m) impact on Virgin Australia for the 2013 financial year.”
In February 2012, Qantas announced an each-way A$3.50 fare surcharge on flights from Australia to Europe to cover the cost of compliance with the EU Emissions Trading Scheme (EU ETS). Many other international airlines at the time introduced surcharges either directly or indirectly – for example, through fuel surcharges – on flights to and from Europe as a result of their inclusion in the EU ETS from 2012. Despite the EU’s ‘stop-the-clock’ suspension of coverage of such flights within the carbon scheme, no airline has publicly withdrawn the EU ETS surcharge.