Airfares face new pressure as EU sustainable fuel mandate takes off

The aviation industry is undergoing a significant transformation as the European Union’s ReFuelEU Aviation regulation mandates the incorporation of Sustainable Aviation Fuels (SAF) into jet fuel. This initiative aims to reduce the sector’s carbon footprint but introduces new challenges, particularly concerning airfares. As airlines adapt to these requirements, passengers may experience notable changes in ticket prices and flight availability.

The ReFuelEU Aviation regulation, part of the EU’s Fit for 55 package, requires aviation fuel suppliers to blend a minimum of 2% SAF into conventional jet fuel by 2025, with this percentage increasing to 70% by 2050. This progressive mandate is designed to accelerate the adoption of SAF, thereby reducing aviation’s greenhouse gas emissions. However, the immediate impact on the airline industry is multifaceted, affecting operational costs, ticket pricing, and overall travel affordability.

Understanding Sustainable Aviation Fuels (SAF)

Sustainable Aviation Fuels are biofuels derived from renewable resources, such as plant materials and waste products, designed to replace conventional jet fuel. SAFs are considered a crucial component in the aviation sector’s strategy to achieve net-zero carbon emissions by 2050. They can be blended with traditional jet fuel without requiring modifications to existing aircraft or infrastructure, making them a practical solution for reducing the industry’s carbon footprint.

The production of SAF involves various technologies, including the conversion of biomass into fuel through processes like gasification and fermentation. These fuels can significantly lower lifecycle carbon emissions compared to fossil fuels, depending on the feedstock and production methods used. However, the current production capacity of SAF is limited, leading to higher costs and supply constraints.

As of 2025, the global production of SAF is estimated to be around 1 million tonnes, a fraction of the total jet fuel consumption. This limited supply, coupled with increasing demand due to regulatory mandates, has resulted in higher prices for SAF compared to traditional jet fuel, posing challenges for airlines striving to meet the EU’s blending requirements.

The ReFuelEU Aviation Regulation: Key Provisions

The ReFuelEU Aviation regulation sets ambitious targets for the integration of SAF into the aviation fuel supply chain. Starting in 2025, aviation fuel suppliers are obligated to ensure that all fuel made available to aircraft operators at EU airports contains a minimum of 2% SAF, with this percentage increasing progressively to 70% by 2050. Additionally, a sub-target for synthetic aviation fuels is established, requiring 1.2% in 2030, rising to 35% by 2050. These mandates apply to all flights departing from EU airports, regardless of the airline’s country of origin.

To prevent ‘tankering’, the practice of carrying excess fuel to avoid refueling at destinations with higher fuel prices, the regulation mandates that aircraft operators departing from EU airports refuel only with the amount of fuel necessary for the flight. This measure aims to ensure that airlines do not carry additional fuel to circumvent the SAF blending requirements, thereby maintaining the integrity of the regulation and its environmental objectives.

While the regulation is designed to promote environmental sustainability, it also imposes significant operational challenges on the aviation industry. Airlines must navigate the complexities of sourcing sufficient quantities of SAF, managing higher fuel costs, and adapting to evolving regulatory requirements, all of which have implications for their financial performance and service offerings.

Impact on Airline Operational Costs

The introduction of SAF mandates has led to a substantial increase in operational costs for airlines. SAF is currently three to five times more expensive than conventional jet fuel, primarily due to limited production capacity and higher production costs. This price disparity is exacerbated by compliance surcharges imposed by fuel suppliers, further inflating the cost of SAF for airlines. The International Air Transport Association (IATA) has criticized these practices, describing them as ‘price gouging’ and urging European regulators to reconsider the mandates to prevent unfair pricing dynamics.

Airlines are facing the dual challenge of meeting regulatory requirements while managing escalating fuel expenses. The financial strain is particularly acute for low-cost carriers, which operate on thin profit margins and are more sensitive to fluctuations in fuel prices. The increased cost burden may necessitate strategic adjustments, including route optimization, fleet management, and potential reductions in flight frequencies, to mitigate the impact on profitability.

In response to these challenges, some airlines are advocating for greater support from the European Commission to develop a viable SAF market. They emphasize the need for increased subsidies and incentives to stimulate SAF production and bring down costs. Without such support, there is a risk that the EU’s ambitious environmental goals may not be realized, and the economic viability of the aviation sector could be compromised.

Implications for Airfares and Passenger Travel

The escalating costs associated with SAF are poised to affect airfares, potentially leading to higher ticket prices for passengers. Airlines may pass on the increased fuel expenses to consumers, resulting in more expensive flights. This price increase could disproportionately impact travelers in remote and island regions, who are already disadvantaged in terms of connectivity and may face even higher costs due to limited flight options.

Moreover, the financial pressures on airlines could lead to a reduction in the number of affordable travel options. Low-cost carriers, in particular, may find it challenging to maintain their pricing structures while complying with SAF mandates. This scenario could reduce the availability of budget-friendly flights, making air travel less accessible for a significant segment of the population.

To address these concerns, the European Commission has allocated €100 million worth of EU Emissions Trading System (ETS) allowances to assist airlines in purchasing SAF. This support aims to alleviate the financial burden on airlines and facilitate the transition to more sustainable fuel sources. However, the effectiveness of this measure in mitigating the impact on airfares remains to be seen, and ongoing dialogue between regulators, airlines, and stakeholders is essential to ensure a balanced approach that considers both environmental objectives and economic realities.

Industry Responses and Calls for Support

Industry leaders have expressed concerns about the EU’s SAF mandates and their potential impact on the aviation sector. CEOs from major European airlines, including Ryanair, easyJet, Air France-KLM, Lufthansa, and International Airlines Group (IAG), have called for increased support from the European Commission to meet environmental goals. They highlight the high cost and limited availability of SAF, noting that it is currently three to five times more expensive than traditional jet fuel. These leaders urge the Commission to assist in developing a viable SAF market and to increase subsidies to stimulate production, emphasizing that without such support, the EU’s ambitious environmental targets may not be achievable.

Additionally, the IATA has criticized fuel suppliers for inflating the price of SAF in response to the new EU mandates. Director General Willie Walsh described the compliance surcharges as ‘price gouging’ and called for policy reform to prevent unfair pricing practices. These industry responses underscore the need for a collaborative approach to address the challenges posed by SAF mandates and to ensure the sustainability of the aviation sector.

In conclusion, while the EU’s ReFuelEU Aviation regulation represents a significant step toward decarbonizing the aviation industry, it introduces complex challenges related to fuel costs, operational expenses, and the potential impact on airfares. A balanced approach that includes adequate support for airlines, investment in SAF production infrastructure, and consideration of the economic implications for consumers is essential to achieve the EU’s environmental objectives without compromising the accessibility and affordability of air travel.

Ongoing collaboration between policymakers, industry stakeholders, and consumers will be crucial in navigating this transition. By addressing the economic and logistical challenges associated with SAF adoption, the aviation sector can move toward a more sustainable future while maintaining its role as a vital component of the global economy and society.