Legal and regulatory factors
The Lufthansa Group is subject to numerous national and European regulations. These regulations have an impact on costs and – if they do not cover non-European competitors – the international competitiveness of the Company.
Future climate protection policy in Germany and Europe is particularly relevant in this respect, but laws on data and consumer protection, air traffic taxes, aviation security fees, take-off and landing rights or night-flight bans also affect the Lufthansa Group and the whole aviation sector.
In summer 2021, the European Commission presented its Fit for 55 legislative package, which contains regulatory proposals for achieving the European climate protection objectives of cutting carbon emissions by 55% compared with 1990. Out of a total of 13 legislative initiatives, three are particularly relevant for aviation: the reform of emissions trading (EU-ETS), the blending quota for sustainable aircraft fuel (ReFuelEU Aviation) and the proposal to introduce a kerosene tax (energy tax directive). As co-legislators, the European Parliament and the Council of the European Union agreed in spring 2023 to gradually reduce the total number of emissions certificates and abolish the previous “free” allocations completely from 2026. This will make feeder traffic by European airlines more expensive and entails the risk of an increasing displacement of long-haul connections to hubs outside Europe, which will further distort competition between EU airlines and their competitors from the Middle East. To create an incentive to use sustainable fuels (SAF), which are many times more expensive than fossil kerosene, a decision was taken to provide a limited contingent of emissions certificates on a temporary basis to compensate for the additional costs of SAF. However, this does not sufficiently offset the additional expenses nor establish a level playing field with airlines from outside the EU. The Lufthansa Group believes that the European blending quotas for sustainable aviation fuel adopted in summer 2023 (ReFuelEU Aviation) will result in significant competitive disadvantages in intercontinental traffic and a steep increase in costs for European airlines, because airlines from outside Europe with transfer stops near Europe could then continue to use unblended fuel for part of the journey. It has not been taken into account to date that SAF will not be available in sufficient quantities or at competitive prices for the foreseeable future.
The discussion about the introduction of a European kerosene tax would exacerbate the problem of global competitiveness. In the further legislative process, the Lufthansa Group believes improvements are urgently required to maintain the competitiveness of the airlines based in the EU and to avoid the transfer of traffic and emissions that is known as the carbon leakage effect. The increase in national air traffic tax currently under discussion in Germany will further increase the costs of air transport in Germany, which are already high by European standards, and so make Germany’s connections to European and global air traffic even worse, with no benefit for the climate. ↗ Combined non-financial declaration/Climate protection
More stringent European and national consumer protection policies may lead to higher costs for the Lufthansa Group and its customers. These include, in particular, efforts to introduce insolvency protection for flights, automating compensation payments, and banning advance payment for tickets and no-show clauses.
The draft of a new regulation for the Single European Sky that was published by the European Commission in September 2020 aims to increase the efficiency of air traffic control within the EU and thus offers the potential for reducing not only carbon emissions and saving fuel but also avoiding delayed flights. The political discussions are still underway. A result that falls short of the status quo or a fundamental failure of the negotiations would have a negative impact on the regularity and punctuality of European air traffic.
The temporary exemptions on the use of take-off and landing rights (slots) that were granted because of the coronavirus pandemic and the Russian invasion of Ukraine have expired. The basic rules now apply again, which is that the right to reallocation of slots in subsequent periods is lost if they have been used less than 80% of the time in a flight period. No proposal to revise the rules is expected before the European elections in June 2024. In the long term, capacity restrictions for environmental and climate reasons may become part of the political debate, as is currently the case at Amsterdam Airport.