Airlines Face a $48 Billion Green Squeeze

Guest post by: Takehiro Kawahara, Aviation Specialist at BloombergNEF

Rising environmental compliance costs are set to squeeze airline profitability over the next decade, as sustainable aviation fuel (SAF) mandates and carbon pricing policies tighten. BloombergNEF estimates those costs could reach $48 billion by 2035, quadrupling from 2026 levels and pushing some airlines into loss-making territory if revenue fails to keep pace.

The burden will not be shared evenly. Europe’s stricter regulatory framework raises costs for departing flights, putting both low-cost and full-service carriers at a disadvantage relative to competitors based in less regulated markets. European airlines may respond by raising fares, adjusting capacity and rethinking network strategies.

European low-cost airlines’ cost edge erodes under green rules

A disproportionate share of global compliance costs falls on flights departing from Europe, where both SAF blending mandates and emission trading systems (ETS) are in place.

European low-cost carriers (LCCs) face the largest increases in environmental costs per seat-kilometre because most of their flights operate within Europe and are subject to both policies.

Environmental costs reach 2.15 US cents per seat-kilometre for easyJet plc and 2.1 cents for Ryanair Holdings plc by 2035, around 80% higher than for Air France-KLM.

LCCs are particularly exposed because they serve more price-sensitive passengers. Higher environmental costs are likely to compress margins and could erode their cost advantage.

Green costs drive losses, widen airline profit gap

Full-service carriers operating from European bases are not immune to the impact of rising environmental costs. At least six European airlines could see unit profits turn negative by 2035 if they fail to increase revenue. Deutsche Lufthansa AG, for example, would swing into a loss, with unit profitability falling to -1.5 cents per seat-kilometre from 0.1 cents without environmental costs.

The profitability gap between European and non-European carriers also widens. United Airlines Holdings Inc., for example, remains profitable, with unit earnings at 0.7 cents per seat-kilometre in 2035. This divergence reflects Europe’s heavier regulatory burden.

Airlines have limited ability to absorb additional costs

Airlines are likely to pass at least part of these environmental costs on to passengers to mitigate pressure on margins, and some have already started. Air France-KLM collects surcharges from passengers departing France and the Netherlands. The group collected €232 million ($272 million) in 2025, part of which was paid voluntarily. Deutsche Lufthansa also introduced an Environmental Cost Surcharge, ranging from €1 to €72 per passenger, on departures from the 27 European Union member states, Norway, Switzerland and the UK. The funds are used to purchase SAF and emissions allowances.

As SAF blending mandates tighten and carbon prices rise, cost pass-through is likely to expand. However, the extent will vary by airlines, route and competitive dynamics.

Airlines are likely to respond to higher environmental costs through measures beyond passing costs on to passengers.

Past experience suggests carriers, particularly LCCs, may adjust capacity to mitigate the financial impact of environmental policies. In July 2025, Sweden’s conservative government abolished its Aviation Carbon Tax, which ranged from 76 kronor ($8.20) to 517 kronor per departing passenger. According to the government, the tax had dampened air travel demand. Following its removal, airlines such as Ryanair added capacity and launched new routes, suggesting that demand is sensitive to policy-driven price changes.

Rerouting is another potential response. Airlines may shift long-haul operations from EU hub airports to non-EU hubs such as Istanbul and Dubai, where departing flights are not subject to EU regulations. Such a move could limit fare increases and preserve demand.

By July 2026, the European Commission is scheduled to conclude its review of whether the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) is an effective mechanism for decarbonizing international aviation. If
Corsia is deemed insufficient, the Commission could extend the EU ETS to cover all international flights departing from the European Economic Area (EEA). Such an expansion would further increase environmental costs for airlines, particularly full-
service carriers operating long-haul routes. However, rerouting would increase total fuel use and carbon dioxide emissions across the full journey.

However, rerouting would increase total fuel use and carbon dioxide emissions across the full journey.