Air Malta warns EU tax on aviation fuel could destroy jobs, cripple economy

Air Malta has had no feedback from the government after the airline presented its position against an aviation fuel tax on intra-EU flights, proposed by the European Commission, BusinessToday has learned.

In its position document on the Energy Tax Directive, Air Malta warned taxing aviation fuel for intra-EU flights will negatively impact Malta’s economy, “destroy jobs” and put Air Malta at a disadvantage.

Aviation fuel will become 90% more expensive to buy by 2033 if the current EU proposals are approved, the airline said on Wednesday.

Air Malta called for aviation fuel to remain outside the scope of the Energy Tax Directive, saying that preliminary costings showed that Malta, Cyprus and Iceland will be the worst affected.

Dr Nadia Giordimaina, the national airline’s general manager for international affairs, told BusinessToday that the government had confirmed receipt of the document.

“We are not informed as to what stance the government will be adopting within the Commission,” she said.

“However, Government has traditionally voted against any form of taxation on aviation fuel.”

Air Malta executive chairman David Curmi said the company’s position “is not different to that taken by most other airlines”.

“The position of Air Malta is that of an airline operator,” he said. “There may however be other considerations that government may have to take.”

Air Malta warned in its statement that a tax on aviation fuel will not result in a modal shift to another mode of transport but will merely have a negative impact on the Maltese islands’ economic and social cohesion while isolating the country.

It added that as a peripheral country highly dependent on tourism, the imposition of a tax on aviation fuel will put Malta at a disadvantage with neighbouring leisure destinations outside the EU.

The directive proposed by the European Commission deals with various aspects and not just aviation fuel. The proposal is to introduce a progressive tax on aviation fuel supplied in the EU for intra-EU flights.

The tax will start from a minimum rate of 0% in 2023, gradually increasing by a yearly 10% to reach 100% over a period of 10 years.

Sustainable Aviation Fuels (SAFs) would benefit from a zero-tax rate to promote their uptake in the first 10 years. The taxation of fuel for cargo flights is optional and member states within the context of air service agreements could extend the taxation to non-EU flights.

The proposal requires unanimous approval of all member states since it concerns taxation and talks at European Council level are expected to ramp up in view of the January 2023 target for entry into force of the directive.

Air Malta is warning that the imposition of the fuel tax on intra-EU flights only will lead to serious distortion of competition among carriers by putting at a disadvantage those which serve the intra-EU market only.

“Very hard hit will be the regional carriers, such as Air Malta, which provide the critical connectivity from the peripheries, outermost regions, islands, and small island member states to mainland Europe where they feed into the larger hubs to enable passengers to reach their destination or connect to the rest of the world,” the carrier said.

It noted that the extra costs will have a ripple effect on the economies of these territories, which are highly dependent on air transport for their connectivity.

“Air Malta is of the view that taxation is not the answer to aviation sustainability and the reliance on taxation as the solution for cutting aviation emissions in the EU’s ‘Fit for 55’ is counterproductive to the goal of sustainable aviation – a tax will merely siphon much needed funds from the industry that could support emissions reducing investments in fleet renewal, clean technologies and the transition to SAFs,” Air Malta said.

It called for the proposal on taxing aviation fuel to be replaced by production incentives for SAFs, which reduce emissions by up to 80% compared to the traditional jet fuel.

“Taxation will destroy jobs whilst incentivising the production of SAF will improve energy independence and create sustainable jobs,” the airline added.

The national carrier reiterated its commitment to achieve net-zero carbon emissions from its operations by 2050. Air Malta started the renewal of its fleet in 2018, moving from old Airbus A320ceo to greener A320neo and by 2024 the entire feel will consist of a single-type aircraft.

The airline said that with the deployment of the new energy-efficient aircraft, it will significantly reduce fuel consumption, CO2 emissions and noise footprint.

European Parliament seeks SAF uptake

In the beginning of July, MEPs adopted a position on the draft EU rules that will force EU airports to have flights uplifting a minimum share of SAF, starting from just 2% in 2025, right up to 85% by 2050.

The proposed rules aren’t final yet. To become law, they have to be agreed by negotiators from the European Parliament and EU member states during so-called trialogue talks due to start in September.

But experts believe SAF will cost Air Malta six times as much as jet fuel, according to previous statements by Air Malta officials to a Chamber of Commerce debate.

A study by Amsterdam Economics and the Royal Netherlands Aerospace Centre predicts EU islands, like Malta, could be outliers that will suffer up to €60 and €70 ticket price increases. Spain, an example of a country deemed ‘peripheral’ due to the larger amount of kilometres flown within the European economic area, could see price increases of over €65 in 2030 and then over €114 in 2035.

In an online debate on the Fit For 55 targets organised by the Chamber of Commerce in 2021, an Air Malta official, Nadia Giordimaina, had remarked that SAF costs were five times that of Jet A1 fuel. “And this might mean that the ticket prices we got used to are a thing of the past unless there is the necessary support,” she told the panel.

Flying has certainly become awfully cheaper in the last 25 years, opening hundreds of under-served European cities to a wider market of travellers seeking weekend trips and longer stays. Malta’s tourism authority subsidises landing fees for low-cost giants like Ryanair and Easyjet to bring more tourists.

But SAF is now seen as the key to balance out the environmental cost of tourism, where the decarbonisation of aviation will be a necessary process over the next decade, and where price increases will finance investment in technologies that reduce reliance on fossil energy.

The proposed EU regulation suggests that airports with 2 million or less annual passengers should not be covered by SAF obligations, a threshold that Malta’s sole airport does not fall under.

EU airports situated in the Union’s “outermost region”, such as the Azores or Canary islands, will not be subject to the SAF rules, given their distances from the EU mainland.

Government told MEPs to vote against

While the Maltese government was unable to either convince European transport ministers, or obtain exemptions on sustainable aviation fuel for airlines landing at Malta International Airport, within the European Council, earlier this week it advised Maltese MEPs to vote against the Fit For 55 legislative position.

All Labour MEPs voted against SAF, while Nationalist MEP David Casa supported the EPP line and voted in favour of SAF despite submissions from the Maltese government that it would raise Air Malta costs and pricing.

The government told MEPs that while the original Commission proposal from Brussels was to introduce a “gradual blending obligation” on SAF, the European Parliament’s proposals was to increase this share significantly.

“This substantial increase might prove challenging for member states, such as Malta, which do not produce fuel and thus, rely heavily on imports,” permanent representative Marlene Bonnici told MEPs.

While Malta supported the Commission proposal, it said MEPs should oppose the increased targets proposed by the European Parliament’s rapporteur, because this would raise prices for aviation.

“Due to the increase in price of flight tickets, citizens will not be able to travel via flight to their intended destination as the cost of air transport starts to become prohibitive. This is obviously all the more relevant for a member state which depends so heavily on the aviation sector for connectivity, tourism and economic development.”

Malta appears to have been successful in pushing for an exemption from routes of less than 1,200km when departing from an EU airport. Crucially, it allows airlines to exempt themselves from having to use SAF if a member state authority has not replied to an exemption request within three months. But the EP position has not provided for such a system.

Government position

In July, Aaron Farrugia told MaltaToday it was “positive to see the European Parliament also moving in this direction... further work on this dossier will be carried out throughout which Malta will continue to push forward its interests, in order to for an agreement to be reached between the co-legislators.”

Farrugia said Malta is a strong supporter of this Fit For 55 proposal. “Shifting to smart and safe low- and zero-emission aviation requires a radical change throughout the whole aviation industry and its supply chain.

It is true that SAF is currently more costly than traditional fossil jet fuel. However, as the technology matures it will become more efficient and less costly for the industry and its customers.”

Farrugia said passengers of airlines that use SAF will value the emission-reduction benefits, and that phasing out fossil fuels will save Malta from further costs borne through the Emissions Trading System (ETS) and other fuel taxes.

To bridge the price gap between conventional fuel and SAF, Malta is hoping to claim ETS allowances when SAF is used on flights which serve peripheral, insular and island regions.

In forthcoming negotiations between Council and MEPs, Malta will adamantly push the line for an EU-wide SAF blending mandate only, to ensure a level playing field and sufficient access to SAF so as to bring costs down.

Farrugia said the Council’s agreement has the necessary safeguards for Malta’s issues of peripherality, with its limited connectivity options. Whether it can drive home its position in the forthcoming negotiations with the European Parliament is another matter.