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CPRS to cost airlines millions

written by australianaviation.com.au | November 3, 2009

Deutsche Bank says that the government’s proposed Carbon Pollution Reduction Scheme (CPRS) is likely to cost Qantas and Virgin Blue millions of dollars, with the airlines only able to pass on one-fifth of the cost without losing passenger revenues.

According to The Australian newspaper, Deutsche Bank analysts have calculated that the CPRS would cost Qantas $98.6 million in the 2013 financial year, while Virgin Blue would pay $29.4 million. The report says that the airlines will not be able to pass on the full costs through a surcharge without affecting demand, but would be more likely to build it into their fares, thus lowering their yields.

The analysis runs counter to the government’s position as set out in its CPRS, which claimed that the airline industry would be able to pass on the costs of the scheme through higher airfares and thus would not require any compensation, unlike other industries. Both Qantas and Virgin Blue have often disputed this claim, arguing that the airlines would have to bear much of the added costs due to the high elasticity of demand for air travel. As such, both have also argued that it would hurt domestic tourism as international flights would be exempt from the scheme.

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