Will Airlines Get Crushed by the EU’s Emission Trading Scheme?

Tony Tyler, CEO of the International Air Transport Association (IATA) lashed out at the European Union’s Emission Trading Scheme aimed at reducing airlines’ emissions.

The ETS makes it mandatory for airlines flying through Europe to have sufficient carbon credits to cover the emissions of their entire flight route, and not just in Europe. This has drawn criticism from countries such as the U.S. and China, who feel that the EU is going beyond its jurisdiction. Making the point that the ETS was a “regional scheme attempting to address a global problem,” Tyler said, “Governments recognize that this is an infringement on their sovereignty. Why should Europe be able to tax a Chinese airline flying in Chinese airspace? They [Europe] would object if the Chinese attempted to tax a European airline flying in European airspace, it’s exactly the same thing.”

This apart, Tyler estimates that the new carbon credit norms could result in airlines’ costs increasing by almost 30 percent due to the cost of buying energy and emission units, and this could increase over time. Tyler estimates that in the first year of implementation, the norms could cost the airline industry some $1.2 billion – this is a large amount considering that the industry forecasts a global profit of $3.5 billion this year.

Tyler’s suggestion? Suspend the ETS for now and formulate a global deal under the aegis of the United Nation’s International Civil Aviation Organization.

Here’s how airline stocks are trading now:

Delta Air Lines Inc. (NYSE:DAL): DAL shares recently traded at $10.92, down $0.23, or 2.06%. They have traded in a 52-week range of $6.41 to $12.13. Volume today was 4,735,245 shares versus a 3-month average volume of 11,872,600 shares. The company’s trailing P/E is 10.80, while trailing earnings are $1.01 per share.

Southwest Airlines Co. (NYSE:LUV): LUV shares recently traded at $9.57, down $0.15, or 1.54%. They have traded in a 52-week range of $7.15 to $12.88. Volume today was 1,580,660 shares versus a 3-month average volume of 6,640,550 shares. The company’s trailing P/E is 41.57, while trailing earnings are $0.23 per share.

JetBlue Airways Corporation (NASDAQ:JBLU): JBLU shares recently traded at $5.87, down $0.05, or 0.84%. They have traded in a 52-week range of $3.40 to $6.45. Volume today was 704,654 shares versus a 3-month average volume of 6,197,010 shares. The company’s trailing P/E is 20.89, while trailing earnings are $0.28 per share.

United Continental Holdings (NYSE:UAL): UAL shares recently traded at $23.57, down $0.4, or 1.67%. They have traded in a 52-week range of $15.51 to $27.72. Volume today was 1,829,653 shares versus a 3-month average volume of 6,522,180 shares. The company’s trailing P/E is 10.36, while trailing earnings are $2.26 per share.

US Airways Group, Inc. (NYSE:LCC): LCC shares recently traded at $9.01, down $0.17, or 1.85%. They have traded in a 52-week range of $3.96 to $10.35. Volume today was 2,737,491 shares versus a 3-month average volume of 7,984,160 shares. The company’s trailing P/E is 20.50, while trailing earnings are $0.44 per share.

To contact the reporter on this story: Lindsey Grossman at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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