Abstract
This paper studies how European low-cost carriers (LCCs) adjust and mitigate in response to environmental taxation over the past decade. Global and EU frameworks—most prominently the Emissions Trading System (EU-ETS) and CORSIA—have raised carbon-related compliance costs, while several European states have introduced or increased aviation-specific taxes. Given their cost-sensitive business models, LCCs are especially responsive to tax-induced cost shocks. The paper is structured in three parts: an overview of global aviation taxation, a review of national initiatives in selected European countries and an analysis of how LCCs respond to mitigate these impacts. We assemble a hand-collected panel of ten European LCCs and conduct qualitative documentary analysis of annual and sustainability reports (2020–2024), triangulated with regulatory and policy documents. The findings indicate consistent adaptation via selective airfare price pass-through, capacity reallocation away from higher-tax, price-elastic short-haul routes and efficiency gains through fleet renewal and operational measures. We also document targeted stakeholder messaging and advocacy—public campaigns, legal challenges, and, in some jurisdictions, legal disputes—aimed at softening tax design burden.
1. Introduction
Every airline, when being established, chooses an appropriate business model. One of the most widely adopted options is the low-cost carrier (LCC) model, which became prominent at the beginning of this century. Since their beginning the LCCs have gained significant market shares in Europe and even became the largest airlines in many national markets [1].
The name of these airlines’ business model is not a coincidence and shows a logic behind it. For LCC airlines, finding financial savings or avoiding unnecessary costs is important. As a result, the LCC focus mostly on short- and medium-haul flights avoiding long hauls, maximizing aircraft utilization during day, implementing fleet families (like Airbus A320 or Boeing 737) in order to standardize logistics and crew training, operating to secondary airports, which are not congested and offer lower aeronautical fares and they also charge passengers by every additional service above the seat reservation, such as luggage, airport check-in, seat allocation or catering [2].
The philosophy of LCCs is to offer relatively cheap air tickets with no extracts in the basic fare, which stimulate the demand due to its cheapness. Any additional markup to the price of the ticket or tax that might decrease direct revenue will be unwelcome by the airline. The reason for such a reaction is fact that LCCs mostly serve price-sensitive clients, for whom even a minor increase in price can lead to a significant decrease in the demand and consequently the route would become unprofitable [3]. By default, LCCs will try to avoid unnecessary, at least in their opinion, costs. One of such examples is the environmental taxes imposed by the EU and also by national or local governments.
Aviation-related taxes are fiscal instruments that have grown increasingly significant in the context of global climate policy and the regulation of international transport. They are primarily intended to internalize the external costs of air transport, such as greenhouse gas emissions, noise pollution, and the consumption of finite environmental resources. Air transport provides undeniable economic and social benefits by linking regions, promoting trade, and supporting tourism, but it is also one of the most carbon-intensive sectors of the economy. Taxes are designed to ensure that the industry’s contribution to climate change and environmental degradation is reflected in the price of air travel.
The European Union Emissions Trading System (EU ETS) and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) represent two major frameworks designed to address the environmental impact of aviation. While both mechanisms share the common objective of reducing the sector’s carbon footprint, they differ in scope, design, and level of ambition [4].
The EU ETS is a regional cap-and-trade system that has covered aviation since 2012. Airlines operating flights within the European Economic Area (EEA) are required to monitor and report their CO2 emissions and to surrender allowances equivalent to those emissions. A total emissions cap is imposed, and the number of available allowances decreases over time in line with EU climate targets. Airlines can trade allowances in the carbon market, and while some free allowances are distributed, the share of free allocations is gradually being phased out under the EU’s Fit for 55 packages. The system thus directly enforces emissions reductions within Europe by increasing the cost of polluting and incentivizing efficiency improvements and fleet renewal.
CORSIA, by contrast, is a global offsetting scheme established under the International Civil Aviation Organization (ICAO) in 2016. It applies only to international flights between participating countries and does not impose a strict emissions cap. Instead, airlines must purchase carbon offset credits from approved environmental projects to compensate for emissions above a defined baseline. Initially, this baseline was set as the average of 2019 and 2020 emissions, but due to the extraordinary impact of the COVID-19 pandemic it was reset to 2019 levels only. CORSIA is currently voluntary during the pilot phase from 2021 to 2026, after which participation becomes mandatory for most states in 2027, with exemptions for the least developed and small island states.
The two schemes illustrate contrasting approaches [5]. The EU ETS focuses on binding reductions within European borders, ensuring that emissions are priced and capped. CORSIA emphasizes global coverage but relies heavily on offsetting, which has raised concerns about the environmental integrity of credits and the lack of real emission cuts. For EU-based airlines, the practical implication is that intra-European flights fall under the ETS regime, while intercontinental services are subject to CORSIA requirements. Together these instruments highlight the tension between regional ambition and global coordination in climate governance for aviation.
The European Union Emissions Trading System (EU ETS) and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) are not taxes in the strict legal or fiscal sense, even though they impose financial costs on airlines. Both are categorized as market-based environmental instruments rather than direct taxation. Taxes are compulsory payments collected by governments at predetermined rates and are usually directed into public budgets, as seen in the case of passenger duties or national aviation levies such as the United Kingdom’s Air Passenger Duty, the German aviation tax, or the French eco-contribution. These instruments are designed as fiscal tools that directly increase the cost of air travel and generate revenue for the state. Taxes are state-imposed fiscal measures with a fixed rate structure, while ETS and CORSIA function as regulatory frameworks that internalize environmental costs through trading or offsetting requirements. They represent economic instruments intended to influence behavior and reduce emissions, but their financial flows and operational logic differ substantially from conventional taxation.
In addition to supranational instruments, individual member states have introduced national-level taxes on aviation. These measures vary in design and scope, ranging from air passenger duties to eco-contributions and distance-banded levies. An overview of such national taxation frameworks is presented in Section 2.
The aviation industry itself operates under different business models, most notably full-service providers (FSPs) and low-cost carriers (LCCs). While the environmental costs imposed by taxation are uniform across carriers, the impact on business strategies is expected to differ according to the model. LCCs, with their emphasis on price-sensitive passengers and point-to-point networks, may adopt distinct responses compared to FSPs, which rely on hub-and-spoke structures and a mix of leisure and business demand. Consequently, national taxation is likely to generate differentiated strategic outcomes, influencing capacity allocation, route selection, and market presence in diverse ways.
2. Research Question and Methodology
The study examines how low-cost carriers (LCCs) adjust their strategies and operations in response to environmental taxes at the EU, global, and national levels. It highlights the sector’s adaptation and mitigation activities to ease the tax burden, including pricing, capacity, routing and fleet design decisions. The research employs a qualitative documentary analysis of annual and sustainability reports, regulatory filings, and policy documents to examine how low-cost carriers (LCCs) respond to environmental taxation in particular countries. The analysis is structured to uncover both explicit corporate reactions (decisions, strategic statements) and declared policies (intentions, future plans) of LCCs between 2020 and 2025 [6].
First, a sample of major European LCCs is selected based on passenger volume, fleet size, and geographic coverage (for example, Ryanair, easyJet, Wizz Air, Transavia, Pegasus), which cover over 90% of the sector volume (passengers). For each LCC, all annual and sustainability reports during the period 2020–2024 are analyzed. In parallel, national aviation tax frameworks in a set of European countries with significant LCC presence are identified—for instance, Austria, Belgium, Denmark, France, Germany, Netherlands, Portugal, and Sweden. Key measures include departure taxes, air passenger duties, eco-contributions, and distance-banded levies.
Next, each report is systematically reviewed to locate sections where the carriers discuss environmental taxes—this includes “risks” sections, “regulatory environment”, “costs”, “future strategy” or “sustainability disclosures”. Using content coding, the following items are sought for each LCC in each country: whether the carrier explicitly mentions the tax; whether it indicates changes in route frequency, withdrawal from certain markets, or rerouting in response; any stated mitigation strategy (e.g., fleet renewal, schedule adjustments, lobbying); and any forward-looking declarations of intent in relation to upcoming tax changes.
These qualitative data are then mapped against the timing and structure of the country’s tax changes (announcement dates, effective dates, rates, distance bands). This allows comparison across different LCCs and countries, to observe patterns such as whether LCCs in more heavily taxed jurisdictions are more likely to cut short-haul routes, or whether certain distance bands provoke more declared responses.
Finally, to strengthen the validity of findings, triangulation is used. Where possible, public statements (press releases, interviews) are cross-checked. Policy documents from national governments provide context on exact tax regimes, and statistical data on route frequencies or schedule changes are compared to declared policies to assess whether claimed strategic changes are reflected in actual supply decisions.
Through this focused methodology, the study aims to reveal not just whether LCCs are affected by environmental taxation, but how they adapt their operations and strategic policies in specific jurisdictions in response.
3. EU Green Aviation Taxes in National Countries
Besides global taxation (e.g., ETS and CORSIA), European countries (EU and EEA) have established their own green taxes related to airflights (Table 1).
Table 1.
Environmental taxes implemented by selected European countries in between years 2020 and 2025.
European countries apply a diverse set of aviation-related environmental taxes that differ in timing, scope, and rate design—including flat levies, distance-banded structures, and (in France) cabin-class differentiation. Common features nonetheless emerge: most are per-passenger departure charges with frequent transfer exemptions. Several states introduced or raised rates in 2020–2025 (e.g., Germany’s ≈ 19% increase on 1 May 2024; the Netherlands from €7.45 in 2021 to ~€29 by 2024/25). Denmark’s phased tariff is from 2025 to 2030, while Sweden will abolish its tax on 1 July 2025. In practice, airlines generally pass costs through to fares, which can decline demand—especially on short-haul, price-elastic markets. Expectedly, that explains LCCs’ consistently critical stance toward such measures.
4. Adjustment and Mitigation
In post-COVID years there were some significant shifts in the aviation market in Europe in terms of focus and capacity provided by LCCs. Some of them might be directly linked to implementation or increases in the environmental taxes. However, since there might be plenty of possible reasons which are behind the airlines’ decisions, the direct answer, whether it is the tax’s fault, is not possible to be given. The market was the witness of such situations when one airline was canceling the flights blaming the increase in tax, whereas at the same time other airline(s) have stepped into the particular market and filled the gap.
One of such examples was Billund Airport, where Ryanair has closed its 2-aircraft base. The concurrence is clear, as Ryanair has announced their decision on the 31st of January 2025 [7] and the new tax was introduced by the Danish government on the 1st of January 2025. However, the opportunity was used by other LCCs, namely Norwegian, which in late 2025 has announced establishing a base in Billund announcing 10 new connections [8].
The Ryanair/Norwegian case in Billund shows another interesting conclusion. Some markets are focus or primary markets for some airlines and as a result their ability to resist and absorb additional costs is higher than other airlines, which can easily shift their capacity to other markets and can focus on other business opportunities. Some carriers are so attached to certain markets that shifting to another country might be close to impossible.
There are multiple ways in which LCCs have reacted to “green taxes” in the selected period (2020–2024). Based on airlines’ reports, several general practices can be highlighted.
- Green taxes do have significant impacts on LCC strategic activities
LCCs’ primary response combines selective cost pass-through to fares with efficiency-driven adjustments (operational improvements and fleet renewal). Most LCCs pass some costs to fares, accelerating fleet renewal and operational efficiencies (e.g., separately admitting SAF surcharges on fee structure). As a result, the average age of the fleet in Europe is lower than the world’s average. For instance, as of October 2024 Ryanair’s fleet age is 9.4 years [9], Wizz Air 4.2 years [10] and around 10 years for easyJet [11]. According to IATA, the average age of aircrafts worldwide is 14.8 years [12]. Due to the costs of capital and acquiring new planes, this is also influencing the margin of European airlines, which is below the world’s average (5.6% in Europe vs 6.4% worldwide and 6.5% in North America) [13].
- 2.
- Selective supply adjustments at the margin
Reports seldom list specific route cancelations tied only to taxes, but they do link higher taxes to capacity discipline on price-elastic short-haul markets and to rebasing/rerouting toward higher-yield or lower-charge airports/countries. By LCCs’ declarations, internal carbon pricing influences routes, frequencies and fleet decisions. Additionally, some airlines ostentatiously show their annoyance at the additional costs by canceling the operations, even in the situation when the new taxation is not very high.
- 3.
- Country contrasts matter
Carriers warn about competitive leakage to non-EU hubs if taxation is not a “level playing field”. As a matter of fact, European LCCs open more and more routes in countries like Morrocco, Egypt, Türkiye or Jordan. However, their core business was, is and will be in Europe, so the massive leakage of routes outside of the EU is unlikely. What is more likely is the “reverse routing”, which means that the route will not be operated from the EU to the outside country, but from the outside country to the EU. Thus, the crews will be employed by local regulations, not the EU, and some charges might also be lower. The open question is whether the crews would accept such a solution and a lack of EU employees’ protection.
- 4.
- Connectivity risks are acknowledged, but not always quantified
LCCs warn that cumulative taxes depress demand at the margin, especially for regional airports and short-haul trips. Yet most maintain growth by reallocating capacity, densifying cabins, and stretching average stage length. However, as for now, the market looks strong and accepts higher ticket prices and the demand remains at record levels.
- 5.
- Innovation driver
Despite airlines’ reluctance to accept additional fiscal burdens, carriers increasingly acknowledge that environmental taxation accelerates eco-efficiency and technological uptake. Green taxes act as a catalyst for innovation: LCCs scale investment in new-generation, fuel-efficient fleets, expand SAF procurement and offtake agreements, and deploy digital optimization. Collectively, these measures reduce long-run exposure to carbon prices and levies while helping preserve cost competitiveness and network flexibility.
5. Conclusions and Discussion
The evidence indicates that EU and global market-based instruments—especially the EU-ETS and CORSIA—establish a baseline carbon cost that LCCs absorb through pricing, efficiency measures, and fleet planning; the supply link is strongest when airlines use internal carbon pricing to guide decisions. National taxes add diverse, passenger-facing charges that affect short-haul, price-sensitive routes and regional airports the most; their impact is real but generally marginal and place-specific, leading to capacity shifts rather than broad network cutbacks. Together, these policies stimulate innovation—the adoption of newer aircrafts, SAF surcharges and digital optimization—while raising concern about maintaining connectivity at the periphery.
The future research should develop route-level panels that align fares, frequencies and load factors with precisely dated tax events to identify causal effects, and explicitly separate ETS/CORSIA carbon price exposure from national levies to estimate pass-through heterogeneity across business models and countries.
Author Contributions
Conceptualization, M.J.W.; methodology, V.T.; software, not applicable; validation, not applicable; formal analysis, M.J.W. and V.T.; investigation, M.J.W. and V.T.; resources, M.J.W. and V.T.; data curation, M.J.W. and V.T.; writing—original draft preparation, M.J.W. and V.T.; writing—review and editing, M.J.W. and V.T.; visualization, V.T.; supervision, M.J.W. and V.T.; project administration, V.T.; funding acquisition, V.T. All authors have read and agreed to the published version of the manuscript.
Funding
This research received no external funding.
Institutional Review Board Statement
Not applicable.
Informed Consent Statement
Not applicable.
Data Availability Statement
All data originate from publicly open sources.
Conflicts of Interest
The authors declare no conflicts of interest.
Abbreviations
The following abbreviations are used in this manuscript:
| LCC | Low-cost carriers |
| EU | European Union |
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