Supplier Sustainability Surcharges: An Essential Green Investment or Just a Stealth Tax?

Travel managers have been faced with a new breed of supplier cost to start the new year: sustainability surcharges. Sister airlines Air France and KLM have introduced a mandatory tax of €1 to €12 on departure from France and the Netherlands to fund investments in sustainable aviation fuel. Meanwhile, One Mile at a Time, a publication for frequent travelers, reports that a small number of Marriott hotels in the US have introduced a $4.99 per night ‘sustainability fee’ without explaining why. of this load.

These new fees raise important questions for buyers. Will suppliers actually use the extra revenue to invest in sustainability, or is it just a “stealth tax”, according to Gavin Smith, director of Element Travel Technology? Is it appropriate to charge a separate additional fee to fund sustainability? And should customers pay more to mitigate the environmental damage caused by their travel consumption?

Marriott’s “Sustainability Fee” environmental references are more easily addressed. A spokesperson for Marriott International said these were fees imposed by certain franchisees, not by Marriott itself, and “we have reached out to franchisees to have the fees waived.”

Unlike hotel franchisees, Air France and KLM have explained their surcharge, which will be presented on tickets as a separate “sustainable fuel contribution”. Client companies can make an additional voluntary contribution.

KLM in particular was a pioneer of SAF. In its press release announcing the tax, the Dutch carrier said: “The CO2 emissions of the SAF that KLM currently purchases are at least 75% lower than those of fossil kerosene. This is why, in the short term, SAF is the most important means of drastically reducing CO2 emissions. Costs for the sustainable fuel variant are at least four times higher and production lags behind. By increasing demand, KLM hopes to further develop the SAF market so that supply is increased and the sustainable fuel eventually becomes cheaper.

The buying community is not convinced. One reason is that, like airlines, they have emission reduction targets. Who counts the SAF savings financed by the levy? “I’m the only one taking credit for it, not the airline,” said a travel manager, on condition of anonymity, who also complains that he was not consulted before the announcement. “It’s not transparent and it’s not clear what methodology they’re using.”

Kerry Douglas, program manager for the Institute of Travel Management, says buyer members have several apprehensions. “Some worry that the SAF surcharge will become much like the regular fuel surcharges that came in when oil was at $130 a barrel, but were never removed when the price of oil fell,” said Douglas.

“They are also wondering who will get the carbon credit for fuel and whether all flights carry the surcharge, especially since not all flights have SAF on board. The general perception might be that the SAF surcharge is a price increase by any other name.

“Additionally, there is the problem of corporate buyers who think they could end up paying twice, if they had their own commitments on SAF investments.

“Surcharges and fees can be a challenge for buyers. There is often a lack of transparency on exactly how they are calculated and reinvested, and this can add further provocation for buyers trying to budget at a time when the focus is already on costs” , says Douglas.

Jörg Martin, owner of CTC Corporate Travel Consulting, is a confirmed supplement skeptic. “It is the responsibility of the airlines to implement SAF and they should not shift responsibility to the customer,” he says. “If it’s something customers want to support, that’s fine, but it should be mutually agreed, not unilaterally imposed.”

Airlines are just passing the buck for the investment they have to make anyway”

A travel management company executive, who also requested anonymity, agrees. “You could make the same argument for imposing a surcharge for the introduction of new planes because they are more environmentally friendly,” he says. “Airlines pass the buck for the investment they have to make anyway.”

The SAF tax is also controversial as there is much debate about the sustainability of SAF. “At altitude, CO2 represents only half of the harmful emissions of planes”, explains Willem Melis, carbon adviser at the consulting firm Climate Neutral Group. “Last year, 300 billion tons of kerosene were used worldwide, of which only 65,000 tons were SAF.”

KLM’s press release says the tax will fund an additional 0.5% of the SAF blend on all flights departing from Amsterdam. It will hardly save the planet, but the airline says the momentum will build. “Currently, worldwide production of SAF is limited,” says a spokesperson. “Therefore, we can only start with these small quantities with the ambition to scale up only if sustainable and affordable supply allows us to do so. We expect SAF’s production capacity to increase sharply in the coming years. Therefore, we are confident that we can source sufficient SAF for our client proposals.

“We are not making any financial profit from this mixing initiative. The SAF revenue we receive through tickets is transparently administered and directly used to purchase new SAF. Additionally, we believe it is important to create awareness and transparency about the costs of using a sustainable alternative fuel.

Although he questions the effectiveness of SAF, Melis supports the AF-KLM initiative. “It’s good that they force customers to invest in SAF,” he says. “The more you invest, the lower the price will be. FAS needs more attention. It’s still too expensive to buy and there should be more. Even though it is indeed a price increase, it is for a good cause.

ITM buyers also have a nuanced view. While sympathizing with the general strategic orientation adopted by AF-KLM, it is the specific tactic of the mandatory overload that they take issue with.

“There is no doubt that there is a cost associated with creating a more responsible industry and the community of ITM buyers and suppliers is committed to doing just that,” says Douglas. “It is recognized that to increase the use of SAF and move the industry forward with production and availability, there is likely to be increased end-user cost.

“We may have to pay more for the right partners to make the right choices, but it’s too early to say whether deploying surcharges is the right way forward without transparency and a way to attribute the carbon reduction to the company.

“What buyers don’t want to see is the industry using sustainability to charge or raise costs in an effort to recoup lost revenue due to the pandemic.”

Next time: are carrier surcharges justifiable?

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