IAG Warns Costly Green Fuel Mandates Could Raise Fares, Weaken European Hubs

Europe wants airlines to use substantially more lower-carbon fuel, but International Airlines Group says affordable production is not expanding fast enough to support that timetable. IAG chief executive Luis Gallego warned in remarks reported on November 9 that the combined burden of mandatory fuel blending and carbon charges could raise passenger fares, undermine route economics and weaken European hubs.

Gallego’s argument is a warning rather than a confirmed forecast. No resulting fare increase, route cancellation or hub reduction has been identified. His central concern is that airlines are being required to buy an expensive fuel before sufficient production capacity and supporting infrastructure are available. “We have mandates for things that do not exist,” he said.

The policy schedule is demanding. Under the European Union’s ReFuelEU Aviation regulation, fuel supplied at covered airports had to contain at least 2% sustainable aviation fuel in 2025. The required share rises to 6% in 2030, 20% in 2035, 34% in 2040, 42% in 2045 and 70% in 2050. Sustainable aviation fuel was reported in October 2025 to cost approximately three to five times as much as conventional jet fuel.

Two policies create different but cumulative costs

The fuel mandate and the EU Emissions Trading System operate through separate mechanisms. ReFuelEU requires a specified proportion of lower-carbon fuel, directly creating demand for a product that remains more expensive. Emissions trading requires covered airlines to surrender allowances corresponding to their covered carbon dioxide emissions. Free aviation allowances have progressively been removed, with the system moving toward full auctioning in 2026.

For an airline network, those expenses do not remain isolated accounting items. Fuel is required for every flight, while carbon costs apply according to the regulatory scope. Where an individual route already operates on a narrow margin, an additional cost can change whether it remains commercially viable, how often it is flown or whether connecting traffic is routed through another hub. That is the basis for IAG’s concern about fares, routes and European connecting airports not evidence that those effects have already occurred.

The competitive boundary is important because passengers connecting between regions can sometimes choose hubs outside the European Economic Area. Research on aviation carbon leakage identifies hub switching and additional non-European layovers as potential responses when carbon costs differ across jurisdictions. The size of that response depends on ticket prices, schedules, travel time and the geographic scope of regulation, so it cannot be inferred from the mandate alone.

The first target was met, but harder scaling remains

The initial 2% requirement did not produce an immediate physical shortage across the EU market. Around 1.1 million tonnes of sustainable aviation fuel were supplied at EU airports in 2025, representing 2.8% of aviation fuel supplied, up from 0.6% in 2024. That result shows a mandate can accelerate market uptake. It does not settle whether supply can scale affordably through the much steeper targets ahead.

Current production also has a concentration problem. Most European sustainable aviation fuel is made from processed waste oils and fats. About 80% of the 2025 supply used cooking oil as its feedstock, while 85% of feedstocks were imported. Those figures expose a constraint beyond refinery capacity: expanding one fuel pathway requires dependable access to qualifying raw materials, with credible sustainability accounting across international supply chains.

Synthetic aviation fuel presents a different industrial challenge. It requires renewable electricity, hydrogen and captured carbon dioxide, tying aviation-fuel growth to expansion in several energy and processing systems at once. Around 60 European synthetic-fuel projects were identified as being in development, but none had reached a final investment decision. Announced projects therefore cannot yet be treated as operating supply.

The EU’s position is that binding, harmonized demand provides the market certainty needed for producers to invest, gain scale and reduce costs. It also argues that common rules prevent a patchwork of national mandates and can lower compliance complexity. IAG’s counterpoint is about timing: if the cost arrives before production efficiencies, infrastructure and global coordination, European carriers may bear a disproportionate burden during the transition.

Passengers and hub communities carry different risks

Passing every added cost directly into fares is not automatic. Airlines may absorb part of it, alter schedules, change aircraft allocation, reduce investment elsewhere or recover different amounts from different markets. Passengers on routes with limited competition could face a different outcome from travelers on dense routes where airlines have less pricing power. Airports and communities dependent on connecting traffic could also be affected if enough marginal services become uneconomic.

The environmental result depends on fuel quality as well as quantity. Lifecycle emissions vary with feedstock, production pathway and energy source. A nominal increase in sustainable fuel use does not deliver an identical emissions reduction across every batch, while traffic diverted through longer itineraries could erode some gains. Effective implementation therefore requires verified lifecycle performance, scalable production and rules designed to limit traffic displacement.

The next major step is the jump to a 6% EU blend in 2030, alongside the development of synthetic-fuel capacity. Whether Europe reaches that level through operating plants and broader supply chains or mainly through higher compliance costs will determine how much decarbonization the mandate purchases and how much pressure reaches fares, routes and hubs.

By Thomas Caldwell — AMI’s senior editor for mechanical and mobility engineering, covering vehicle electronics, systems integration, electrification, chassis systems, propulsion, and safety policy.