Virgin Australia Hikes Fare Due to Carbon Tax

Virgin Australia (ASX: VAH) announced on Wednesday that it will start to introduce beginning March 1, 2012 a $3 carbon tax surcharge for passengers.

Although Australia's carbon tax takes effect July 2012, Virgin and other air carriers that enter European air space are also required by the EU Emissions Trading Scheme to pay a carbon price through the purchase of carbon credits. The requirement began in January 2012.

The $3 per passengers would be collected on all Virgin codeshare flights into and out of Europe. Virgin actually does not operate flights to Europe but it sells codeshare flights with Etihard Airways from Abu Dhabi to destinations that are considered part of the EU's emission trading scheme.

By July 1, Virgin will collect another $1.50 surcharge per passenger for flights less than 900 kilometres, $3 for those who will travel between 901 to 2,000 kilometres and $6 for those with trips beyond 2,000 kilometres.

Competitors Qantas and Jetstar had added similar carbon tax surcharge to passengers. Jetstar will collect a $10 carbon surcharge for domestic fares, while Qantas will collect between $3 and $6 for domestic flights and up to $60 for international flights.

The federal government of Australia approved the carbon tax of $23 per tonne in late 2011. When the government begins to collect it by middle of 2012 about half of the total collections is expected to come from power plants. It is based on the assumption that the power plants would release in 2012 the same volume of carbon dioxide emissions it did in 2010-11 at 170 million tonnes.

At such level, the power plants are expected to pay $3.9 billion carbon tax on the first year out of the expected $7.7 billion total collection for the first 12 months. In anticipation of a cash flow crisis due to the large amount due, power generators have sought help from the federal government's Energy Security Council which could cause problems for their refinancing efforts. Millmerran InterGen, the coal power generator in Queensland, said the carbon tax cost would hurt its $467 million refinancing efforts, while, Loy Yang Power, which is the largest power plant in Victoria, estimates the tax would hurt its $565 million refinancing due in November.

While the Treasury reckons electricity prices will go up 0.7 per cent on the first year of implementation of the carbon tax, Macquarie Generation said the price could go higher than the government estimates. The company said Macquarie Generation would shift from being a profitable business to an unprofitable one because of the tax.

The National Greenhouse and Energy Report produced by the Department of Climate Change and Energy Efficiency listed the emissions and expected carbon tax payments of Australia's 430 biggest polluters. The top 50 are expected to pay $7.3 billion.

Companies on the top 10 list include Macquarie Generation, Delta Electricity, Great Energy Alliance Corporation, International Power and TRUEnergy Holdings.