Protecting future income by reducing the climate impact of your operations.
Climate change both impacts on and is impacted by aviation. Recent research attributes “around 3.5% of the warming impact caused by humans in the present day” to aviation, while we explored the consequences of global warming on operations in a previous blog.
Protecting the environment will reduce the likelihood of future crises (weather or health related), thereby shielding sources of income from possible disruptions. This will require coordinated cross-sector action, and all parts of aviation have a role to play.
Severe weather already disturbs flights significantly, amounting to approximately 15% of en-route ATFM delays in Europe in 2019. This is a particular focus of Egis’ work for EUROCONTROL on the Challenges of Growth study that we are currently updating (more on this when the final study is published). These delays generated additional costs from increased fuel burn to circumvent the storms and had ripple effects throughout the network to absorb that disruption.
Climate change generates more unpredictable weather, with events of higher intensity. Sea level rise combined with storm surge has already caused flooding in several locations in recent times, for example at Kansai Airport in Japan. Large storms or flash floods could hamper the operations of airports, airlines and ANSPs, translating to larger delays and more frequent cancellations. One direct consequence of this unpredictability could be increased insurance costs for operators.
Delaying action increases the costs of reducing emissions as the severity of climate change increases*. Every year action is delayed, the required actions become more radical and costly. For example, studies show that a nation can abate $100 per tonne of CO2 emission through the reduced harm to health alone. Direct benefits of reducing pollution could be as large as 5% of global GDP by 2030. This underlines the need for a global response.
Amplifying the need to reduce emissions is the fact that the price of carbon credits, like those bought by airlines to offset their emissions as part of ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), is likely to go up (some predict 4-fold by 2030). In other words, polluters will be required to pay more for continuing to produce the same amount of emissions. As such, a lack of change would translate into higher operating costs, increasing airfares which in turn would likely have a negative impact on passenger demand.
Finally, global warming may also change the demand for air travel as some destinations lose their tourism appeal or become unviable due to rising sea levels. Demand volatility could impact the return on large investments, such as new runways or fleet renewals.
Some parts of the industry have recognised the value of reducing their climate impact, notably airports. ACI’s Airport Carbon Accreditation scheme has been running for over 10 years and has over 325 airports accredited at various levels, with a number now achieving carbon neutrality including Hermes’ Larnaka and Pafos Airports.
Reducing costs through optimisation.
Becoming more sustainable often means rethinking business-as-usual. Operational optimisation drives costs (and emissions) down by reducing the amount of resources needed to carry out a task.
Using renewable natural gas to power the buses at Dallas Fort Worth International Airport reduced costs by a third, saving over $1m/annum, while upgrading San Francisco’s Airport International Terminal lighting with LED will pay back within 3 months **. From an Air Traffic Management perspective, more direct routings (eg cross-border Free Route Airspace), advanced sequencing (eg extended AMAN) and continuous climb/descent operations can bring significant savings. For an airline, this may mean reducing engine idling time, minimising APU usage, or deploying emission-free taxiing.
Perhaps the most untapped optimisation potential is through changing staff behaviours. Using behavioural science to drive the adoption of some of the fuel saving measures above, Virgin Atlantic saved $6.1m (and 24,000 tons in CO2) by ‘nudging’ its flight crew to manage their aircraft in a more environmentally-friendly way. The nudging included sending pilots monthly assessments of their fuel conservation performance as well as giving some of them an explicit goal for cutting down fuel use (and receiving either praise when they succeeded or more encouragement to do better if they didn’t). One of the groups studied were even incentivised by the airline giving money to charity when pilots hit their targets.
Maintaining revenue streams and reputation by promoting green credentials.
A growing body of research finds that consumers increasingly care about sustainability. In 2018, Nielsen reported that “73% of consumers would definitely change their consumption habits to reduce environmental impact“. This extends beyond food and household goods, to travel.
2019 saw the ‘flight shaming’ and the ‘no-fly’ movements becoming mainstream, with quantifiable effect on traffic in Europe. If anything, the COVID-19 pandemic has exacerbated this trend, with customers rethinking their mobility and shifting to cleaner modes of transports***. The inclusion of environmental impact indicators on travel booking comparison websites reflects that trend, as people realise they can do something. This presents opportunities, as some travellers may be willing to pay a premium to use a more environmentally friendly airline. Before the COVID crisis, easyJet said it benefited from its decision to offset the carbon emissions from all its flights since November 2019, reporting increased revenues and customer satisfaction as a result.
This public reckoning has the potential to severely impact a company’s credibility and reputation. There is increased traction to rank airlines and more airports around the world are drawing league tables to compare the performance of their customers. These scoring mechanisms may focus on operational indicators such as adherence to speed instructions or the position of aircraft when extending their undercarriage. Some also take into account whether an airline discloses its emissions or sets its own emission targets.
Increased scrutiny will also drive transparency and increase the need for broader corporate disclosure. Companies with strong environmental, social and governance (ESG) values may be able to promote their achievements over their competitors and gain market share.
Recognising regulatory direction of travel.
Consumer pressure also drives policy shifts. As the world wakes up to climate change and pressure grows, regulators are moving to force change. The Norwegian and Swedish governments are introducing mandates to support the uptake of sustainable aviation fuels (SAF). The Austrian and French governments attached green strings to their bailouts of airlines following the COVID-19 pandemic. Going further, France plans to ban domestic short-haul flights where an alternative rail link of less than 2 ½ hours exist. This has also revived discussions about additional taxation on aviation (eg on fuel, frequent flyers, etc).
Tighter regulatory regimes also often lead to higher costs as industry players must adapt their operations and demonstrate compliance. By being ahead of the curve, aviation stakeholders might be better placed to influence how that change is structured and implemented.
In Europe, the Green Deal is driving reforms in all sectors, putting sustainability at the heart of the policy debate. It is therefore not surprising to see that the proposal from the European Commission for the reform of the Single European Sky hints at modulating air navigation services charges to penalise polluters. As the climate emergency intensifies, radical, blanket measures might be applied to the industry, such as a ban on internal combustion engines and expansion of carbon pricing schemes.
ICAO’s CORSIA is the first global industry-led carbon trading and reduction scheme in the world. Other industries are watching carefully and may well follow. CORSIA has so far avoided local regulations and fragmentation of policies which would drive complexity and costs. Although a step in the right direction, there is increased pressure on governments to implement more stringent mechanisms at regional level as CORSIA has elicited mixed reactions and is regarded as not going far enough by some.
Attracting investments and talent.
As more stakeholders recognise the value of proactively anticipating, managing and responding to climate risks, addressing sustainability will not only attract, but also retain investors. In the twelve months to 2018, Unilever, which launched its Sustainable Living Plan in 2010, saw its sustainable brands grow 46% faster than others in its portfolio.
Demonstrating sustainability credentials is becoming a key factor in accessing funding. The European Investment Bank, which regularly finances ATM projects, has announced that it would phase out funding for fossil fuel related projects after 2021. Strengthening that commitment, the bank is now in the process of becoming the ‘EU Climate Bank’ – a repositioning reflecting more accurately its funding goals. This is true of private financing too. Earlier this year JetBlue used its strong ESG track record to become the first airline to secure a sustainability-linked loan.
What is more is that several new funding mechanisms are being introduced to support a green transition and climate resilient developments, such as the ETS Innovation Fund or the UK Future Flight programme, amongst many others. To guide investments the European Commission presented its Sustainable European Investment Plan, as the investment pillar of the Green Deal, and an enabling framework that is central to green investment towards carbon neutrality every five years starting in 2023. Key to this is the EU Taxonomy which was introduced in March 2020 to provide the private sector with a common understanding on what can be considered a green investment.
From a recruitment perspective, many employees are turning their focus inward, towards company goals and objectives. A survey from 2019 found that nearly half of all respondents, and three-quarters of millennial workers, said that they would be willing to accept a smaller salary to work for an environmentally responsible company. Modern employees want to feel that their work matters and are keen to work with companies making a difference.
There is growing evidence that from a business point of view, targeting sustainability will pay off. By taking action against climate change, aviation stakeholders can help protect their future income. Optimising operations will save resources while at the same time build and promote a greener reputation. Being proactive might enable aviation stakeholders to shape regulations while focussing on sustainability will ensure businesses attract investments and talent. As this becomes more recognised, the difficulty for many is in working out what to do, how to measure it, and how to fund it.
What to do? Start with an audit of the climate impact of your operations and identify a roadmap of improvement targets. This can be combined with a wider resilience study to assess your operational vulnerability and exposure to risks, with the related consequences on business, safety and finance. This needs to closely align with your strategy to ensure it receives buy-in from customers and management. Involve your staff, and give it high visibility.
How to measure it? A fundamental yet challenging question, from defining the right indicators, choosing the correct baseline, identifying interdependencies, and avoiding double counting. Whatever you do, it needs to be transparent to generate trust in your reporting.
How to fund it? Review your current strategic projects and align them to your climate goals. By demonstrating green credentials, you might be able to raise additional funding or apply for new sustainable development grants that are coming onstream. You might want to adapt your pricing strategy too, or develop new products that reflect your sustainability efforts.
Investing in sustainability is an economic argument as well as a moral one. As a community we can work together to ensure aviation remains relevant today and in the future.
* See IPCC Special Report 2018, UNEP Emissions Gap Report 2019, Nicole Glanemann, Sven N. Willner, Anders Levermann (2020): Paris Climate Agreement passes the cost-benefit text. Nature Communications. [DOI 10.1038/s41467-019-13961-1].
** ATAG Global Sustainability Forum – Planning a Green Recovery.
*** UBS Q Series, “By train or by plane?” The traveller’s dilemma after Covid-19 and amid climate change concerns, April 2020.