All aboard: how Southwest can fly above its competitors to drive sustainability in aviation
With rising transportation costs and increased regulation, how can Southwest decrease its carbon footprint and create a sustainable business?
Global warming has led to considerable scrutiny in the transportation industry. While much of this has been levied on the automobile industry – driving greater regulation and investment in cleaner vehicles – a rise in global tourism over the last couple decades has now brought the spotlight to the airline industry as well. In 2015, 10.7B gallons of oil were consumed by the airline industry in the US alone1, representing roughly 8% of domestic oil consumption2. Similar to the automobile business, this has led to some political innovation in the industry to disincentive gas usage3 – such as carbon tax levies – and has also led to the establishment of organizations such as IATA and A4A (International Air Travel Association and Airlines 4 America)4. Due to rising gas prices and competitive pressures, we have seen an increased global investment from major airlines to adapt their operating model in response to global climate change.
One airline at the forefront of these changes is Southwest Airlines – which now evaluates its business through three lenses – Performance, People, and Planet. Southwest has made considerable changes to its processes to minimize the effect of its operations on the planet. Considered a top four airline in its response to global warming, Southwest has invested in considerable changes both in the air and on the ground. Regarding its planes, a majority of the changes revolve around increasing fuel efficiency, with a 29% increase since 20055. For instance, Southwest has redesigned its galley and is installing lighter seats on its new planes to drastically decrease the overall weight of its aircraft – a key determinant of gas consumption. Even a technological change as simple as using tablets instead of heavy paper manuals and charts drove a 500K reduction in gallon consumption in 20155. In addition, Southwest installed Split Scimitar Winglets on a considerable portion of its fleet, making these planes more streamlined in flight and thus more fuel-efficient. Southwest has also continued to focus on recycling the plethora of materials consumed in-flight (e.g., aluminum cans, paper, etc.). Finally, Southwest has also agreed to purchase 3M gallons of low carbon renewable jet fuel per year starting in 20185.
Southwest has invested in optimizing its ground operations to minimize its carbon footprint as well. For instance, the company has shifted to more LED lighting in its Dallas and Atlanta hangar locations, which is considerably more energy efficient. Additionally, Southwest has made a concerted effort to reduce greenhouse gas emissions by moving more of its ground service equipment (GSE) to electric power (e.g., trucks and belt loaders). The company has done this extensively at its Albuquerque and Austin locations, with a plan to roll out these changes to the Phoenix airport next. To date, roughly 20% of the GSE fleet runs on electricity5. Finally, in 2015, Southwest purchased enough renewable energy to cover 40% of its energy consumption from its Dallas and Houston facilities5.
While Southwest has taken strong steps to move toward sustainability, many scientists believe that long-term sustainability in aviation will require more radical technological adoption6. As such, I believe that Southwest could be taking additional steps to become an industry leader in pursuing true technological advancement to drive sustainability in aviation. For instance, in addition to more traditional steps to decrease its carbon footprint (e.g., decreasing airplane weight), Southwest could also partner with scientists and organizations to rethink how a plane is actually powered. For instance, NASA is currently exploring hybrid models for aircraft (similar to hybrid cars)7. Airbus, another aerospace company, is partnering with Siemens to explore hybrid and electric airplane models as well8. There has also been recent scientific investment in building algae based biofuel engines for aviation9. While Southwest would be ill advised to pour considerable R&D investment into exploring these topics on their own, they could explore business development partnerships with some of these companies to ensure they are the first airline to pilot and adopt such technologies, keeping them at the forefront of technological innovation in the industry longer-term.
Finally, in addition to its current positive trajectory in decreasing its carbon footprint, there are some tactical changes to Southwest’s operational model that could also drive efficiencies in the short-term. For instance, since airplane weight is a key determinant of airplane fuel efficiency, Southwest could design incentives to have its passengers bring less baggage (e.g., coupon toward next purchase). In addition, Southwest could conduct analyses on its routes to remove those with low utilization and optimize for fuller aircraft overall (since the bulk of the weight is driven by the plane itself), which could also positively affect their bottom line. Overall, I believe that a comprehensive strategy of investing in short-term operational changes, coupled with an increased focus on longer-term technological innovations in aviation, can help Southwest cement its position as the industry leader in sustainability (797 words).
Appendix – Sources:
1US Energy Information Administration, “Frequently Asked Questions,” https://www.eia.gov/tools/faqs/faq.cfm?id=23&t=10, accessed November 2016.
2United States Department of Transportation, “Airline Fuel Cost and Consumption,” http://www.transtats.bts.gov/fuel.asp, accessed November 2016.
3”Innovation towards tourism sustainability: climate change and aviation,” International Journal of Innovation and Sustainable Development, January 2006, http://www.inderscienceonline.com/doi/abs/10.1504/IJISD.2006.012421
4https://www.researchgate.net/profile/Kevin_Mearns/publication/301787366_Climate_change_and_tourism_some_industry_responses_to_mitigate_tourism’s_contribution_to_climate_change/links/57283e6708aef9c00b8b5817.pdf, accessed November 2016.
5Southwest Airlines, 2015 Annual One Report.
6”Innovation and global climate change in the 21st century, Atmospheric Environment, April 2009, http://elib.dlr.de/59761/1/lee.pdf, accessed November 2016.
7”Electrifying Flight,” The Economist, September 19th 2015, http://www.economist.com/news/science-and-technology/21664944-using-electric-and-hybrid-forms-propulsion-very-different-looking-aircraft, accessed November 2016.
8Wall, Robert, “Airbus, Siemens to Cooperate on Electric Plane Project,” Wall Street Journal, April 7th 2016, http://www.wsj.com/articles/airbus-siemens-to-cooperate-on-electric-plane-project-1460024827, accessed November 2016.
9”Emergence of green business models: the case of algae biofuels for aviation,” Energy Policy, February 2014, http://www.sciencedirect.com/science/article/pii/S0301421513010562, accessed November 2016.
Great article Danny, thanks! I always thought of Southwest as one of the more proactive airlines in the sustainability front as well.
However, today’s IKEA class made me realize something I had never thought about – what if the sustainability practices translate into more, and not less, impact? Low cost carriers like Southwest play a major role in the stimulation of the air market. If the savings achieved through sustainability measures (like lower fuel consumption) are passed on to the customer in the form of lower fares or discounts for future flights, then the net effect could be even more passengers, and more GHG emissions. I guess this is another example of the tension between business and sustainability! If you were Southwest’s CEO, would you pass the savings to the customer?
Danny – What I found most interesting about your blog post were the numerous and varying ways in which Southwest has attempted to combat climate change. Before reading this post, I had assumed that planes’ gas usage was the only lever that could be adjusted to make a difference; I didn’t realize that there were many other levers such as adjusting the materials of the manuals and focusing on recycling items consumed in flight. I found an interesting article I wanted to share with you that goes into depth about how the interior of the plane has been remodeled to be more environmentally friendly—everything from the seat parts to the life vest pouch to the carpets have been thought out! http://www.environmentalleader.com/2012/03/29/southwest-airlines-weight-loss-program/
Your proposal to explore how the plane is powered is an interesting one. I think you are very realistic when you allude to this being too expensive to invest in alone, but I question whether/how a partnership with other companies would be formed without a significant financial contribution from Southwest. Given that Southwest (and many other players in the airline industry) have had struggles as of late, I wonder if this will be a priority for Southwest, or if they will need to prioritize spending on other areas with their limited budgets.
Your alternative proposals are very creative but I question their ease of implementation. I think it may be challenging to get customers to bring less baggage by incentivizing them with coupons towards future flights—after all, many passengers need to bring items on many of these trips, so will likely forego this alternative. This would also have major financial implications for Southwest; Southwest already prides itself on being one of the cheapest airlines in the industry. I would imagine it would be hesitant to offer more coupons given its existing low prices (Can they stretch their margins any further? I’m not sure.) It’s interesting that you chose this positive incentive vs. an increase in baggage fees to discourage baggage. I agree with you that this a superior alternative, as an increase in baggage fees would likely lead to customers switching airlines—a risk Southwest cannot afford.
Great read, this is an exciting industry to watch with the changes in regulations, volatility in fuel prices, and M&A going on. Southwest is an interesting company, in terms of climate change. I love the points you make about what they are currently doing, but am skeptical of their intent. Most airlines are cutting cost but mainly to cut consumption of fuel, which tends to be their biggest driver of cost. If we look at Southwest, two question immediately come to mind. First, as you point out weight is a huge driver of fuel consumption and ultimately of emissions, however, Southwest is the only airline major us carrier to give 2 free checked bags. This promotion in a way encourages consumers to pack heavy, which increases emissions, albeit from a business point of view does differentiate them and reduces the time to board which helps keep them competitive. Second, there is scale benefits in aircraft, meaning a new A350/787 will have a better per seat carbon emission than Southwest current 737 fleet, or even its upcoming 737MAX I speculate. Why hasn’t southwest moved to larger aircraft? The skeptic in me thinks its due to the incremental cost of maintaince it would incur by having to service a 2nd aircraft type.