Climate Change and Delta Airlines
As both a contributor to and a victim of climate change, Delta Airlines must truly consider the effects of climate change going forward as a business.
Delta Airlines will certainly be affected by climate change. Delta is a global leader in the airline industry, an industry that both significantly contributes to and will be massively affected by climate change. While Delta Airlines has acted swiftly to hopefully address its contribution to climate change, it still needs to build greater resiliency in its business model to account for its margins will be impacted by climate change.
To start, Delta is a leader in the airline industry, an industry which significantly contributes to climate change. The global airline industry produced around 2% of all human-based carbon-dioxide (CO2) emissions in 2015, or about the same as the entire country of Germany1, making it a large absolute source of emissions. This figure is only expected to increase as increasing prosperity in developing countries increases overall global air travel. Airlines are also responsible for 12% of CO2 emissions from all transport sources2, making it a large emitter relative to the broader transport category. The fact that airlines are significant emitters in both absolute and relative terms makes them likely targets for more stringent regulation by national and international governing institutions.
Delta appears to have taken active steps to get ahead of the curve on this front. In its 2015 Corporate Responsibility Report3, Delta lays out the measures it is implementing to reduce its environmental footprint. First, it focuses on improving compliance with environmental law and regulation by performing audits and publishing its performance vis-a-visa key environmental indicators, such as CO2 emissions, ozone depleting substance emissions, and waste management goals. Second, it also highlights the efforts that the International Air Transport Association (IATA), of which Delta is an important member, is making to work cooperatively with international regulatory bodies to craft regulation to limit airline emissions. In fact, this year the IATA and the United Nations jointly announced the first set of international binding limits on carbon dioxide emissions for the airline industry that will take effect in 20284. In this regard, Delta is playing a key role in shaping how climate change regulation affects the company in the industry.
However, Delta’s business model will be significantly affected by the effects of climate change. On the revenue side, Delta will be impacted by climate change in several ways. Unpredictable, extreme weather events such as thunderstorms or snow storms lead to cancelled flights and reduce Delta’s revenues. Climate change is increasing the odds of more extreme weather events taking place5. More frequent extreme weather events will lead to a greater number of cancelled flights and decreased revenues for Delta. Also, Delta’s revenues rely on airports in many coastal cities to serve as popular destinations for both business and leisure traveler. However, climate change is expected to have a number of negative effects near stemming from climate change will threaten coastal cities’ viability as secure revenue generators for Delta.
Climate change will increase costs for Delta as well. The more frequent extreme weather events associated with climate change will generate higher maintenance costs for Delta. The company will be required to perform more frequent and more intense maintenance actions on its fleet because of the damage done from extreme weather events. Also, increased extreme weather events will cause greater damage on airport runways7. Leading airlines, like Delta, are typically at least partially responsible for covering runway maintenance costs at airports, so this will increase costs on Delta. Finally, recent scientific research by Paul Williams shows that climate change will increase airline’s operational costs while flying in jet streams8. Jet streams are fast-moving air currents within the upper atmosphere that typically flow from east to west, and they are fueled by temperature differentials in the atmosphere. William’s research predicts that temperature changes associated with climate change will increase jet stream speeds, but not its impact will not be felt in equal directions. For example, the changes in the transatlantic jet stream his will decrease the throughput time of eastward transatlantic flights by four minutes, but it will increase the throughput time of the westward transatlantic flight by 5 minutes and 18 seconds. This means the throughput time of the roundtrip transatlantic flight will increase by 1 minute and 18 seconds, leading to increased fuel and other operational costs for airlines like Delta.
Delta’s risks from climate change are especially acute, because the airline industry is a low-margin business. Climate change will hurt Delta’s margins, both from the revenue side and the cost side. Therefore, it is critical that Delta builds more resiliency in its business model to protect itself from these future margin risks.
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1 – http://www.atag.org/facts-and-figures.html
2 – Ibid
6 – https://www.epa.gov/climate-impacts/climate-impacts-coastal-areas
7 – https://www.greenbiz.com/article/4-ways-climate-change-could-ground-airline-industry
8 – http://iopscience.iop.org/article/10.1088/1748-9326/11/2/024008/meta
Thank you for this thoughtful post! When looking at major weather events in the past, it is clear that they can have a massive negative impact on an airline’s route structure for several days. One aspect that you didn’t touch on was Delta’s fleet strategy. Comparatively to many legacy airlines they buy a large number of used airplanes, such as recently purchasing most of the remaining 717s on Earth, which inherently have much lower fuel efficiency (http://news.delta.com/deltas-fleet-strategy-driven-opportunity-flexibility). Do you think this policy will change as they take climate change more seriously or they will continue to focus strictly on the economics?
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At this point it seems that economics come first for Delta (and most of the airlines industry). Until they move towards a newer, more fuel efficient fleet it will be hard for me to believe they are fully committed to fighting climate change.
I agree that the airline industry will be affected by climate change. However, I’m a little skeptical of Delta’s interest in sustainable practices due to rising costs. As climate change affects coastal markets, Delta will adjust its route network to supply heavy demand routes. Additionally, all of the world’s airlines face similar climate change threats, and the worst offending countries are typically not party to international agreements on carbon footprint reduction (http://www.eesi.org/articles/view/nations-agree-to-curb-airline-carbon-emissions). I think the use of carbon offsets will slow the sustainability programs the airlines implement, and the increased costs they face will end up being passed on to the consumer. By passing on increased costs to the consumer, Delta will probably be able to protect its bottom line, especially considering the decreased competition in the U.S. airline industry following the airline M&A frenzy producing the top 4 airlines since 2008.
Given that airplane travel demand is elastic, especially for leisure travel, would you consider passing on increased cost to the consumer as a potential risk for Delta? With the rapid growth of online websites like Kayak and Expedia customers are able to find quick comparisons between airlines and as we can see in this report (http://www.fin.gc.ca/consultresp/airtravel/airtravstdy_1-eng.asp) both long-haul international leisure and short-haul leisure are highly elastic. Is this a segment Delta would be willing to lose by increasing their prices or is this something that would happen to all airlines, and all airlines will have to increase their prices?
As CK mentioned in Delta’s recent purchase of 717s with a lower fuel efficiency than other options they might just be focused on staying alive in a low margin industry, disregarding the potential impact of climate change in their business.