Air travel currently represents 4-6% of the total greenhouse gases. However, it is the fastest growing source of GHG[i]. Just in the EU their contribution grew by 87% between 1990 and 2006 and cheap tickets and increased cargo needs are only exacerbating this issue.
The airlines’ operating model is going to be affected deeply by both direct, such as extreme weather conditions, and indirect climate change consequences, such as increase in fuel prices due to taxes. Some companies are addressing issues like fuel pricing risk by passing this risk down to the customer, while others are not making any changes arguing that air travel is an irreplaceable industry.
International Airlines Group, the result of a merger between the British Airways and Iberia, is the sixth largest airline company in the world. Given that it is an EU company it likely is going to face a heavy regulatory pressure. Moreover, the company destinations are highly diversified and can be affected by negative weather conditions.
On the demand side: Businesses[ii], with their shifts to video conferencing, and consumers[iii] movements have appeared that are advocating for moving away from this industry after learning about their lack of sustainability. Additionally, Norway has been the first government to try and reduce demand by limiting the benefits that airlines can offer through their frequent flyer programs[iv].
While domestic aviation CO2was under the scope of the first period of the Kyoto protocol (2008-2012), international aviation, which makes up most of the contamination, was excluded. In 2012 the EU started requiring its airlines to be incorporated into the Carbon Credits Scheme[v], a type of security developed to offset the excess of CO2 produced by some companies.
As recent as October 2016, UN’s International Civil Aviation Organization has put forward an agreement[vi], signed by 191 countries, in which the every airline will have to offset their international flights emissions by funding forestry and carbon capturing activities.
Finally, the core operation of airlines, flying, might be at risk due to climate change effects. It has been forecasted that increased level of CO2 will result in increased turbulence, mainly during transatlantic flights. The effects of turbulence include, delays, damages to airplanes and to people, that in some cases are even fatal.
In 2014 the company was ranked as the second to last least fuel efficient in transatlantic flights.
To answer this allegations and to combat some of the potential effects of climate change, the company started to include a chapter in their annual report about their efforts in sustainability and the potential climate change-related risks.
Their current objectives are more ambitious that those of the industry average and in line with the objectives of the COP21 conference. They plan to reach those objectives by pulling on 4 levers[vii]:
- Incorporating new, low-carbon fuel alternatives not only on their airplanes, but for the whole industry
- Phasing out their current inefficient airplanes and introducing more efficient versions, such as the 787 which has a footprint 20% smaller than the most frequent plane, the 767
- Investing donations made by their customers into community renewable energy projects
- Supporting regulators in bringing their ideas to practice
While IAG has been doing their homework and is updating their policies to reach a more sustainable state, their starting position as of 2014 was slightly behind their peers. I see three potential areas, order by potential impact and urgency, in which they could improve their positioning:
Delay the plane phase out: it is remarkable that they have committed to abide by this new regulation by its earliest deadline. However, given that the results will be measured with the emissions level of 2020 as a benchmark, I would delay phasing out the planes so that they are not setting the bar, reducing the benchmark emissions by 80%, too high.
Give customer a sustainability incentive: the Customer Fund is a good start, but customers and regulators will see that there is no difference between donating through IAG or directly to the projects. To make the customers feel like IAG is invested, they have a program to match the customers’ donations or make an annual donation by every frequent flyer program member.
Develop a regulatory observatory: while it is true that they are now generating some goodwill with the regulator thanks to volunteering for one pilot, this does not mean that they will enjoy any benefits or should be less wary of potential, unannounced changes in their local or international regulation. (754 words)