15 Green Facts in 15 Minutes

Transcript

David Wills:Well, first of all, thank you all for your resilience to make it to the last session of the day. In 2019, I think that was about the first time that airlines started to commit to net zero in 2050. And about one year later, my company started a partnership with CAPA, which really set out to track the data and understand how airlines were tracking towards net zero, how they were performing on SAF, how they're performing with offsets and other dimensions, and what that told us about the industry as a whole. And so today, as a bit of a scene setter for a what I think is going to be a great panel discussion, I just wanted to run through some of what the data is showing at the moment. And so the best place to start, or maybe the logical place to start, is if the industry is committed to net zero in 2050, so how are we tracking so far? And so that graph there shows a baseline in 2019 of about 90 grams of CO2 CO2 per passenger kilometre. And that's one of the key metrics we'll use for comparison. And as you can see, in 2024, we finally got down below the 2019 numbers. Obviously, there was the COVID spike. And so whether you're an optimist or a pessimist as to whether you find that encouraging or discouraging, I will say that if you look at '22, '23, '24, and that trend and that rate of improvement, it probably suggests net zero will be achieved about 2070. But there's a long way to go between now and then. So the next thing might be, okay, that's the headline number, let's just drill it down a little bit and look at— and there's been a lot of talk today about low-cost carriers versus legacy carriers— how's that 2 groups of airline, if we can group it like that, performing And I think that's where you start to see some quite distinct differences between the two. There was a talk earlier today about how they're sort of— the distinction is less clear than it might have been. I think in terms of carbon emissions and sustainability through a carbon lens, low-cost carriers are on average about 20% more carbon efficient per passenger kilometre than full-service carriers are. And we can go down one more level and say, well, what about from an individual airline perspective? What's the spread from the most carbon intense to the least carbon intense? Now, I haven't— first of all, it'd be too crazy to put 100 names on there, but Wizz Air currently has the lowest carbon emission per passenger kilometre in the industry at about 52. Wow. Compared to an industry average of about 88. So you can see that an airline like Wizz offers about a 40% less carbon per passenger kilometre output than the average airline in the industry. And there's, you know, I've said Pegasus, Volaris, Ryanair are airlines that are in that, that sort of left-hand side of that graph. From an Asia-Pac point of view, The best airlines are around 70, and that would be Indigo, Scoot, Cebu, AirAsia. They're all about that 70 grams per passenger kilometre. Another thing to look at is SAF, and we'll talk— I'm sure we'll talk a lot about SAF in the panel today, but to get a sense of where SAF is at, I think IATA have in their net zero roadmap 65% SAF, 65% CO2 reduction through the use of SAF in 2050. So in 2024, the industry use of SAF was about 0.3% of total fuel use, which was about double what was achieved in 2023. And current indications are it'll probably be double that again in '25, but you can see it's still early days in terms of its impact on emission reduction in the industry. British Airways, Scandinavian, KLM were the first 3 to exceed 1%, and I think BA last year reported about 2.7% or thereabouts. Best in this region is Air New Zealand, at about 1.7%, and then you have, I think, Qantas is quite high, Cathay is quite high for the region. In terms of where the SAF, 90% of it has been used by North American and European airlines, 8% in Asia-Pac, and only 2% of the global supply Middle East, South America, and Africa. So the next thing I'd like to look at is the similar data, but this time bring in a financial lens to it, say, well, so what? Is this just a sustainability story, or is there— is this going to have a material impact on the industry itself? And so one of the things we looked at was if we are going to have a 10% SAF uptake by 2030 as a target, what cost multiple on SAF would consume all of the industry's profit margin? So if we took all of the profit margin of the industry from 2024 and bought SAF with it to achieve 10% fuel use, then the cost of SAF would need to be at a 3.8 multiple on jet fuel, and at the moment I mean, others in this room are probably more informed than I am, but it's probably in that 3 to 4 multiple that we're currently at. So in other words, to achieve the 10% goal for 2030, the entirety of the industry's profit would be consumed buying SAF. The other way to look at it, instead of what's the cost of SAF, is what's the cost of carbon removal? And so making some assumptions about what's the jet fuel price, what carbon reduction do you get from SAF, the current cost of CO2 removal using SAF is about $500 a tonne. And that's at a 3 multiple. If it goes up to 4 or 5, whatever, then you can see from that graph that the cost is going to go up accordingly. And By reference to the EU emissions trading scheme, I think carbon allowances are about $80 a tonne at the moment. Direct air capture is about, at the low end, $500, $600 a tonne. So I'm only putting this up to say that while SAF is the one big thing that the industry is driving at at the moment, at $500 a tonne or higher, other technologies may become as or more cost-effective in that net zero journey. One of the other things to look at is what would be the impact on ticket price if we assume that the cost of carbon reduction is passed through to passengers. And in this scenario, so if we assume it's $500 a tonne, To achieve net zero, the average ticket price would need to go up by about 45% to cover the cost, assuming all other things are equal. And again, as you can see there in that table and in the graph, if the cost of carbon is $200, it's a 20% increase. If it's $700, it's 60%, and so on. The other thing is that it's not a level playing field because As we saw in that graph before, some airlines like Wizz are at 52 grams of carbon per kilometre, others are over 100. So if you're over 100, you've actually got a lot further to go to get to zero. And so the range across airlines, we estimate, would be from 25% up to 85% ticket price increase to cover the cost of the net zero outcome. Now, just a couple of other quick ones to go through. A lot of talk about SAF, there's a lot of talk about new fuel-efficient aircraft, but one of the big factors that correlates to performance is load factors. And I know load factor is not a new issue in the industry, But, um, oh, beg your pardon, before I get to that, one of the things we also did was to look at not just the fuel of the carbon efficiency, but how much do you pay for a ticket per kilometre? And the logic here was if people are looking to have carbon-efficient travel and low-cost travel, what are the airlines that fit that sweet spot for passengers. So we first looked at it from just a high-level regional point of view and said, if we look at each region, where do they sit in terms of carbon efficiency and cost efficiency for travel? And you can see the results there. The top right part of the graph is high carbon output, high cost per kilometre, and similarly down the bottom left, low carbon, low cost. So they're all airlines. If we split that out between Full service and low cost, again, you see the quite distinct difference, not just in this case from a carbon point of view, but also from a cost point of view. So if you're a traveller and your 2 biggest criteria in selecting your airline are I want a low carbon footprint and I want low cost travel, it'd be very hard to see a choice other than a low cost carrier at the moment. And on that basis, you would think low-cost carriers would dominate, but clearly there's value that comes with loyalty to airlines. We heard the SkyTeam earlier talking about that. If we looked at then how do the alliances perform, so this here shows on the left-hand side The aggregate performance of all airlines who are not aligned, and there's all the airlines, as you can see, the average of 88, and then how do the alliances perform? And on average, alliances are about 13% higher carbon emissions per passenger kilometre. There's some differences between the alliances, principally made up by the composition of the alliance partners. But that's the clear distinction, I think, that you see with low-cost carriers from a sustainability point of view. Back to the load factor question. These dots represent airlines and their performance over the last 4 or 5 years. So load factor across the bottom, carbon emission intensity up the side. You can see down there, I think it's 30%, 40%. They're clearly COVID-era type numbers that you see there. But whatever way you look at it, there's a clear correlation between getting more people on the aircraft and your ability to have fuel-efficient transport of people. Another way to look at that would be if the average load factor of the industry went up by 1%, that would result in a 10 million tonne reduction in carbon emissions, and at $500 a tonne, 10 million tonnes is $5 billion. So it's, it's not— load factor has always been an important factor in driving yields and revenues, but there's another dimension to it that has a potentially significant cost when the cost of carbon starts to get fully built into operating costs for airlines and the price of freight transport, the price of passenger tickets. I've just got 2 minutes left before I'm going to introduce the panel, so very quickly, one of the other things we look at is if you took an airline and you divided its profit by its carbon emissions, that gives you the price of carbon that it could afford to pay before it would be in the red. And the industry average is $92, or in 2024 was $92. In other words, if the cost of carbon reduction was $92 a tonne and every airline was able to pay the $92 and remove its carbon, the industry would be at a break-even point. But as you see, there's airlines that are on that left-hand side, up in the $200, $300 a tonne. In other words, financially much more robust. And then down on the— the further you go to the right, the smaller the number, the less flexibility an airline has from its operating profit point of view to address the sustainability challenge they've got. And so combining the breakeven carbon price with the current carbon emission intensity, has given us a matrix, a risk matrix if you like, that says if you are down the bottom right, which says you've got a high breakeven carbon price, i.e., you're financially pretty solid and you're down in the low carbon emissions per passenger kilometre, you've already gone a fair way along the journey to net zero. They're relatively solid. If you look up in that left-hand corner, and I've deliberately not put the names of the airlines, there are airlines there that do not have a strong financial position but have substantial gaps to net zero in their current performance. And I would not be surprised if there are airlines in that group that are no longer standalone airlines in 10 years' time. Final thing before I invite the panel up is, We've been tracking the level of disclosure within the airlines over the last 5 years also, and it's encouraging that we're probably getting— well, not probably, we are getting more airlines who disclose fuel use and carbon emissions. At the moment, 85% of the top 100 airlines disclose their fuel and/or their emissions. 2 things I would say. One is that the reporting on carbon offsets has substantially gone down, is very hard to find data from airlines on how much— outside of the regulated emission trading schemes, what is their voluntary purchase of offsets? How much are they spending on it? Where is that money going to? It's dropped below 10% for the top 100 airlines. And the other one is there are a couple of reasonably significant airlines who have reported scaled back their reporting in 2024 compared to 2023, and I don't know whether that's as a result of some of the pressures from NGOs and, you know, advertising regulators who are pretty aggressive about airlines' claims around sustainability, but it was just interesting that a couple of top 10 global airlines reported a lot less data in '24 than they did in '23. Anyway, thank you for that. Thank you.

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