Recorded at CAPA Live September

Aviation’s existential threat is not COVID – it’s the environment: CAPA & Envest

CAPA Live will this month investigate the topic of environmental sustainability and aviation. A vital step to achieving emission reduction goals is accurate and effective measurement of individual airline emissions.

CAPA and sustainability analysis partner, Envest, will reveal some early findings on the significance of sustainability for the airline industry, ahead of publishing a landmark report on the topic in Oct-2021.

In this session, CAPA and Envest will present data on 25 of the world’s leading airlines, which together represent about 55% of total industry emissions. In terms of CO2 emissions per ASK and RPK, there are very significant differences between best in class and worst and the four airlines with the highest emissions intensity are all based in the Asia Pacific region.


  • CAPA - Centre for Aviation, Chairman Emeritus, Peter Harbison 
  • Envest Global, Executive Director, David Wills 
  • Envest Global, Executive Director, Brett Mitsch 

CAPA Live is the most sought-after monthly global aviation event. Taking place on the second Wednesday of each month, thousands of industry colleagues from across the globe tune in for their monthly dose of aviation and travel news, analysis, and in-depth interviews with industry leaders. Register here to be part of our growing community.



Hello, well I'd like to welcome to [Kappa 00:00:16] Life. [Brett 00:00:17] mentioned David Wills from

Envest Global. Envest is an international carbon reduction strategy and advisory company, which

focuses on the challenges of the aviation sector. That's w

hy they're here. But David and Brett are 30

year veterans in the area of advising companies about sustainability issues and strategies. They're here

today because we're working with Envest with Brett and David, in Kappa, to produce a sustainability


which will be a continuing exercise. But because we believe this is so important at this time in

the airline's history and industry's history, we think something like this is really needed.


So we'll be collaborating on this report, which comes out

late October, November. So look out for that.

But today, Brett and David will be talking a little bit about that report and what we hope to get out of it.

Hopefully it will be of great value for the airline industry. So Brett and David, over to you. Maybe

I can

just kick off by asking you a very, very open question. How significant is an issue for the... Is

sustainability as an issue for the airline industry this year, particularly?


All right. Thanks, Peter. And just to say, it's great working with K

appa and really getting access to the

sort of the rich data set that you guys have around financial and performance of the airlines to help us

put this sustainability report together. At the moment, and we're obviously still finalising it, but it looks


e we will be able to profile 40 of the major airlines that represent probably about 70% of the carbon

emissions from the airline industry. So we've got a really great set of data to work on. And the report

itself really, I mean, to analyse airlines perform

ance, it'll highlight risks and opportunities, profile the

performance of airlines relative to some industry benchmarks and hopefully provide some insight. But

mean in terms of your specific question, how significant is sustainability. Historically, if you

look back,

most companies, their environmental performance is driven or has been driven by compliance. And this

sort of peripheral environmental benefit at times of improvements introduced to drive down costs,

improve performance.


And the airline i

ndustry is a great example of that, where your fleet operational efficiency has created

some incredible reductions. But I guess what we're seeing more recently is that the pressure to improve

is coming from customers and investors to line up with their own

commitments. They're making about

their carbon reductions and about their sustainability performance. And as I suppose, what we see is

today, it's kind of a tipping point in some ways for the airline industry, facing a real challenge here as

those pressur

es increase. I mean, I suppose everyone has seen some summary of the recent IPCC report

that came out, which was a pretty soberly pessimistic assessment of where we're at and sort of climate

impacts that we've already locked in. And we've got 26 coming up.


I imagine that the pressure is going to increase. So I guess what we're hoping is this report will increase

the IPCC report, is going to increase that urgency for airlines. Decisions of customers, who they fly with.

Decisions of investors, which ai

rlines they invest in. And really the airlines who addressed that challenge

the best, probably the ones who are going on urge as market leaders.


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And then certainly from Kappa's point of view, we've been saying, I think that obviously COVID has had a

massive impact, but the sustainability is probably the key issue moving ahead. And, whether airlines and

the industry really recognise that, is not a question. You mentioned there that it's not just the industry,

it's external pressures that are pushing t

he industry towards us. So particularly customers and investors,

how are they starting to drive the agenda here?


Yeah, I mean, that's two big questions and I'll tackle the corporate customer base and then let Brett

provide some thoughts on the inves

tors. I mean, airlines for many years have recognised, I guess, the

growing social expectations around the general customer base. They've introduced offset schemes,

which, I guess, allow customers to translate their sustainability values, if you like, into

a contribution.

We're all very familiar with the flight shame movement. And, I don't suggest we get into commentary

about the individuals and organisations who were driving that, but it's certainly shining a light on the

performance of the industry. But t

he real significant changes recently has been the drive by corporate

customers. And they're now starting to translate their own sustainability aspirations into carbon

reduction, goals and specific travel related goals. So, there's a risk and an opportunity

for the industry in



I mean, if you talk about some of the specific goals that the customers are generating, corporate

customers, I mean. I mean, as part of this study, we've looked at over a hundred corporations who are

amongst the biggest co

rporate travellers globally. And there's a very consistent pattern that's emerging,

about three quarters of those companies have made some net zero emissions commitment, and those

commitments are in the timeframe typically of 2025 to 2030.


So if you

compare that to airlines that have net zero commitments, they're typically in the 2050

timeframe, there's sort of a timeframe misalignment there that could be significant. The other

interesting fact out of it is that about 40% of those companies have spec

ific travel carbon reduction

goals, and those travel carbon reduction goals are in the order of 30 to 50% from 2019 base. So that's

quite significant. We'll talk a little bit more about that in a moment. And I guess the final piece is that

some of them are

imposing explicit internal cost of carbon on transactions, so that there's almost a

shadow set of financials that accounts for the cost of carbon. And that clearly has an impact on travel

arrangements, flights that are purchased by those corporations. But

in terms of... So what's the impact

of all of that.


Major customers are on an aggressive net zero trajectory, more aggressive than corporate customers.

And that misalignment, some extent, is going to mean that if airlines can't align with corporate

customers, then it kind of forces a reduction in travel to enable the big corporate customers to meet

their goals. And the most obvious risk is that if they are committing to a 30, 50% travel... Explicit travel

reduction commitment, then the follow effect

could be a 30 to 50% reduction in corporate travel, which

would be quite profound. It's important to note that those commitments are typically reduction in

carbon from travel, not a blanket, absolute reduction in travel spend or travel miles. And that's a


important distinction because that travel is an essential part of business. And in effect, they are sort of

setting carbon budgets or carbon emission limits that corporations will manage. And you can see where

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that leads to, which is, if I've got a

limited budget of carbon, I'm going to seek out the flight options that

I've got to optimise the amount of travel I can get done for my finite carbon budget.


And so there's the negative impact, if you like, isn't going to be spread evenly across the airlines. I mean,

those that can differentiate with low carbon options compared to their competitors, are got to be better

placed to increase market share, because

they've got [vision 00:09:36] options, enable corporations to

get more miles for their budget. And in fact, one of the analyses that we've done as part of this, is

looking at a pretty, I guess, in some respects, a pretty basic analysis, which is the carbon

emissions of

airlines compared to their revenue passenger kilometres. To get a sense of the carbon intensity, if you

have, or emissions intensity of each of the airlines. And there's quite a wide range of outcomes. And

even if we kind of adjust for some o

f the parent outliers at the high end, low end, even within the core

of the sort of list of 25 airlines we've looked at in detail so far, there's about a 50% range in carbon

emissions per RPK.


And so you can see that if I'm an airline that has to cu

t my travel by 30%, I could achieve that by moving

from my base airline that might have 120,000 tonnes per million RPK to an airline that's got 90 tonnes

per RPK, and I'm almost there kind of a thing. And so that sort of decision


making by corporates to


able them to optimise their carbon outcomes, manage their carbon budgets, I think is going to be

quite significant.


The final point I would make would be that corporate customers are also really important potential

partners for airlines, and for air

line alliances to, I guess, align investment to accelerate to net zero. I

mean, some great examples now of that happening, but there's a really big opportunity if the industry

can harness that. Harness the low carbon ambitions of the corporations. You impl

ement, perhaps a

more coordinated response problem, a series of one


off deals. It certainly has the opportunity to

produce costs in this transition to accelerate the implementation timetable for critical technologies.

New fuel such as [SAF 00:11:56], obvio

usly strengthened the loyalty between airline corporate

customers as sort of there's a partnering to achieve mutually agreed outcomes around sustainability.

And hopefully actually reduce or eliminate the need to minimise travel reduction because those carb


reductions you achieve for technology and fuel rather than from produce travel.


I think it's a really interesting twist to that, to the loyalty issue, isn't it? Because loyalty programmes

have typically been used to distort more efficient buy



So if you're talking in conceptually that loyalty

in terms of having a more integrated emission strategy as an airline and having a lot of costs. That

becomes a whole new ball game. It's really interesting.


Yeah. I mean, and there's certainly peopl

e who know more about the mechanics of loyalty programmes

than I, but where sustainability and carbon become such a significant financial driver or barrier to doing

business, if you like, then you can see that the desire to stay with a carrier but I've bee

n a platinum

frequent flyer for 15 years. Maybe, need to be compromised by the fact that to do my job effectively,

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I've got to get more travel done. The airline I've been loyal to for 15 years, isn't going to cut it for me

anymore because I have to reduce

my travel by 30% and stay with them.


Yeah. Certainly one of the areas that the flight shamers have directly attacked is our frequent flyer

programme issue. Sorry, I interrupted you anyway. And in full flood...


No, no. I was actually just wait

ing for any comments on the corporate side that you want to add in.


No, David, not really, but I mean, just to extend on Peter's question, I think from an investor perspective,

there's some useful points to make as well, Peter. So, just in terms of

scale and in terms of the reach of

the global financial community, in many cases, the financial investor community has stepped outside

and accelerated beyond politics, beyond the governments, in terms of their thinking around

sustainability. As an example

of the scale, you've only got to look at the number of signatories that the

United Nations principles for responsible investment have got, and that's over 4,000 or nearly 4,000

signatories at the moment. And about $120 trillion of assets under management r

epresented by that

group. And if you think about the rise and rise of responsible investing, the investor community has

quickly got to a point that is supported by the financial markets more broadly, if you think about Mark

Carney, and the task force for c

limate related financial disclosure, the TCFD framework, that's now

becoming de rigueur for many corporates and many stock exchanges in terms of disclosure frameworks.


And so you've got a really strong set of large scale investors who are looking to

make change, not just in

the airline industry, but across all industries around dealing with climate change. If you look at the likes

of BlackRock and Vanguard and State Street, and you've only got to look at the shareholder registers of

many of the liste

d entities, listed airlines in the US particularly, those names are across the board in the

top five of those listed entities. And so you're seeing a concerted effort by the investor community to

understand where their risks are from a climate change persp

ective from a greenhouse gas emissions

perspective. And what they're doing is they're asking and demanding greater disclosure and

transparency by all of the investor companies that they've got stakes in. And in the airline industry,

we've seen climate acti

on 100 plus came out earlier this year.


With very clear set of expectations for the airline sector around reporting on greenhouse gas emissions

by RPK by ASK. And so, there's a demand for that level of disclosure from airlines. And so what we're


ing is particularly a greater desire to engage with boards, a greater desire to engage with

management. Stakeholder or shareholder activism is on the rise across all of those industries that have

got hard to abate greenhouse gas emissions. So oil and gas,

transport in general, and airlines clearly are

part of that equation. And so, certainly we're seeing from the investor community, along with, to David's

point, the corporate customer community, a far greater expectation by airlines of coordinated


g, reporting and truth in advertising, as it were, in terms of their operations. To David's point

about carbon pricing. What we're seeing is the expectation of applying internal carbon prices to financial

decisions, to understand what those risks are now.

Why is carbon pricing rising, if you will? It's supply

and demand. We're seeing, and cop 26, hopefully we'll give some greater clarity on this.

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We're seeing greater expectation of the use of offsets and Corsier clearly utilises offsets as an impor


part of dealing in the short to medium term with carbon emissions. It's not the be all and end all.

Investors are starting to say, "Well, that's great, but that's only netting off emissions. So what are you

doing to actually get to absolute zero, not

just net zero." And so that gives rise to the question of

technology and where the investment opportunity is for technology. And I will say investors are looking

for opportunities to invest. The global pension markets are a wash with money. We only have to


here at Australia and see the inflows into superannuation funds, looking for a home to be deployed.


That's only exacerbated by the global macro economic conditions in terms of interest rates. And, there's

a lot of demand for transparency, a lo

t of demand for disclosure. There's a lot of demand for tell me why

you're not doing something. If you've got a strategy, if you've got a stated strategy and a target, then

making sure that airlines can deliver on that expectation of a more intense data se

t. And that's frankly

what we're working with, with Kappa on is to unpack and analyse wherein airlines are in comparison to

each other, across a range of those factors that do go to the heart of what investors are looking for.


And of course, as you

both sort of indicated, there's an awful lot of sensitivity, depending on airline, in

terms of what that pricing is. The range that we're talking about, is a pretty wide one, isn't it?


It is. And, carbon disclosure project did a report where in the

transport sector. Now, obviously transport

is not just airlines, but in the transport sector, they're seeing sort of average prices of $20 per tonne of

carbon, all the way up to about $150 a tonne. Now, if you look at where Paris agreement, carbon prices


eed to be to incentivize a shift to transition, they're in the 60 to $80 a tonne range. And so with supply

and demand, increasing prices for offsets, I think the expectation broadly is that carbon prices will

continue to rise. It's clearly... It plays into

the whole article six of the Paris agreement and NDCs across

countries. And so it's not simple. This is not a trivial exercise, but there is... The financial markets have

turned their attention to the global voluntary carbon markets. And so there is an ex

pectation that there

will be greater clarity over time, but it also is sort of a starting point, if you will, that many corporate

customers, to David's point are using internal carbon prices well ahead over... Well north of 20 to $30 a



Brett... [crosstalk 00:20:20] Sorry, Peter. I just add to... One of the things that we're going to include, or

will be included in the Kappa report, we'll be looking at, I guess, the sensitivity of airlines to an imposed

price of carbon, if you like. And,

whilst there's estimates of the full cost of carbon is somewhere

between 40 and $80, we've done some analysis to say, "What if each airline had to wear the full of

carbon at $5 a tonne, $10 a tonne, $20 a tonne, and comparing that to carbon emissions relat

ive to the

operating profit." And this is 2019 data. You start to see what happens to individual airlines as that price

goes from five to 10 to 20, and how quickly, even at that level, profits are eroded. So the sort of dollar

per tonne for carbon and the

likelihood of pressure to either regulatory or otherwise to start to account

for that, starts to show, I guess, the risk or resilience of individual airlines in that scenario.


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In terms of profitability, yeah. Just the gross number on it. I mean, my

math isn't very good, but I did a

really crude calculation of multiplying the number of millions of tonnes of CO2 in 2019 by a $70 price,

$70 a tonne price, which is what McKinsey are talking about, I think. You're talking, industry mind,

you're talking $6

3 billion, which is about twice as much as the industry's ever made. It's a gross profit

throughout its 75 years history. So these are big numbers, aren't they? Even for the more successful



They are, and this is why the question of what's

after COVID. This is, we believe that this is truly an

existential threat, because there is a demand from customers, from investors, from society in general.

Even though it's a hard to abate industry, there is a demand for doing better because the airline


is part of the global climate change question or issue. And if you are going to put a price on it, then

those numbers are significant, and there will be airlines who do a much better job, and there will be

airlines who are left behind. And the que

stion strategically then becomes, who are the winners and who

are the losers, and how do you make sure that you're on the right path?


So, in terms of the specific issues that the airlines can address themselves, SAF is one of them,

Sustainable Aviat

ion Fuels. How important is that, and how likely are they to get to reasonable levels of

effectively offsetting their existing emission levels?


Yeah. Well, I mean, I think almost everyone on this call would probably agree that SAF is the response


at's going to make the most significant difference in the medium to longterm, whether that be 10, 20,

even 30 years in the industry. And so success with SAF really is synonymous with success with the

industry in responding to this. I mean, if we look forwa

rd just to 2030, and there are a range of

estimates of what SAF production capacity will be at that point in time, and allow for a range of

differences. Even the most optimistic estimates, probably suggest on the current trajectory, but there

will be about

a 10% reduction in CO2 emissions per passenger kilometre as a result of SAF by 2030. So it

kind of throws up two questions, how to accelerate that, and what's going to be the impact on the

airlines when that starts to accelerate.


And if you look at

that second question, and again, this is one of the analysis we've done as part of this

sort of sustainability report is, if you look at the profit margin of companies, you look at your cost as a

percent of overall operating cost and dues, a sort of sensi

tivity analysis within that. You see that there's

a very widespread of airline performance in that. And as the pressure comes on to accelerate, different

airlines are going to feel restrained because of their high fuel costs, because of their low profit ma


And so, I mean, the response to that... I mean, as an industry, as I mentioned a moment ago, it's really

about trying to harness the alignment of customer and investor interest to scale investment. We say a

really good example this week, BCG, SAS, Fi

nnAir, nest around use of SAF in the Nordics. But really to

scale this, to make a material difference in the next five to 10 years, it's airline alliances and its alliance

of alliances that need to come together to create the speed and the cost incentive t

o make this happen.


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For airlines themselves, I mean, I think there's a need to do a deep dive into the different parts of the

business and really stress test the airline, and all the different components of it. What does that mean

for pricing and ma

rketing strategy? What does that mean for overall strategy for the fleet mix, domestic

versus international travel, et cetera. Because, I mean, as we've said, a number of times, pressure points

are not going to be even in the industry and within individual

airlines. They're not going to be even

across. And so having a really clear understanding, I think, is a fundamental starting point for how the

industry and airlines respond to that.


Yeah. And of course it was said in many different sort of context

s, airlines are all different. Airlines also

have very different route networks. They have very different fleet sizes, different strategies. You have

the hub carriers as opposed to point




point carriers. What sort of impact does that have in terms of


ressing their sustainability?


Well, we'd probably need another couple of hours to combat that one, but certainly, I mean, looking at

the data in terms of the difference between carbon intensity emission, between flights of different

durations, the d

ifference between newer and older aircraft. There's quite significant variability in that,

when you bring it all together, which is something we're doing out of the port, there's sort of a pattern

that emerges that really does go to the viability or profit

ability of very specific parts of businesses, and

for corporate customers, and just going back to that topic.


I think we're already seeing evidence of people making flight decisions based on the specific aircraft in

that sector. So, there's a granul

arity to this, as Brett mentioned earlier. I mean, the need for objective

industry data and quite granular data is, is increasing. And I think when that is one of the key things that

I think we're going to see much more of in the future, which is a movemen

t away from sustainability

messaging through marketing, if you like, to industry accepted, objective, detailed performance data

that investors, that customers, suppliers, airports, a whole range of buyers in industry you're going to

rely on.


Yeah, i

t's a really important part, isn't it? Because it flows through if the company is making decisions

based on the information it's getting. It's investors are going to want to know how verifiable that

information is. Now, I've only got a couple of minutes le

ft. Two questions I have to finish off with.

What's the impact of COVID going to be on getting towards net zero, obviously we've reduced flight

levels and so forth. Numbers of flights and capacity. And also, and then finally, to end on a positive note,


can airlines respond in a way that we see sustainability as a positive influence?


Yeah. On the COVID point, Peter, and obviously we've all been touched in such a tragic way by COVID

across the world, and fingers crossed, it starts to improve. And I

do think there are some [green shirts

00:28:58], vaccination levels obviously help. We've seen this in the Northern summer that people with

vaccinations are starting to travel again. And so there is an expectation that there will be some pickup.

It's a cr

ystal ball gazing approach if we try and put a pin on when it gets back to normal, whatever

normal looks like. But I do think that COVID is, it's out there, but I think people are starting to turn their

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attention to climate change. The IPCC report, COP 26,

there is still a COVID question to deal with. Sorry,

a climate change question to deal with. And so I think COVID has amplified and accelerated some of that

thinking around where to next, but I think certainly, climate changes is not gone away in that reg



To your Last question about the positive, if you like, I'll try and be as positive as I can. I mean the first

one is not a positive, and it is... Don't assume there's a lot of time to do this. A lot of pressure, COP's

going to increase it. Some

airlines are doing better than others and the impact won't be even. So for any

elements, I don't assume that there's a long time to deal with this. I think keep doing the positive things

that airlines do... I mean, the incredible progress in the last two

or three decades around efficiency

gains, new technologies, et cetera, is quite phenomenal. And that needs to keep going. I think any airline

who doesn't understand down to a granular level, how their business responds to the carbon stress

that's coming, I

think needs to do that. I think airlines need to look at creating bigger scale partnerships

with investors with customers to tackle this problem collaboratively rather than piece by piece. And the

final thing I would say is, encourage everyone to get a co

py of the capital report when it comes out in



Well, I find it hard to disagree with that last point, I've got to say. But quite seriously, I think this is what

we're doing here. It's great working with you guys. So what we're doing here is

really hoping to fulfil a

lot of the goals that you've expressed during this conversation that you can... We can produce

something which is credible, which is defensible. And at the same time, really points to the areas where

differences exist and where ch

anges need to be made. And in supporting corporates in their decision


making and supporting the role of the industry in facing the flight shamers in responding to

governments. This, I think, in turn by providing some genuine... And data, which can be defen

ded very

effectively. I think they probably providing a good service to the industry. So on that basis, we really look

forward to working with you and we'll be watching this space, folks. We'll be back.


Thanks, Peter.


Thank you, David. Thank

you, Brett.


Thank You.

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