Sustainability Facts – Key Numbers in the Transition to Net Zero

Transcript

Steve Limbrick:Thank you. What I'm going to do is, on behalf of InvestGlobal, is talk you through a few high-level data points that are relating to sustainability, particularly emissions focus at this point in time, and then hand over to my colleague David Wills, who will be with the panel to discuss some of the content and some of the data we present perhaps in a little bit more detail and observations from industry experts in relation to some of the challenges being faced, but also some of the opportunity. It's interesting when you go back, 2019 was about the first year when airlines really started to look at making net zero commitments into 2050. And Vest Global, we started in 2020 collecting data relating to that. And that data goes back to 2019. So we've got a very rich data set right through to today. And what we found a little bit was there's not a lot of consistent data out there. There's no regulation or policy around what could be provided. There was a lot of confusion around net zero, what was in net zero, what was out of net zero, what are some of the data points that impact net zero. And so we've been— particularly for customers who are trying to understand, or travel agents, in explaining to their customers what the net zero journey would look like, the impact of airlines that they fly, the networks that were operated. So we weren't looking at doing sector-by-sector datasets on operational side, but lifting at a much more macro level to try and get a sense of and provide the industry a better sense of what some of the impacts around this journey to net zero could be. We now have a dataset of in excess of 100 which represents about 75 to 80% of global RPKs, which is a very rich data set. And we were never looking at this to be a naming and shaming of airlines because there's a whole range of airlines in, in different geographical locations, different geopolitical environments, different level of opportunity to invest, but really just to give a sense of, of how the aviation industry is performing. So sort of to set the scene for the next for today's panel discussion that David will lead, I'm just going to walk through a few high-level points. I'm not going to dwell on any slides for too long. That'll hopefully come up in the discussion with people that are much more expert than I. I also want to say, unlike Simon this morning, and this will come as no surprise to any of my former colleagues in the room, I didn't prepare these slides. Someone else did them on my behalf. But so let's start first of all by looking at where we are. And we've talked about pre-COVID, and, and having been in the industry a long time, we've always had something pre. It was pre-pilots dispute, it was pre-GFC, and we've— every conference we've been to, there's something that's been talked about. And here we are still in this COVID period, so we do reflect back on 2019, rightly or wrongly. And I guess the high-level thing is here is understanding where is the aviation sector today from an emissions perspective. We're not looking at data relating to other programmes that the airlines have in relation to waste management, solar at airports, solar at offices, better utilisation of other activities, but purely emissions focus is where we're concentrating our focus here. But as you can see there, we're really back now to where we were in 2019. Now, in some instances, that's a pretty good signal because, as Simon indicated this morning, some of that flying has has come back, we've had to introduce new aircraft, had to rebuild networks, had to rebuild schedules, had to rebuild customer programmes. But the whole thing is about the efficiencies of those programmes. We'll touch on that a little bit shortly. So I thought it's now just worth just going in a little bit deeper to say, what are some of the things that we're seeing come through? And one of those is the increased carbon efficiency of low-cost carriers versus full-service carriers. Since this data was being collected, we've now seen that, not surprisingly, low-cost carriers have a 20% efficiency benefit over full-service carriers. But the thing that's at that '89 target, grams per CO2, is that full-service carriers have declined during that period, but low-cost carriers have improved. Now, some of that is around some of the aircraft deliveries and other elements that are coming through. But it does say that the industry is in this real dynamic position of what's customer expectations versus what's being able to be delivered. So we then have a look at saying, what's this look like if you put all of those 100 airlines into one slide? And down the bottom left-hand side there, you'll see Wizz Air, which is a low-cost carrier based in Budapest, Hungary, and for the last few years has been, been the leader performing airline in relation to its carbon emissions. At 52 grams per CO2 per kilometre, it's the most carbon-efficient airline operating in the world, and in fact has been recognised at various events that CAPA have managed as well. It's had a 40% emission reduction compared to its competitors Pegasus, Volaris, Scoot, Ryanair, other airlines in that low-cost carrier set have performed extremely well. And for comparison purposes, but without giving any numbers away, some of the carriers that we've been referencing today that are in the room— Virgin, the Qantas Group, Singapore Airlines, Air New Zealand— are all hovering around that industry average. You can see that line through the middle. But if you start to think about what are the solutions to improving the industry, there's not a lot of proven solutions out there at the moment that are readily available, but SAF is one that is dominating the current opportunity to improve the emissions profile. Now that's notwithstanding hydrogen solutions, whether that hydrogen combustion engines, hydrogen, battery-powered, electrical-powered aircraft and other alternatives. But SAF is one which is alive today and being developed. But I think it's worth just looking at what are the real numbers around SAF and how that's performing. So the real number— and Simon touched on this a little bit earlier today in his presentation— but the global number and the percent of industry fuel used in 2024 was 0.3%. So it's a very small number, and we're in the early, very early stages of SAF. And certainly, I'm sure our panel will discuss this. KLM and British Airways were the first passenger airlines to exceed the 1%. The IAG Group is currently around 2%. 70% of this SAF is used in Europe, again attested to what Simon said this morning. Again, for comparison purposes, without getting too detailed in numbers because they'll probably call me out for being wrong, but Qantas is around 0.24%, 0.25%, and Air New Zealand is around 0.4%. So their performance on a global scale in this area is quite strong. But the numbers are very hard to move. So Delta's use of SAF last year, for instance, was 10,600 tonnes. Wow. In 2024, that number's almost 40,000, so that's 40,000 tonnes. That's a 4 times improvement over the previous year, but that still only represents 0.3% of Delta's SAF utilisation across their total fuel burn. So you then start to think, okay, what's the impact on the industry given the difficulty of SAF, the competition for feedstock, The challenges in relation to the production locations, the willingness to invest, and what is it going to do to the price? What's going to happen to the profitability of the aviation industry given some of the circumstances we know? So if you assume sort of that SAF, which it currently is, hovers around— these numbers are very broad because it's really just estimates— is around 3 times the price of jet fuel, and that there's about 3.16 tonnes of CO2 emitted for every tonne, if you— and jet fuel costs about $1,000— if you use SAF, then you quickly get to a position that for each tonne of CO2 removed costs about an additional $700 if you're utilising SAF. Now, that number again can vary depending upon what markets you're in, and the numbers can be from anywhere $300 up to $1,000, but so this is sort of a bit of a proxy to give an indication. Thank you. of what that means. And, and as if the price of SAF goes up as industries compete or competing sectors are chasing it or feedstock shortage comes through, then that price could go up and again that, that affects. So this is just a bit of a ballpark, but you say, well, that's great, it's a lot of money, but the industry is a pretty low margin sector in a lot of instances, in a bit of a sweet spot in some markets at the moment. But what would happen if you needed to recover All of that just through things like ticket price. Now airlines won't necessarily just charge an increase in ticket price to recover it, but as an example of what could occur if you were going to do this is that at $700 a tonne to remove that tonne of CO2, at the industry average, fare increase would need to be about 60% if the only thing that was going to increase were airfares. And that was what— how the airlines— the only mechanism the airlines had to recuperate. Now, that varies based upon the cost of carbon. It varies upon how the airlines are performing. So there's various ranges in there. But essentially, you can see that that would be a pretty rude shock to most customers. So these alternative solutions are critical for the industry beyond what we're seeing in relation to SAF. So who's the best positioned to withstand these challenges? This seeks to look at airlines that have— managing their costs but also managing their emission profile, and we've broken it down by regions. We have got it by airline, but it becomes a very complex chart. But essentially you can see there, which was interesting for us as we started to analyse the data, is that South America is one of the best performing airlines in relation to efficiency of its emissions. There's a lot of low-cost carriers in South America, The operations suit themselves to this type of benefit in relation to emission burns. But at the other end of the scale, you see North America and the Middle East are some of the challenge. So for Asia-Pacific, probably in a position for most airlines in this region to absorb some of the challenges there, but you can see the industry has a real risk of the challenges that are going to be presented in relation to these cost elements. Another interesting one, I think David made me do this because I was working with Oneworld for a period of time and I was the person responsible for the announcement in late 2020 of the first alliance to target net zero emissions by 2050. But as you can see, we then sort of— let's look across alliances and this comes back to that social licence of passengers. And what are the competing influences that we get from customers who are seeking to have a comfortable, relaxed journey, the recognition they receive through the alliances, the frequent flyer benefits, etc., and balancing that out with their social alliance to supporting the environment? And it's going to be a challenge that we as an industry will continue to face, and it ultimately comes down to, to some extent, what are customers willing to pay and what, what comfort of their journey they may be willing to sacrifice. But essentially what you can see here is the combined intensity of the 3 alliances about 14% higher than airlines that aren't in alliances. So one of the things we've done at InvestGlobal is We have a rating report which talks a little bit about the transparency and the availability of data that airlines are willing to provide. All the information we have and have access to comes from publicly available sources. In some instances, very, very comprehensive sustainability reports that a number of airlines publish, but in some instances, some airlines don't publish any data whatsoever. There's no industry standard. There is guidance from IATA in relation to the level of reporting which can assist in clarifying the current positions within the marketplace, but there's no compliance issues. So, so for someone really trying to understand this space and where the difficulties are, it's important for us to have a consistent approach. So we've taken this, and this is just an example of 5 of the KPIs that we use. Fuel use, fuel costs, Scope 1 CO2 emissions, which is 82% being reported, SAF utilisation, which is improving, and offsets purchased is an interesting one because offsets in 2019, when we started reporting on this data, were being very highly reported, but as a result of greenwashing and other impacts, is now taking a much backseat role in relation to that reporting criteria. Pleasingly, the performance data that we're having access to has increased by about 30%. But as you can see, there are still a number of airlines in different parts of the world that do not report any data at all in relation to their performance in relation to this. So, David, if you'd like to get your team to come up. So thank you, everyone. Over to you, David. Thank you, David.

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