How CO2 targets have complicated business travel
by Steve Goldstein, Cirium’s air transport reporter Americas
Since the depths of the COVID-19 crisis, business travel’s prospects of a return to 2019 levels have been uncertain – and they remain so.
That partly reflects the existential dread of climate change that has seeped into global consciousness over recent years.
Last year’s COP26 summit in Glasgow brought forth pledges of meaningful change at the political level. Should it occur, that will likely filter down to the corporate level, compelling executives to balance the need for business travel against carbon-emissions targets – and choose which metrics on which to base decisions.
Addressing Scope 3 greenhouse-gas (GHG) emissions – those generated indirectly from operations such as business travel – has become a “major issue” for corporations, Dan Rutherford, programme director for Washington DC-based nonprofit International Council on Clean Transportation (ICCT), has told Cirium.
As more companies adopt voluntary GHG reduction goals that incorporate Scope 3 emissions, I expect pressure to reduce business travel, to select less-emitting flights, and also to purchase sustainable aviation fuels through agreements with airlines and fuel providers.
Rutherford has been involved in work to set aviation emission targets under the international Science-Based Targets initiative (SBTi) on behalf of ICCT, which provides research and analysis to environmental regulators.
Speaking late last year, Rutherford highlighted the likelihood some corporations would follow Microsoft’s lead and purchase sustainable aviation fuel (SAF). The US technology company in 2020 committed to buying SAF from Netherlands-based SkyNRG in a scheme to reduce the carbon footprint of its employees flying for business on three Alaska Airlines routes from Seattle. Microsoft is purchasing SAF credits from SkyNRG; the SAF will be delivered to Alaska’s airport fueling system.
“I think we’ll see more of these approaches in the future,” Rutherford said of Microsoft’s SAF initiative.
A key is to make sure that there is no double counting: ie, only one amongst company, airline or fuel provider claims the resulting emission reduction.
Business as usual
Demand for business travel, if not impaired indefinitely, is subject to an ongoing reshaping wrought by the pandemic. Supply-chain problems aside, daily business activity charged ahead as former office workers made the transition to working at home. Such a long period of remote working is bound to have lasting effects on the way companies operate, and on the labor market.
Fewer people working in offices does not automatically translate to diminished demand for business travel relative to 2019 levels. Still, that factor combined with a conviction among some workers that they have more leverage with employers than they had pre-pandemic, plus increased comfort with videoconferencing, may result in greater personal resistance to business travel.
Vik Krishnan, a partner at consultancy McKinsey, suggested during a US Chamber of Commerce webinar in July 2021 that a fifth of pre-pandemic corporate travel spend might not return at all.
“Sectors like tech might be more reluctant to return full tilt,” Krishnan said.
These sectors may never truly recover because they’ve found alternative ways of conducting business or have been able to use teleconferencing technology very effectively.
Embraer vice-president for marketing Rodrigo Silva e Souza echoed Krishnan during the Dubai air show in November when he expressed the Brazilian airframer’s belief that 15-20% of business travelers would not return to the skies.
Worker resistance to flying for meetings that could be held virtually, and to commuting daily to an office, could be a wet blanket on demand for business travel in the years ahead.
Additionally, shareholder pressure on investment banks and wealth managers to allocate capital to companies that at least give the appearance of reducing their carbon emissions may already be influencing decisions made by corporate travel managers.
“There will be a lot of pressure from investors and financiers on publicly quoted companies,” Ascend by Cirium senior consultant Richard Evans has observed.
I am assuming this will be [felt] most in Europe, but also increasingly in North America and parts of Asia.
Evans notes that some EU banks have already committed themselves to the Paris climate accord and are measuring their progress toward CO2-reduction targets.
Reducing carbon emissions for business travel might prove exceedingly complex even for companies with the best intentions.
First, selecting “less-emitting flights” – as ICCT’s Rutherford phrases it – might become time-consuming and knotty amid an overall transition to new fleet types and competing emissions/fuel-burn metrics.
North American, Latin American and European carriers, for instance, have been making the transition to the newer, more-fuel-efficient narrowbodies manufactured by Boeing, Airbus and Embraer. Additionally, four to five years hence, the shift toward the more economical and fuel-efficient widebodies – the Boeing 787s, the Airbus A350s and A330neos – will be more pronounced across international carriers.
Second, selecting flights based on aircraft types would be a crapshoot – an airline can swap aircraft at the last minute.
Evans sketches a scenario in which a company whose business travel by air in 2019 emitted 50,000 tonnes of CO2 might draw a curve to net zero in 2050 in a chart that factors in both cash spent and emissions.
“To maximise the travel you can make, [that] corporation should favour airlines with the most efficient fleets, and/or those committed to a higher amount of offsets and SAF adoption,” he says.
It might be that for New York-London flights it is calculated that, for business-class flights, Airline A is best, but for economy it might be Airline B. I can see it getting quite complicated. Maybe initially it will simply be looking at the CO2 emissions of each flight and guiding the travel bookers to favor those flights. It may be that employees can be incentivized in some way to take the lower-emission option.
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Investors and the corporations beholden to them might simply choose to focus on rewarding advances in the development and production of sustainable aviation fuel.
Fuel made from renewable biomass and waste resources has received the seal of approval from the US Department of Energy’s Office of Energy Efficiency and Renewable Energy, which says SAF has “the potential to deliver the performance of petroleum-based jet fuel but with a fraction of its carbon footprint, giving airlines solid footing for decoupling greenhouse-gas emissions from flight”.
The supply of SAF remains limited, and the cost is high compared with petroleum-based jet fuel. Nevertheless, the first airline to claim that it intends to use the maximum allowable amount of SAF for certain New York-London flights might be rewarded by travel pledges from a few high-profile corporations, even if the cost of the fuel is priced into the tickets.
If business travel recovers on, say, the New York-London route, the financial-services companies that fly on it have the means to put carbon-emissions considerations first, and price second.
“If this sector wants to set an example, it can do so, and it can afford to pay for offsets or to choose airlines based on their environmental credentials, not just price,” Evans says.
A ripple effect could then ensue, as airlines shift their newest aircraft and more SAF to that route, and manufacturers and energy companies glimpse the enticing prospect of bigger profits to be gained from accelerated innovation.
Ever mindful of costs, some companies may be more likely to emphasise ticket price and seek creative ways to meet carbon-emissions targets. Forcing corporate travellers to downgrade from business class to premium economy, or from premium economy to economy – or encouraging employees to make those choices themselves – saves money and comes with the bonus of a smaller carbon footprint.
Purchasing carbon offsets as a counterbalance to business-travel miles would cast corporations in a better light with investors, even if the environmental value of those offsets might be dubious on close inspection.
“Corporations could choose to simply carry on using [whichever airline or flights] they want, but to offset everything that is not already offset by the airline,” says Evans. “I’m highly sceptical about offsets, as are many climate groups. I think the option is there today to offset all your business-travel emissions, and so become net-zero overnight.”
Lessor litmus test
Airlines’ and their corporate customers’ public attempts to fight climate change are often viewed with a jaundiced eye. It is more difficult to dismiss lessors’ investments in such efforts. If lessors invest serious money in technological advancements that would reduce carbon emissions, then change might really be afoot.
“We all know [that reducing emissions] has become really important because lessors like Avolon are now giving companies with just paper designs loads of money, to buy aircraft,” says Ascend by Cirium analyst Syed Zaidi.
In June 2021, Irish lessor Avolon placed an order valued at $2 billion for as many as 500 electric vertical take-off and landing (eVTOL) aircraft from UK-based Vertical Aerospace.
Cowen analyst Helane Becker has suggested, at an Airline Economics Growth Frontiers event in New York, that while eVTOLs were initially designed as a replacement for ground transportation their role could expand.
Longer term, we expect these aircraft to scale, and we expect the technology will improve so that it will be efficient to fly 200 people at once from New York to Chicago on something larger than one of [the aircraft being designed now.
Zaidi focuses more on the symbolic meaning of lessor investment in eVTOLs and less on what purpose the aircraft might serve.
Typically, no lessor would touch aircraft like this with a 10-foot pole,” he says. “They only really use aircraft that are already proven, that airlines have already shown a demand for. But clearly they all need to put something in their books saying they are moving to the electrification initiative.
In March, Avolon confirmed that it had placed all 500 of the Vertical Aerospace VX4 aircraft in its orderbook.
A version of this article originally appeared on Cirium Dashboard.
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