Might the ICAO deal, weak in itself, be the beginning of the end for very cheap flights?

The recent deal from ICAO on slightly limiting the rise in global aviation carbon emissions would perhaps add around 2% to the price of an air ticket. That would be about the cost of a coffee on many short haul cheap flights – not a deterrent. It would not start till 2020. The aviation industry may worry that its wafer thin margins (shocking it makes so little profit for the emission of SO much CO2) may be further hit.  But the industry is pleased there is an ICAO deal, as it will be much cheaper for them than a patchwork of more stringent regulations by regions or countries. Hence their (muted) enthusiasm for it.  They have got off lightly. The aviation industry currently has very cheap fuel, but it has not had a good year due to fears of terrorism, cutting growth – and also fears of coming economic gloom, with Brexit as part of that. There have been airline staff cuts.  Airlines will need to invest in newer planes, that emit less carbon per mile – to save themselves costs in future. The price of oil is not likely to stay low for ever, especially due to the lack of investment in the current downturn.  With the first mechanism to act on aviation CO2 now agreed, there may in future be more environmental regulation for the sector. With anticipated growth of 4 – 5% per year, the CO2 emissions from global aviation could become around 25%of the total by 2050 – eclipsing the progress made in cutting carbon from other sectors. 

Is it all over for the age of cheap air travel?

Some UN observers are dismayed at the carbon deal, saying it will amount ‘to little more than adding the price of a cup of coffee to a ticket’

By Jillian Ambrose (Telegraph)
8 OCTOBER 2016

The aviation industry has crossed a threshold. After almost two decades of talks, 191 countries gathered in Montreal last week to adopt a global market-based system to tackle the rise of carbon emissions from international air travel.

The deal has been welcomed by governments as an unprecedented diplomatic success, and by green groups as a hopeful starting point for further environmental progress. But for some embattled airlines, it could deliver a fatal blow to the gilded decades of low-cost flights.

The second half of the last century played host to a revolution in air travel, driving the globalised economy that is taken for granted today. In 1945, it might have taken 130 weeks for a person earning the average Australian wage to earn enough for the lowest Sydney to London return air fare. Now it would take less than two. But the boom in air travel is quickly giving way to an industry-wide bust. Airline profits have plummeted amid terror attacks and economic gloom, sparking aggressive staff cuts and strike action.

Even easyJet, one of Europe’s most successful short-haul players has admitted that it is bracing for a £90m hit in its first profit warning since 2009.

Air Berlin, Germany’s second largest carrier, is expected to slash 1,200 jobs and halve its fleet of 144 aircraft after reporting its eighth consecutive annual operating loss last year. Even with fuel oil costs at historic lows, European airline bosses say the industry is facing the toughest market in 30 years. The gloom could take until the end of the decade to fade.

By then, airlines will need to face up to steadily rising environmental costs running into the billions of dollars while undertaking green investment totalling trillions as the oil market threatens a return to higher prices.

Under the new deal, airlines will be expected to offset their emissions growth after 2020 by buying “offset credits” in line with their carbon footprint.

The carbon costs are expected to incentivise the industry to develop lower-carbon fuels and technologies, while the money raised by the credits will fund environmental initiatives to help to tackle climate change.

This cost is forecast to grow to as high as $23.9bn by 2035, or 1.8% of the airlines’ revenue. At the same time airlines will need to spend more on developing lower emissions aircraft, technologies and fuel.

Still, there are many who believe that the cost is too low. UN observers at the campaign group Transport and Environment claim the costs are “peanuts” to the airlines and will amount “to little more than adding the price of a cup of coffee to a ticket”.

Yet, there seems little doubt that there will be further pressure to ratchet costs higher. The direction of travel raises the question: is the golden age of cheap European air travel losing its gleam?

To date, airlines have avoided the cost burden of addressing climate change, while energy and heavy industry have borne the brunt. But the aviation sector has come under increasing pressure to act after the Paris Agreement, which came into law last week, left out both the aviation and shipping industries.

The global aviation business is a large one to overlook: almost 1,400 airlines operate a fleet of 25,000 aircraft burning 1.5bn barrels of jet fuel every year. Last year alone nearly 3.6bn passengers were carried by the world’s airlines, producing 781 million tonnes of CO2.

Currently, airlines contribute 5% of global CO2 emissions, but the industry’s projected growth of around 4% to 5% a year has unsurprisingly raised concerns that aviation emissions could soon eclipse the progress made in cutting carbon from other areas of the economy.

The world’s commercial jet fleet is expected to more than double by 2025, and by 2050 would be responsible for almost a quarter of the world’s carbon emissions if no action was taken.

The current global fleet of aircraft is estimated to be well over 80% more efficient than aircraft in the 1960s but the industry has a long, costly road ahead if it is to meet its carbon reduction ambitions.

The Air Transport Action Group estimates that by the end of the decade, the world’s airlines will have had to purchase 12,000 new aircraft at a cost of $1.3 trillion to meet its 2020 targets. Still, the group is supportive of the deal in line with other industry groups representing the sector.

At first glance it seems counter-intuitive for an industry to welcome a step that could be the first along a costly road, but the framework represents the path of least pain in an environment where costs are bound to rise.

Tim Alderslade, head of the British Air Transport Association, does little to dispel the claims that the industry is getting off lightly. It might be the beginning of the end of cheap travel, but it helps the industry avoid the more costly fate of individual government intervention.

“The [deal] is the single most cost- effective way for airlines to address carbon emissions, more so than any other solution. It would also be substantially less than a tax would end up costing,” Mr Alderslade says.

HSBC analyst Andrew Lobbenberg says the new carbon plan matters less than what may follow now that the floodgates of environmental regulation have opened.

“What will matter is how much expense the industry ends up facing. It’s a very unprofitable business. In the history of the economy it’s only really started to create value in the last few years,” Mr Lobbenberg says.

He expects most airlines to experience falling profits next year even if market jitters over terrorism and the UK’s Brexit vote begin to wane. The industry’s structural issues, he suggests, could persist for the next three years.

“We do not deny the relevance of the terror attacks and the Brexit decision, but the trend is bigger and simpler: the airline industry is doing what it usually does and is adding too much capacity at the wrong time, exacerbating the impact of regular economic cycles,” Mr Lobbenberg says.

In addition, by 2020, when the first phase of the carbon plan comes into effect, experts predict that the oil market could face a renewed round of price shocks due to the lack of investment in the current downturn. The price of jet fuel makes up a third of an airline’s total costs, potentially delivering a fatal blow to smaller airlines if prices spike.

Accendo Markets’ equity analyst, Mike van Dulken, agrees that the days of cheap and cheerful European air travel could be numbered. Holidaymakers may face a more “budget” experience for higher prices, as airlines are forced to invest in new aircraft to escape escalating carbon costs.

Already British Airways has announced plans to scrap free food and drink on its short-haul flights in favour of selling snacks and sandwiches from Marks & Spencer.

He says: “Unless lower flying costs through fuel efficiency can offset higher aircraft prices, the difference will almost certainly have to be passed on to flyers. Should the oil price rise again due to undersupply in the next five years, this would add an additional unwelcome headwind for airlines already struggling badly.”



See also


ICAO’s aviation offsetting deal is a weak start – now countries must go further to cut CO2

A deal was finally agreed by ICAO on 6th October. It was progress, in that there had never been any sort of agreement on global aviation CO2 emissions before. But it was not a great deal – and far too weak to provide the necessary restriction on the growth of global aviation CO2. It came in the same week that the Paris Agreement crossed its crucial threshold to enter into force, but the ICAO deleted key provisions for the deal to align its ambitions with the Paris aim of limiting global temperature rise to well below 2 degrees with best efforts to not exceed 1.5 degrees C. Tim Johnson, Director of AEF and the lead representative of The International Coalition for Sustainable Aviation (ICSA) – the official environmental civil society observer at the global negotiations, said in relation to the UK: “But while today’s deal is applauded, this international effort falls well short of the effort required to bring UK aviation emissions in line with the Climate Change Act. With a decision on a new runway expected later this month, the UK’s ambition for aviation emissions must match the ambition of the Climate Change Act, and not simply the ICAO global lowest common denominator of carbon neutral growth from 2020. The ICAO scheme could make a contribution towards the ambition of the Climate Change Act, but it does not solve the whole problem.”

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Report shows EU’s ‘imperfect’ ETS still outperforms draft UN aviation deal on aviation CO2

When in April 2014 the EU agreed, reluctantly, to “stop the clock” on its inclusion of aviation in the ETS (Emissions Trading System) it was on the condition that this limiting of the scheme would be re-assessed in 2017, depending if ICAO had come up with an effective scheme to restrict aviation CO2 by then. Currently the EU ETS only includes carbon from flights within, (not to and from) the EU. But the deal that ICAO is likely to sign up to next month looks as if it will fail, by being too small in its scope, voluntary not obligatory, and depending on unknown biofuels and technologies in future, no environmental safeguards, as well as unreliable carbon offsets which may not in practice cut CO2 emissions. It will not meet ICAO’s stated goal of “carbon neutral growth” from 2020. Therefore, as the ICAO scheme does not meet the requirements of the EU, in order to suspend its ETS, the EU may find it necessary to revert to its full ETS system, to include flights out of (maybe also into) the EU as well as flights within the EU. The EU needs to ensure it gets agreement through ICAO that it can continue to include aviation in its ETS. The ETS scheme had its faults, but used emissions allowances instead of dubious offsets, was binding instead of voluntary, and include all CO2 emissions. To be fully effective, the cap on aviation carbon in the EU scheme needs to reduce each year. A new report “Aviation ETS – gaining altitude” sets out the details of how the ETS could work in future.

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China, US and EU reported to have pledged to join the weak, voluntary, initial stages of ICAO scheme for CO2

It is reported that China, Europe and the US have pledged to join the initial voluntary phases of ICAO’s carbon-offsetting scheme designed to give international aviation a chance of achieving it goal of “carbon-neutral growth” after 2020. On 3rd September, the 44 member states of the European Civil Aviation Conference (ECAC) committed to being part of ICAO’s global market-based measure (MBM) scheme “from the start”. On the same day the US and China said they “expect to be early participants” in the global MBM, also called the Carbon Offset and Reduction Scheme for International Aviation, or CORSIA. On 2nd September ICAO released a revised text that will be presented for adoption by the ICAO Assembly in early October. This makes participation voluntary in the pilot and first phases of the scheme, covering 2021-26. The MBM will become mandatory only in the 2nd phase, covering 2027-35, with exemptions for countries with only a small share of international aviation activity in 2018. India and Russia are opposed to joining the global MBM. Under the CORSIA scheme, airlines would “offset” additional CO2 growth beyond 2019-20 levels by buying credits from designated environmental projects.There are concerns about REDD forestry credits being used. ICAO estimates the cost to airlines would only be at most 1.4% of total revenues, by 2035. Far less till then.

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MEPs shocked by ‘secretive’ and unacceptably unambitious ICAO plan to cut aviation CO2 emissions

A meeting of the European Parliament’s Committee on Environment has been told of the way a possible agreement by ICAO next month – on global aviation carbon emissions – has been watered down. MEPs were informed of the likely 6-year delay, with the scheme for a global market based mechanism (GMBM) not taking effect properly until 2027, rather than in 2021 that had been foreseen. Opt-in to the GMBM scheme before 2027 would be voluntary, but mandatory from 2027 through to 2035. There will be exemptions for poor nations, and even after 2027 the participation of the least developed countries and small island states would remain voluntary only. EU deputies said they were “shocked” to learn how many concessions the EU was prepared to make at the Montreal meeting, which took place in May behind closed doors. Then, to make matters yet worse, “a special review in 2032 will determine whether the mechanism will be continued,” taking into account progress made as part of a related “basket of measures” which includes “CO2 standards for aircraft”, technological improvements, air traffic management and alternative fuels. In a rare show of unity, Parliament representatives from across the political spectrum urged the EU to be more aggressive in the negotiation. Bas Eckhout, a Dutch MEP, said what is on offer now is not acceptable.

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and more at  ICAO / EU ETS News Stories