With Brent Crude oil price hovering around $116 a barrel today, with predictions the price could continue to rise if the oil supply isn’t increased soon, some airlines may resort to cancellations and grounded older aircraft to manage costs.
In Africa today there are reports of some airlines cancelling flights due to a shortage of supply in the region (see Africa section below). In the UK, diesel has already run out in many petrol stations as panic buying ahead of further prices coupled with certain ports refusing to allow certain oil tankers to dock if they have any whiff of Russian ownership, causing a shortage of supply.
In the US, with airlines unable to add fuel surcharges to fares, there are reports of some airlines scaling back schedules. Alaska Airlines said yesterday that due to volatile fuel prices it now expects its first quarter economic fuel cost to be $2.60 to $2.65 per gallon versus its prior expectation of $2.45 to $2.50 per gallon, and as a result has reduced its capacity outlook down from 3% to 5% for the first half of 2022: “We continue to plan for a return to 100% of pre-COVID capacity by summer followed by growth in the second half of the year, and will continue to prudently adjust capacity as necessary in response to the evolving fuel environment.”
Allegiant Airlines CFO Greg Anderson is quoted at a conference yesterday that the airline would reduce second-quarter capacity between 5% and 10% due to rising fuel costs, by trimming flight frequency during times of weaker demand.
Airlines in Europe are partially hedged by not enough to soak up such an intense upward price trajectory, which means more airlines may need to consider trimming frequencies to absorb the losses. The added worry is just as COVID-19 restrictions are eased around the world, that higher prices will once more curb air travel as inflation and fuel costs impact disposable incomes.
Meanwhile, remember Climate Change? The most pressing long-term issue for the aviation industry and the world has not gone away. Climate Action 100+ issued a stark warning today in a new report that warns the aviation industry to take “urgent action to keep 1.5°C within reach”.
Climate Action 100+, the world’s largest investor engagement initiative on climate change, updated Aviation Sector Strategy report highlights, drawing on IEA analysis, that growth in air travel needs to be curtailed in order to keep the planet on track for no more than 1.5°C of global warming. It also emphasises that a massive, rapid scale-up of sustainable aviation fuels (SAF) is essential to decarbonising the aviation sector in line with a 1.5°C future.
The report suggests that there needs to be a substantial increase in the usage of SAF between now and 2030 to ensure that the sector aligns with a 1.5°C pathway. In 2020, less than 0.1% of aviation fuel demand was met by SAF, whereas under the IEA’s 1.5°C scenario, 16% of the aviation sector’s energy consumption will need to come from advanced biofuels by 2030, and a further 2% from synthetic fuels.
Alongside the need to ramp up SAF usage to these levels, the IEA’s 1.5°C scenario shows that action also needs to be taken in three priority demand management areas (or areas with the potential for equivalent emissions reductions), which would keep emissions at half of what they would otherwise be by 2050. These are: Keeping business travel to 2019 levels; Capping long-haul flights of more than 6 hours for leisure reasons at 2019 levels; and Shifting demand to high-speed rail infrastructure where possible.
The report calls on investors to take action to facilitate the industry’s transition include “ensuring that aviation companies set ambitious short, medium and long-term targets for SAF usage and encouraging companies to disclose their expectations around growth in air traffic demand and how these expectations align with their SAF targets”.
On the policy front, investors are urged to push aviation companies to disclose how they are lobbying in relation to policies aimed at reducing the sector’s emissions, ensure that companies and their trade associations are not blocking stronger regulatory measures tackling climate change, as well as directly support more decisive climate action policies, such as those promoting SAF scale-up.
The report also highlights the need for aviation companies to shift their focus from carbon offsetting to the reduction of their own emissions.
“The report shows the scale of what is needed for the aviation industry’s transition to net zero, and highlights that the sector needs to take strong, decisive action now,” explains Ben Pincombe, Head of Stewardship for Climate Change at the UN Principles for Responsible Investment, one of the Climate Action 100+ coordinating investor networks and the organisation leading the Climate Action 100+ Aviation Sector Strategy.
“The industry holds its future in its own hands. As noted in the report, the amount of demand management required depends on the rate and scale of SAF rollout in the short-term, alongside well thought through technology deployment. If the sector fails to respond effectively, it is likely to face significant and rapid regulatory tightening, and ever greater scrutiny and challenge from capital markets.”