Engagement: in dialogue with the largest passenger and cargo airlines
Carbon emissions are clearly higher in the aviation industry than in nearly any other sector of the economy. This makes investments and strategies for promoting more sustainable flight operations especially important. And exactly this is being promoted by the shareholder engagement of Raiffeisen Capital Management.
The engagement activities of Raiffeisen Capital Management also include dialogue with the largest global passenger and freight air carriers. Roughly 30 companies, including Lufthansa, Ryanair, and Wizz Air, were contacted and confronted with the following questions:
What strategies are you pursuing to move forward with the decarbonisation of your flight operations, and how do zero-emission aircraft fit in this strategy?
It is hard to imagine Vienna International Airport without this Hungarian budget airline. With a fleet of 190 aircraft, the airline is number three in Europe and is the most important airline in Central and Eastern Europe. The company presented a three-stage plan to decarbonise this fleet. Over the short term, the focus is being placed on fleet renewal and increasing operational efficiency. In the medium term, Wizz Air is planning to use sustainable aviation fuels (SAF) and to implement technologies for carbon capture and storage. And over the long term, the company is seeking to use only future zero-emission technologies in combination with SAF.
To promote the innovative strength of aircraft manufacturers, Wizz Air signed a memorandum of understanding with the manufacturer Airbus on the promotion of hydrogen-powered aircraft. This partnership is intended to explore the challenges and opportunities related to the operation of hydrogen-powered aircraft by Wizz Air. In addition, Wizz Air is a member of the Renewable and Low-Carbon Fuels Value Chain Industrial Alliance and promotes the use of renewable and low-carbon fuels in aviation to provide investors with security in this business segment.
What measures are you taking to increase the use of sustainable aviation fuels (SAF) and other alternative propulsion technologies?
The addition of aviation biofuel to conventional aviation fuels offers considerable potential for the long-term transformation of aviation. While demand for sustainable aviation fuels (SAF) is rising, the supply is currently limited. In addition, technical modifications must be made to the aircraft so that SAF can gradually replace fossil aviation fuel. For this reason, Lufthansa is investing in partnerships to ensure the availability of SAF. These long-term cooperation agreements with companies such as the energy conglomerate Shell and the Norwegian Neste group secure the supply of the coveted resource SAF. Lufthansa is promoting the commercialisation of SAF and is developing pilot projects together with its partners to investigate new production methods.
Similarly to Wizz Air, Lufthansa is also part of a research consortium with Airbus that is investigating alternative propulsion systems such as hydrogen and electric drives.
How do you plan to adjust the price of tickets so that they reflect the environmental costs and promote sustainable travel?
Philanthropic surcharges, for example for the preservation of tropical forests in far-off lands, were often the object of criticism. This makes it all the more important that climate compensation for flights is certified and transparent, to minimise the risk of greenwashing. At Finnair, voluntary price compensation always goes to certified climate projects or promotes the use of SAF. However, reducing carbon emissions is always better then compensating for emissions. The Finnish airline is expecting higher flight prices overall in future. This is due to growing EU regulations on the one hand, and on the other hand to the fact that sustainable aviation biofuels are considerably more expensive to produce than fossil alternatives.
What changes do you anticipate in the component supply industry from the introduction of new technologies, especially in propulsion technology and in new aviation fuels?
Turkish Airlines noted that the main aviation industry suppliers are increasingly addressing the needs of airlines in their fight against climate change. The company stressed that in addition to research into new technologies, efficiency increases will also have a positive effect on the emissions balance of aircraft. This will not only reduce greenhouse gas emissions, but also noise.
In addition to technical modifications to aircraft, SAF are a key component in the fight against climate change for Turkish Airlines, as they are for many other airlines. However, in its dialogue with Raiffeisen Capital Management, the company stressed that SAF currently only account for 0.2 per cent of worldwide aviation fuel consumption, and that airlines are forced to operate in a very competitive procurement market.
How do you assess the risks and opportunities arising for your airline from the introduction of new regulatory measures such as an international aviation fuel tax?
“The introduction of a national aviation fuel tax is off the table for now,” reported Germany’s Lufthansa in a discussion with Raiffeisen Capital Management. However, there is the possibility of an EU-wide tax according to Lufthansa, where the airlines would be required to bear a majority of the financial burden – which would further hurt competitiveness in the international market. For Lufthansa, a globally level playing field is decisive when the goal is to decarbonise an internationally active industry like aviation.
Aviation currently contributes around 3.5 per cent to global warming. By 2050, carbon emissions here could be 60 per cent higher than in 2019. To make its contribution to complying with the Paris Agreement, the aviation industry is facing the challenge of drastically reducing its greenhouse gas emissions – despite a projected increase in passenger volumes. In answering our questions, the addressed companies focused primarily on the technical aspects. We call into question, however, whether technological solutions will be enough if demand growth for flights does not slow, and if demand for air travel cannot be reduced over the long term.
Sustainable Aviation Fuels (SAF)
Sustainable aviation fuels (SAF) are fuels that are produced from non-fossil raw materials in a sustainable manner, with renewable biomass serving as the input material. Of the alternative energy sources that have become available to date, SAF are the most promising direct option for decarbonising aviation.
Through engagement as a component of active management, investors can raise important sustainability issues with companies. Investors in funds participate in this process through their investment. But even companies in which no investment has been made can be encouraged to adopt a more sustainable approach to the environment and people through engagement.
Author
Mathias Zwiefelhofer, Corporate Responsibility Raiffeisen Kapitalanlage GmbH