Dubai: Transition to net zero will require airline customers to pay more for their air tickets, at least in the short term, top officials, including Emirates President Sir Tim Clark, said at the International Air Transport Association (IATA) annual general meeting (AGM) in Dubai.
“I believe that as we move to 10 per cent SAF (sustainable aviation fuels) by whatever date that is, and it starts to scale, the unit costs will start to fall,” Clark told media on Monday.
“It is very important to understand that in the short term, if you are uplifting 10 per cent of your fuel and it comes out at three times the price of SAF of JP-1 (a kerosene-type jet fuel) today, then obviously it will have a knock-on effect on pricing,” said Clark.
The Emirates Airlines President said that if blending SAF with fossil fuel prices remains in equilibrium and doesn't spike, the airline can absorb some, but not all, of those cost increases in the business.
Have airfares dropped?
Clark also stated that the airline industry has benefitted from ‘economies of scale’ far more than any other industry over the past several years. “It (aviation) has been an industry which has become so hugely efficient over the last 50 years. Other industries have fed off what the aerospace and airline industry does and then provide stellar margins for themselves and their shareholders,” Clark said.
He said, “It is quite amazing that ticket prices are where they are today. The value-for-money proposition consumers have enjoyed for many decades is one of the hidden parts of the narrative. I believe we have done a great job in keeping our costs under control. We're a highly competitive industry, which drives cost control and effectively positions us against each other.”
As airlines move forward and consider consolidation, they can scale, reduce unit costs, and strip costs that are already quite lean. “There is more that can be done. It is possible that we can absorb some, but not all, of the progression towards SAF until alternative fuels are available at the same price as fossil fuels in real terms. That's all I would say. We just have to get on with and live with it, " Clark said.
Smaller margins
At the 77th IATA Annual General Meeting in Boston, USA, IATA member airlines passed a resolution committing them to achieving net-zero carbon emissions from their operations by 2050. Adoption and the more widespread use of biofuels have become critical to achieving these goals. IATA also predicts that production of SAF will increase threefold by 2024, accounting for 0.53 per cent of aviation’s fuel needs this year.
“SAF will provide about 65 per cent of the mitigation needed for airlines to achieve net zero carbon emissions by 2050. So, the expected tripling of SAF production in 2024 from 2023 is encouraging,” Willie Walsh, IATA’s Director General, said.
Echoing Clark’s views, Walsh also said, “I’m sorry to say, but the transition to net zero will require customers to pay. I would love to think that we can do without the support, but we expect to have an industry that sets profitability with net margins of 3.1 per cent.”
Walsh explained that (Café chain) Starbucks’ profitability margins are 11.5 per cent. “The best we have ever done is 5 per cent. And SAF is at least three times more expensive than conventional jet fuel. So those costs cannot be borne by the industry, given the wafer-thin margins the industry has,” he added.
Walsh assured the media that the industry would do everything it possibly can to keep costs under control. “But ultimately, you know, costs will increase, and those costs will have to be recovered, and that will probably in all probability lead to an increase in the cost of travel,” Walsh stated.
