European airlines’ CO2 emissions will be down this year – grounded fleets produce no pollution. And even as aircraft fly again, the carriers’ environmental performance will improve because their least-efficient planes are being retired. However, as debt-burdened operators delay replacing middle-aged aircraft, the industry’s improvement in emissions will slow again.
Even though aviation’s total CO2 performance following the pandemic will be better, its unit performance will be worse. We do not expect 2019 traffic levels to be regained until 2023. So effectively, the airline industry will lose four years’ growth.
Emissions are measured relative to ‘available seat kilometre’ – ASK – or against ‘revenue passenger kilometre’ – RPK. The latter is significantly impacted by the load factor achieved, so, in the present situation, when load factors are uncertain, we prefer to work with a measure of CO2 per ASK.
Even prior to the pandemic we were expecting the recent 5 per cent annual traffic growth rate to slow, which would have reduced 2023 ASKs by 10 per cent to 12 per cent, leaving overall emissions lower. But as airlines manage the current grounding phase, they are permanently retiring some of the least-efficient aircraft in their fleets, typically the four-engined, long-haul planes, including A340s, B747s and A380s.
This delivers an improvement in environmental performance. However, after the grounding of the least-efficient aircraft, we foresee a slower process of replacing middle-aged aircraft with new equipment as highly-borrowed airlines cut back on capital expenditure.
International civil aviation accounts for around two-thirds of total aviation emissions but it is not covered by the Paris climate-change agreement. Emissions from domestic flights are covered by domestic climate pledges under the Paris Agreement.
In 2016, after increasing pressure to deal with emissions from the sector, the International Civil Aviation Organization agreed to hold net carbon emissions from international aviation at 2020 levels, making growth carbon-neutral from this year. This will be achieved through CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation, using carbon offsets to address emissions above 2020 levels.
The baseline chosen for CORSIA was supposed to be the average of 2019/20. Thereafter, any additional emissions would be offset, meaning 2020 would be the peak year for aviation emissions. However, this year’s decline in traffic would have resulted in an average significantly below the expected level – and that would substantially increase the future cost of carbon offsetting when growth recovers.
This additional financial burden was unpalatable to both airlines and many governments. After requests from the EU and US, the baseline is now being changed to 2019 alone, allowing growth in the intermediate years without any additional financial burden, effectively delaying most offset purchases until 2023.
So aircraft renewal is only part of the story. The moderate improvements from updating their fleets show that airlines will remain highly reliant on carbon offsetting and biofuels to achieve the industry goals of holding emissions to 2019/20 levels.
First published 29 June 2020.Would you like to find out more? Click here
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Andrew Lobbenberg,
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