Passengers will “bear the cost” of the airline industry’s transition to net zero through higher airfares, the head of the International Air Transport Association (IATA) has warned.
Addressing the Sustainable Aerospace Together Forum, hosted in Seattle by Boeing and FT Live earlier this month, IATA director general Willie Walsh pulled no punches when spelling out the enormous cost of decarbonizing aviation and how it will be funded.
IATA’s member airlines agreed in October 2021 to commit to net zero carbon emissions by 2050. The trade body sees sustainable aviation fuel (SAF) as potentially representing 65% of the abatement needed to reach that target. However, these fuels are three to five times more expensive than kerosene, and a massive amount of investment is needed to vastly scale up production.
“Ultimately, our customers are going to bear the cost of this transition,” says Walsh. “Anybody who says that the cost of transitioning to net zero is going to be low or unnoticeable, I’m afraid, is fooling themselves. This will represent a significant challenge and mean that passengers will have to pay higher fares.”
He adds that “we need to be honest” with customers about the “significant” cost of transitioning to net zero. Airlines “are not in a financial position to absorb that cost”, says Walsh, therefore, “it will have to be passed on to consumers”. It is “absolutely crucial”, in Walsh’s view, that “everybody recognizes they have a role to play” in the transition.
“It’s not just about airlines,” he says. “We need the OEMs to play their part, we need governments to recognize that they have a significant role to play. Regulators need to understand the challenge and be ready to support the transition to net zero. We need investment, and that means we’re going to have to access finance.”
Some airlines are already being open with passengers about the increased cost of SAF, and have begun adding it to their ticket prices.
KLM, for instance, recently doubled the mandatory sustainable aviation fuel surcharge introduced last year on all flight tickets from Amsterdam. The Dutch carrier now adds a surcharge of between €2 and €24 ($2.14-$25.72) to tickets from Amsterdam, to help fund the use of a 1% SAF blend on all Schiphol-departing flights. The surcharge runs alongside a voluntary SAF contribution program, although the airline has admitted that take-up for this is low.
Jonathon Counsell, group head of sustainability at British Airways parent company IAG, also points to low take-up for voluntary schemes.
“We have voluntary mechanisms for our customers to reduce their emissions. The uptake is relatively low but they are a good consumer engagement piece,” Counsell told attendees at the Sustainable Aerospace Together Forum. While corporate customers have shown “a lot of interest” in voluntarily paying extra to reduce their own Scope 3 carbon emissions, he notes that, “ultimately, we’re not going to solve the problem through voluntary mechanisms”.
Anecdotally, Counsell recalls a recent conversation with a customer in which, he claims, the customer said: “Don’t give me the choice, it’s too complicated. Just include it in the ticket price.”
Not all airlines agree, however, that the cost of net zero should automatically translate to higher airfares. Diana Birkett Rakow, senior vice president public affairs and sustainability at Alaska Airlines, says the US carrier is “really wrestling with, ‘how do we make sure this is a transition that’s managed economically so that it doesn’t put air travel and the economic opportunity of air travel out of reach for more people?'”.
This question, says Rakow, is “going to be a conversation that we will all grapple with over the next couple of decades, but one that’s important not to lose sight of”.
She adds: “On all fronts, education of consumers is probably the place to focus on more than what’s the cost right now – both because it’s important to supporting the transition, but it’s also important for the political will to enact the types of policies and understand what it takes to get through this transition.
“So, I would encourage us to think about it that way, rather than who pays.”
Jim Hepple is an Assistant Professor at the University of Aruba and is Managing Director of Tourism Analytics.