You are on the Green & Sustainable Hub website
You are on the Green & Sustainable Hub website, part of Natixis CIB.

Aviation and coronavirus: what future for environmental measures?

While the temporary halt of air traffic brings some immediate environmental benefits in terms of reduced greenhouse gas (GHG) emissions and other forms of air pollution related to flying, the long-term environmental repercussions of the current existential crisis of the aviation industry remain uncertain.

The aviation industry faces an unprecedented crisis. The rapid outbreak of the Covid-19 virus has led governments across the globe to impose severe restrictions of movement of people and numerous border closures. As a result, the demand for air travelling has evaporated, forcing airlines to ground entire fleets to control costs and preserve cash in order to at least partially offset the collapse of revenues.

The aviation industry emphasizes that the preservation of jobs in airlines and along the supply chains should be given a priority over the possible introduction of stronger environmental measures, which would further increase their operating costs. On the other hand, several airlines have already turned to government for support measures. This opens the space for public authorities to ask something in return: for instance an alignment with the Paris Agreement, which is currently not the case for any airline, according to the latest research published by the Transition Pathway Initiative (TPI), a research initiative led by London School of Economics and supported by numerous investors. Let us recall that aviation represents a relatively small share (between 2% and 3%) of global carbon emissions but a rapidly growing one: the data from the International Council on Clean Transportation show a 32% increase of GHG emissions from global air travel between 2013 and 2018. While fuel efficiency measures are being implemented to reduce operating costs, the growth of air traffic simply outpaces the fuel efficiency gains, resulting in a net increase of GHG emissions from aviation.

Understanding the importance of governmental support measures for the aviation industry requires a closer look at the financial situation. The latest impact assessment released by the International Air Transport Association (IATA) now estimates that the coronavirus-related collapse in air travel demand will cost airlines $250bn in lost revenue this year. The trouble does not end here. While airlines are taking urgent measures to reduce their costs and preserve cash, for instance by grounding their fleets, offering unpaid leave and/or temporary salary to staff and asking governments to postpone the payment of taxes and other levies, the combined effect of these measures is not sufficient to offset the sudden collapse of revenues. Consequently, airlines are burning through their cash reserves every passing day. The cash burn study by IATA estimates that airlines could burn through $61 billion of cash in Q2-2020, while posting a net loss of $39 billion over the same period.

If the current situation of nearly non-existent demand for air travel persists for an extended period of time, governmental support becomes increasingly likely. The unanswered question if whether public authorities will aim to attach some environmental targets as a condition to their support measures such as loan guarantees or equity injections. Funds could include “strings attached”, for instance in the form of carbon offsets or mandatory use of more fuel-efficient aircrafts, the development of long-term strategies and corresponding targets to reduce the environmental footprint of the airline industry. Conversely, Air France-KLM already called for a delay of upcoming policy measures aiming to reduce air travel and related emissions while Airlines for Europe (A4E), a trade association of 16 European airlines, stated that environmental taxes are just going to make this bad situation even worse” by further burdening struggling airlines. Moreover, the current financial struggle of airlines could mean their investment into environmental measures could be deferred while the drop of oil prices – if persistent- reduces incentives to improve fuel efficiency. In case fuel prices remain lower for an extended period of time, the incentives for investment in new more fuel-efficient aircraft diminish accordingly and older aircraft will be used for longer, again resulting in unnecessary emissions.