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The environmental challenges for airlines in the emerging global system Stephen WHEATCROFT - Director of Aviation and Tourism International, London, Great-Britain
INTRODUCTION
The future growth and prosperity of the airline industry will depend escapably on its ability to make its operations environmentally acceptable. The purpose of this paper is to examine what the industry has to do to make its operations environmentally acceptable and to overcome the growing opposition, particularly in Europe, to the expansion of air services.
I say 'particularly in Europe' because I think that the environmental challenges to airline operations are greater in this area than in other parts of the world such as the United States. There are, of course, world-wide pressures to reduce aircraft noise and engine emissions.
But it is a uniquely European phenomenon to have very powerful pressure groups which believe that it is necessary to make very substantial reductions in the volume of air traffic to protect the environment.
The challenge for the airlines is to demonstrate convincingly that air traffic can be increased at an annual rate of as much as 5 percent every year without unacceptable damage to the environment.
THE GLOBALISATION OF THE AIRLINE INDUSTRY
As a background to the environmental challenges faced by the airlines it is essential to understand the changes which are taking place in the industry as it moves towards a global structure.
There have been enormous changes in the regulation and structure of the aviation industry throughout the world in the past decade. Few countries have escaped the impact of these winds of change. The four most important areas of change have been and continue to be :
- Privatisation
- Multinational airline alliances
- Open skies agreements
- Regional liberalisation
Privatisation
The move from government to private ownership is one of the most radical changes which has occurred in the airline industry in the past decade. The extent of these world-wide moves towards privatisation has had an important bearing on aviation liberalisation. Privatisation and liberalisation go hand in hand as complementary parts of a general policy of government withdrawal from intervention in commercial activities. Private ownership removes yet another reason why governments should get involved in the free operation of markets. Policies designed to protect the profitability of an airline become less important when the government is no longer the sole or major shareholder.
Privatisation is also important in opening the way for foreign ownership of airlines which is also an important aspect ofinternational aviation liberalisation.
Multinational airline alliances
The consolidation of the international airline industry into an oligopolistic structure is another major change. Until very recently there were only four major airline groups - oneworld, Qualiflyer, Star Alliance and Wings -which truly deserved the name of global strategic alliances but a new agreement between Air France and Delta adds another.
Each of these alliances is multinational in bringing together airlines of different countries. These five global alliances together carry over 80 percent of world passenger traffic.
It is sometimes argued that these global alliances are anti-competitive and therefore contrary to liberalisation principles. This is not true because these new alliances are no longer loose arrangements between airlines to share flight codes and cross-sell tickets.
They are seeking all the advantages of large scale mergers that are denied to them by national rules forbidding foreign ownership. Alliances are a way of circumventing restrictive national regulations. Effective competition between the major alliances will play an important role in aviation liberalisation.
Open skies agreements
Another change has been the creation of a core of liberal bilateral agreements mainly as a result of US policy in this field. The United States has produced a standard "open skies" agreement and offered it to all countries willing to accept its terms. The standard agreement gives free access to all cities in each country with no restrictions on capacity or frequency of services and it eliminates all controls on pricing except those applicable to other industries. The United States has now concluded 31 such agreements including 12 in Europe, 10 in Latin America and 6 in the Asia-Pacific area. A limitation of the standard US open skies agreement, however, is that it does not remove restrictions on foreign ownership.
Regional liberalisation
Major changes have also taken place in the direction of liberal regional agreements. The so-called "third package" of liberalisation measures for air transport in the European Union has been completed and almost all restrictions on air services in the region have now been eliminated. In some ways the EU liberalisation goes beyond that achieved in the landmark bilateral agreement between the United States and Canada, European
airlines are not only free to operate anywhere in the region, including cabotage routes within other EU countries, but they can also set up their own operations or acquire full control of airlines within any community country. There are now several cases of full foreign ownership of airlines within the European Union. Moreover, it now seems highly likely that there will be two complete transnational mergers in Europe. The first of these is that between Swissair and Sabena and the second that between KLM and Alitalia.
Swissair and Sabena have already moved a long way to integrate their activities and now have a merged sales and marketing division based in Brussels.
Australia and New Zealand have reached an agreement on a Single Aviation Market by which the airlines of each country have unrestricted rights to operate anywhere in each country and on trans-Tasman routes. Air New Zealand is now a 50 percent shareholder in Ansett and this gives ANZ access to Australia's substantial domestic market.
Two regional trade blocs in Latin America have turned their attention to aviation liberalisation. The Mercosur countries - Argentina, Brazil, Paraguay and Uruguay - are moving towards the inclusion of air transport in the development of their free trade zone and similar moves are under consideration by the countries ofthe Andean Pact which covers Bolivia, Colombia, Ecuador, Peru and Venezuela.
Almost all airlines in Latin America are now privately owned and this has been an important factor in the reduction of states regulation. In Brazil, which until recently was highly regulated, liberalisation has had a marked effect on the growth of traffic with large increases in passenger traffic at Sao Paulo and Brasilia.
There have also been some moves towards what WTTC has called "regionalateral" agreements. By this is meant agreements between two or more liberalised regions. The aviation agreement between the United States and Canada has moved in this direction. And some moves have also been made in this direction with the initiation of negotiations between the European Union and the United States for the creation of a Common Aviation Area. These negotiations have not yet made much progress because the EU Council of Ministers has limited the mandate of the Commission to exploratory issues and has specifically excluded any negotiations on market access and traffic rights. The successful conclusion of a "regionalateral" agreement between the European Union and the United States would be a major step towards achieving a world-wide liberalisation of the international aviation regime because it would cover about half of all world air traffic.
AIR TRAFFIC GROWTH
This emerging global system of air services will continue to grow strongly unless it is thwarted by taxation other restrictive policies. The Asia-Pacific financial crisis in 1998 slowed air traffic growth in that region but a recovery is already evident and forecasts from the International Air Transport Association for the next five years show only a small reduction in earlier expectations. IATA's forecasts of annual growth for passenger traffic from 1999 to 2003 are only 0.5 percent lower at 5.02 percent a year.
Forecasts for passenger traffic growth vary significantly between regions, mainly because of differences in economic performance. For example, economic problems in South America, previously one of the high growth areas, have caused a reduction in forecast passenger traffic. Traffic to and from Brazil is now projected to increase at only 3.9 percent compared with an earlier estimate of 8.4 percent. Similar reductions have been made in the traffic forecasts for the Asia-Pacific countries most affected by the continued stagnation of the Japanese economy.
On a world-wide basis, however, the IATA forecasts present an optimistic picture of the future growth of the airline industry and this is the starting point for a review of the environmental challenges which face the industry.
ENVIRONMENTAL CHALLENGES AND ACHIEVEMENTS
The four major environmental issues for the airline industry are :
- noise
- emissions
- fuel consumption
- elimination of waste
Good progress has been made in the past two decades to improve performance in all four areas but further improvements are necessary to overcome the opposition to air traffic growth. What are the prospects?
Aircraft noise
Everyone who lives near an airport knows that aircraft noise is an environmental problem. The aviation industry has, however, taken major steps in the past twenty year to reduce this nuisance. Quieter aircraft and changed operating procedures have been responsible for this improvement.
The International Civil Aviation Organisation (ICAO) has led the way be setting progressively improved standards for aircraft manufacturers to meet. All new aircraft must meet the low noise standards which ICAO defined as Chapter 3. Older aircraft are being phased out of operation.
The ICAO deadline for Chapter 3 compliance throughout the world is 2002 but an earlier date is planned in Europe and the United States.
The benefits of this reduction in aircraft noise can be measured by the size of the footprint of noise of a specified volume. Over the past twenty years the noise footprint per aircraft movement has been reduced by 90 percent. Perhaps more graphic is the description given by Airbus that a typical jet aircraft of the 1960s produced more noise than 125 A320s.
Further reductions in engine noise will be made in the next decade. Rolls-Royce is projecting a 20dB reduction for the engine which it is developing for the A3XX with new design features like swept fan blades and serrated nozzles.
It must, however, be recognised that there are limits to the reductions which can be made to aircraft noise and other policies will be necessary to make operations environmentally acceptable. The most obvious way to reduce the noise nuisance is by effective land use planning around airports. It is a somewhat bizarre feature of the complaints made about aircraft noise that such a large part of it comes from people who have chosen to move into homes close to a major airport. Future improvements in noise reduction can be achieved by keeping noisesensitive populations an appropriate distance away from airports and maintaining a quiet buffer zone. This type of land use planning is essential and it has been successfully adopted in the United States where airport master plans are required to include provisions for land use in the surrounding area.
Aircraft emissions
The greenhouse effect, global warming and the depletion of the ozone layer are all issues which, rightly, attract a great deal of public concern. Air transport, like all activities which burn hydrocarbon fuels, produce emissions which contribute to atmospheric pollution. Carbon dioxide contributes to the greenhouse effect. Nitrous oxides, carbon monoxide and hydrocarbons are other toxic products of aero-engines. But less than 1 percent of total atmospheric pollution from these waste products comes from air transport. Toxic emissions from civil aircraft are very small compared with those of road transport.
Nevertheless the airline industry is acutely aware of the need to reduce this problem and there are special concerns about the effects of emissions in higher altitudes which are not yet fully understood.
I shall say more later about the future prospects for reducing aircraft emissions when commenting on inter-governmental activities in this field.
Fuel consumption
Air transport accounts for only a very small share of world oil consumption: it is currently about 3 percent. But fuel is an important element of airline operating costs and there are powerful financial, as well as environmental, pressures to improve efficiency.
Remarkable progress has been made in this field in the past ten years.
The best measure is the amount of fuel used for each passenger kilometre flown. This indicator has been reduced by 25 percent from 1989 to 1999 which is a very much larger reduction than that achieved by the private car.
Further improvements in engine efficiency will continue this trend in the next decade. It is estimated that by 2009 the level of fuel consumption per passenger kilometre will be 40 percent less than it was in 1989.
Waste management
The fourth environment issue for air transport is the elimination of waste and this is a field in which airline also have a very good record of achievement. Reclamation, reuse and recycling of materials are central to these programmes and some very interesting examples of what can be done are given in the Environmental Report which Lufthansa published each year. This report gives information about the savings made by the airline in the consumption of gas, electricity and water. It also gives examples of the collection of recyclable materials at several international stations and records the tonnage's of paper, wood, plastics and aluminium saved. The Lufthansa report reflects the very high level of dedication to environmental protection which is shared by many of the world's leading airlines.
INTER-GOVERNMENTAL ACTIVITIES
The Intergovernmental Panel on Climate Changes (IPCC) produced a 'Special Report on Aviation and the Global Atmosphere' in June 1999 which not only reviewed the current situation but also made very long term forecasts of future changes. The report reaffirms the need for the airline industry to intensify its efforts to ensure that its energy sources are used more cleanly and efficiently. These should be focused on controlling the output of carbon dioxide, improving operational efficiency and reaching voluntary agreements for reducing emissions.
These objectives are the central concerns of ICAO's Committee on Aviation Environmental Protection (CAEP) in which the airlines participate through the International Air transport Association (IATA).
This Committee is now looking closely at market based options as ways of dealing with environmental problems. Three issues are being studied :
- Emission 'Levies'
- Emissions trading
- Voluntary commitments
Emission levies
CAEP is examining two carbon dioxide emission levy options: (a) an en route levy and (b) a fuel levy. These may be raised as charges or taxes.
Emissions trading
Whereas taxes and charges use pricing as a means to control the volume of carbon dioxide emissions from aviation, trading schemes use quantitative restrictions to set a market price for the emissions.
The Kyoto Protocol makes provision for a trading scheme for greenhouse gas emissions. ICAO's CAEP is studying three basic trading concepts which are :
- a closed system which restricts trading to the aviation industry;
- a full open system which would allow trading within industries and countries; and
- a compromise semi-open system under which industries could buy credits outside their industry and freely sell credits within their industry.
Voluntary commitments
ICAO's CAEP is trying to define a voluntary agreement regime to control carbon dioxide emissions which takes into account the experience gained by the European car industry in this field. This aims at achieving a quantified reduction in carbon dioxide emissions by the year 2008. The CAEP objective would be to establish quantifiable and measurable criteria - such as carbon dioxide emissions per tonne kilometre - which the airline industry would voluntarily accept.
TAXING ISSUES
The CAEP deliberations which I have just described point to the strong probability that some kinds of charges or taxes will be introduced to control carbon dioxide emissions But this is a entirely different approach to that which is being advocated in Europe by Friends of the Earth and other pressure groups to tax aviation fuel at such a high level so that massive increases in air fares would reduce the volume of air travel and airline operations.
There are two powerful arguments against a taxation policy of this kind.
The first is that the financial burden which it would impose on the airline industry would make it more difficult to find the money for investment in new more environmentally friendly aircraft.
Environmental improvements would be delayed rather than speeded up. It is highly unlikely that the money collected from increased would go towards research and other programmes aimed at improving the environment.
The other argument is even more important. The true environmental concern for sustainable development has been precisely define by the World Wide Fund for Nature (WWF) as 'improving the quality of human life while living within the carrying capacity of supporting ecosystems'.
This definition embraces three equally important components - economic, social and environmental - which together constitute the foundation of sustainability. Those advocating penal taxation of aviation to reduce travel give little or no attention to the economic and social aspects of such a policy.
The travel opportunities created by air transport give much pleasure to millions of people. But travel and tourism is also one of the world's most important generators of economic growth and employment. This is particularly true in the less developed parts of the world .
The employment generating power of travel and tourism is enormous, The World Travel & Tourism Council has estimated that it has the potential to create more than two million new jobs in the European Union and a further six million in central and eastern Europe in the next ten years. On a world-wide basis it is estimated that more than one hundred million new jobs could be created by the travel industry in the next decade.
This is the context within which the proposal for a very heavy tax an aviation fuel must be considered. It must be emphasised that sustainable development is about improving the quality of human life. For many millions of people that means having a job. Taxation
designed to reduce the volume of tourist travel will deprive them of that opportunity and is totally contrary to the true objectives of environmental policy.
CONCLUSIONS
I started by saying that the future growth and prosperity of air transport depended on the ability of the airlines to make their operations environmentally acceptable. I have not tried to minimise the problems which the industry faces in the fields of noise, emissions, and fuel consumption. I have, however, shown that much progress has been made in each of these areas and that there are excellent prospects for further improvements.
The over-riding reason why the industry must overcome environmental objections to its expansion is that it makes a vitally important contribution to socially-desirable wealth and employment. It must never be forgotten by Eurocentric environmentalists that there is no practical alternative to air transport for the economic development of many of the poorer countries of the world.
