Heat is on for short-hauls

The Stern Report has exposed the urgency of cutting carbon emissions, and short-haul buget airlines have emerged as an early target. Several measures are on the cards to deter passengers and make the industry greener. Not all brands will survive the turbulance, says Mark Choueke.

Short-haul budget airlines are some of the fastest growing businesses in Europe and all have plans for expansion. Only last week, Flybe doubled its size when it bought British Airways’ regional division BA Connect.

Proposals to expand the UK’s airports could treble the number of flights by 2030 but such plans might be poleaxed by the latest predictions on the rate and consequences of global warming.

Experts have predicted that Sir Nicholas Stern’s report on the economics of climate change will mark a turning point in consumers’ attitudes towards the environment.

A collective will on the part of consumers to cut carbon emissions would be welcomed by governments around the world keen for the public to get tough on industries that contribute heavily to the amount of carbon in the atmosphere.

Airlines, particularly those that operate the low-cost short-haul business model, have emerged as an early target. Greenhouse gas emissions from air travel, which is currently responsible for just under 6% of UK emissions and 3% of those in Europe, are rising faster than those in any other sector in the economy. The Government wants to introduce legislation aimed at reducing carbon emissions by 60% in the UK by 2050, although scientists suggest such a reduction needs to happen by 2030.

The Blame Plane
Pressure group Plane Stupid has already begun campaigning against an industry it calls “the fastest growing cause of climate change”. According to the group, 45% of all flights within Europe are less than 500km in length – the distance from London to the Scottish border. The group points out that the aviation industry pays no tax on fuel or VAT on transactions and calls for the scrapping of airport expansion plans and an end to short-haul flights.

Liz Tinlin, strategy director at marketing consultancy Added Value, says the short-haul market will decline and predicts that some carriers will go out of business altogether.

She adds: “Realistically, we have to put an end to European short-haul travel but is there a government brave enough to place blanket travel restrictions? Probably not.”

Two possibilities being discussed are the taxing of aircraft and mandatory carbon allowances per person. But whatever action the Government eventually takes, Tinlin is certain that not all the budget airline brands will survive.

“Those that do will be the ones that cut out the grief, denial and anger at the necessary measures, and reposition their brands and business models so that fuel efficiency replaces price as the main driver of sales,” she argues.

Tinlin believes that short-haul budget airlines are about to face the same problem coal did in the 1980s because they are “unnecessary and outdated and therefore facing decline”.

It seems innovation will by key in separating the short-haul airlines that survive from those that do not. The brands have a two-year grace period to strengthen their carbon efficient offering before legislation is passed. The budget airlines have been trumpeting their green credentials while angrily pointing the finger at culprits in other industries.

Ryanair’s outspoken chief executive, Michael O’ Leary, describes calls to curb airlines’ carbon emissions as “the usual horseshit” and adds: “If people are really serious about this then we need to focus on this issue and concentrate on the main causes – power generation and road transport.”

O’Leary says Ryanair is the greenest airline in Europe, having spent over $10bn (£5.3bn) in the past five years on a fleet of new aircraft which he claims reduces fuel consumption by 50% per passenger.

Burning Issue
Flybe marketing director Simon Lilley claims almost 70% of his airline’s fleet burns half the amount of fuel as conventional jet aircraft – at a cost of £2bn.

EasyJet has welcomed the Stern Report, agreeing with many of its conclusions. The airline will be the first in the budget short-haul market to launch a new strategy in its advertising that concentrates on pushing its environmental credentials as opposed to focusing on ticket prices. The new campaign will break early next year.

But chief executive Andy Harrison roundly rejects the idea of taxation on flights: “Taxes don’t help the environment, they only fill government coffers and burden the economy.” He thinks the EU’s current emission trading scheme is the answer. Critics, though, have labelled national carbon trading as “toothless” because the EU allows nations to set their own limits on carbon emitted by businesses, and while the UK Government has set itself an allowance that equates to a cut in emissions, other nations have ensured their businesses can run as normal.

Industry sources see hard-hitting taxes as the only way to make the necessary reductions in air travel. One says: “Despite everybody’s good intentions, there will only ever be a minority of people, perhaps 20% at the most, that deny themselves a flight to a holiday destination because it is better for the environment. Most will change their behaviour only because they are priced out of the market. There’s only one way this is going for budget airlines: a survival of the fittest scenario in a shakedown where maybe the lowest priced return ticket to Rome or Barcelona could be £200 as opposed to £50.”

Tax Message 
Aviation analysts agree taxation looks a likely scenario but question who will be taxed and in what form. David Pope of Brewin Dolphin Securities says: “If you tax the airline for each plane taking off, how is that cost transferred to the passenger? Do economy passengers pay the same as business class passengers because they are using the same amount of fuel? And the real question is will it even have an effect?” Pope says the escalation in the price of fuel has driven fuel surcharge rises for three years in a row – but passenger numbers have still increased by 4% per year.

He adds: “Maybe if taxes raise the price of tickets by 25% it will be the straw that broke the camel’s back and people will stop flying. Or maybe they will take it on the chin and continue flying because people like to holiday abroad. And what is the Government going to do with the money? Will it be spent on planting trees or will it end up going to fund asylum seekers?” Budget airlines will monitor the situation closely, concerned that their industry could become the next social pariah after tobacco, alcohol and fast food. Sooner or later they may have to admit that the continued expansion of their businesses is unsustainable and that a focused reduction of their offerings – fewer flights to smaller airports – is the only answer.

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