Coronavirus deflated aviation emissions

Policy Pulse - George Anjaparidze - 25 March 2020

As of March 24th COVID-19 has killed over 16 thousand people and brought the global economy to a crawl. Aviation has been one of the worst hit sectors. IATA`s latest forecast, published on March 24, expects airlines to see a 38% fall in passenger demand in 2020 compared to 2019. As a result, aviation CO2 emissions will experience the largest annual decrease in recent history.

2020 is a special year in the context of the climate agreement on international aviation - the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The scheme is designed to use the average of 2019 and 2020 CO2 emissions to determine the level (baseline) above which the airline industry needs to offset emissions. A lower baseline implies a larger offset responsibility in the future.

Industry advocacy efforts have been exceptionally successful in securing positive outcomes in dealing with the COVID-19 crisis. Airlines have secured suspension of airport slot rules, special treatment for air cargo operations and direct financial support from governments. Therefore, if deemed an industry priority, airlines would likely also succeed in introducing adjustments to the baseline under the CORSIA scheme. However, there is more at stake for airlines than minimizing their offsetting liability. There is an urgent need to strengthen the sustainability credentials of the sector.

Before the outbreak of coronavirus, surveys suggested that 2020 would usher in a paradigm shift in consumer sentiment. Across all geographic regions majority of survey participants expressed their intention to fly less for holidays to fight climate change.

In recognition of these threats, some airlines took action. Perhaps most notably on 14 February 2020, Delta Air Lines announced a commitment to go completely carbon neutral starting from March 2020. This kind of bold leadership should be admired. However, an airline by airline approach will not change consumer perceptions on flying nor will it deliver the level of action needed to address the climate challenge.

Sustaining growth after the coronavirus requires an immediate scale up in industry-wide action to strengthen sustainability credentials.

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About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.

#Airports #Airlines #aviation #climatechange #sustainability #CORSIA #coronavirus #covid19

Time for action: sustaining aviation growth after COVID-19

Policy Pulse - George Anjaparidze - 25 March 2020

We expect the impact of the coronavirus (COVID-19) will result in negative passenger air traffic growth in 2020 compared to 2019. This is despite a favorable global macroeconomic backdrop at the start of 2020. Our expectations are consistent with scenario 1 of the March 5 update by IATA on Financial Impacts of COVID-19, which estimates a loss in worldwide passenger revenue of 11%.

There are further risks to our outlook due to persistence of trade tensions and geopolitical risks as well as the possibility that COVID-19 epidemic worsens more than expected. Furthermore, in early 2020, some central banks chose to pursue less loose monetary policy, which could also be cause for concern. More broadly, we expect non-economic factors to increasingly influence performance of the aviation sector.

Coronavirus stings 2020 kicked off to a difficult start. According to the World Health Organization, as of March 4, COVID-19 claimed the lives of 3,198 people worldwide. The virus has also disrupted air transport networks and created an overall fear of traveling by air. As a result, this will be the first time the industry will post negative growth in passenger air traffic since the Global Financial Crisis.

Although we are in the early stages of outbreaks, we don’t expect the fear to persist in the medium to long term. Authorities are taking the necessary steps to contain outbreaks. Our most likely scenario assumes the epidemic of COVID-19 will be over in China by the end of April and by July in the rest of the world.

Nevertheless, the coronavirus will continue to be a major concern in the first half of 2020 but by the end of the year we don’t expect it to be on people’s minds.

Depressed growth Unlike the coronavirus, climate change-related concerns will have a more lasting impact on air travel demand. A recent survey conducted by the European Investment Bank found that drastic and immediate shifts in consumer sentiment can be expected in 2020.

The survey found that 76% of Europeans, 94% of Chinese and 69% of Americans intend to fly less for holidays in 2020 as a way to help in the fight against climate change (see chart). These figures represent a significant boost to the ‘no fly’ movement. The same survey identified that only about 36% of Europeans had reduced air travel in 2019 for climate change reasons.

Flight shaming movements are growing in momentum. Climate activists, like Greta Thunberg, are targeting flying with a ferocity not seen before. Many now consider aviation to be a dirty business. The green tide will continue to wash away demand unless industry becomes more proactive about strengthening its sustainability credentials.

The Carbon Offset and Reduction Scheme for International Aviation (CORSIA) offers some solutions. CORSIA is a global scheme that aims to address the growth from 2020 of airline CO2 emissions from international flights.

However, from the point of view of consumers there are two main concerns. One is that consumers are skeptical about the scheme – either because they don’t believe that it will be implemented, or they don’t understand (or agree with) carbon offsetting. The second issue is that consumer concerns go well beyond the boundaries of airlines. Many consumers now expect to be informed of the sustainability credentials of the services they use throughout their journey. They want to experience sustainability as part of the travel experience.

To address the first concern of CORSIA skepticism, industry needs to make a concerted effort to fully implement CORSIA by launching ambitious within-sector emission reduction programmes as well as operationalising model offset projects. In 2020, ICAO will be providing greater clarity on which offset mechanisms can be used for CORSIA compliance.

Industry should take this opportunity and showcase projects that can be used to demonstrate the practicalities of sourcing offsets compliant with ICAO criteria and identified mechanisms. In addition, there is a need for an education campaign that explains how offsetting works and why it is beneficial.

Addressing the second concern related to the desire of consumers to experience sustainability requires better climate disclosure practices and broader cooperation across the air transport supply chain. The physical journey starts and ends at an airport, where there are significant opportunities to do more to improve sustainability credentials.

One such opportunity is to do a better job at deploying renewable energy, in particular solar power. The airport industry should work together with key stakeholders, such as the International Solar Alliance, to identify the mix of policy incentives needed to better deploy solar power in a way that does not impose excessive financial burdens on airports while reducing their carbon footprint.

Ground handlers and other indirect service providers also need to provide greater visibility to consumers on their sustainability credentials.

Giving more information to consumers, combined with strengthening aviation’s sustainability credentials, should help improve consumer sentiment and restore confidence. It is time for the aviation industry to take a more proactive stance in 2020.

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This article was first published by Airline Routes & Ground Service magazine Spring 2020 under the title "Time for Action"

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.

#Airports #Airlines #aviation #solar #renewables #climatechange #sustainability #CORSIA #coronavirus #covid19

Forecast vs. Actual: air cargo in 2019 and 2020

Policy Pulse - George Anjaparidze - 10 February 2020

We got 3 out of 4 predictions right for air cargo performance in 2019 (see table). While not perfect, it is far better than established industry forecasters.

Table: Air cargo 2019 forecast vs. actual

Source: Forecast performance is based on Veritas Global forecast, actual performance is based on IATA reporting of year end data and IHS Markit high frequency indicators.

For 2020, we expect air cargo traffic performance to grow by about 3% to 4%

On the macroeconomic front we expect to see positive lagged effects in 2020 from monetary policy easing we saw in 2019. High frequency indicators show the global economy continued to accelerate in January 2020 for the third straight month. However, trade performance has struggled to recover. Overall trade tensions are easing but trade relationships have not normalized and are unlikely to in the foreseeable future. Decisions by some central banks to pursue less loose monetary policy in early 2020, if further tightened, add downside risks to our forecast.

One-off factors and policy risks also influence our outlook. The coronavirus outbreaks have disrupted supply chains and on-net we expect this to have a favorable impact on air cargo demand. However, the sector faces unprecedented level of policy risks.

Policy issues in 2020 will have a major impact on air cargo demand this year as well as the more distant future. In addition to trade tensions, negotiations at the WTO will specifically impact air cargo performance, including negotiations on whether to extend the customs duties moratorium on international e-commerce, compliance with tariff policies of the Information Technology Agreement and implementation of the Trade Facilitation Agreement. Negative outcomes of these negotiations add downside risks to our forecast.

Furthermore, growing consumer awareness on climate change will chip away at demand, especially if industry is unable to improve perceptions and sustainability credentials of the air cargo product.

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure.

#aviation #trade #outlook #aircargo #ecommerce #WTO #sustainability #climatechange #risks #logistics #economy #economics #coronavirus