Extreme turbulence ahead: How the airline industry is bracing for change

Extreme turbulence ahead: How the airline industry is bracing for change article image
Australia's airline industry is taking plenty of hits. Market volatility, intense competition, the corrosive affects of skyrocketing jet fuel prices and the impact of wild weather are all creating hard landings for carriers. While Australian airlines Qantas and Virgin Australia have already made significant cutbacks to survive - including the mid-February announcement by Qantas that it will eliminate 500 jobs in catering and engineering - they are preparing for the worst. Aviation is one of the fastest-growing sectors of the world economy. Over the next 20 years more than 27,000 new aircraft will be delivered; the number of air travellers will double to 9 billion over the same period. However, airline companies are predicted to be among the biggest casualties of climate change as their output of greenhouse gas emissions grows quickly with the unprecedented demand for air travel. The aviation sector will be significantly affected if it is forced to absorb further cost increases, including, most outstandingly, the carbon tax in Australia and a controversial tax on emissions for foreign carriers when flights take-off or land in Europe. The latest Euro-tax with the aim of environmental protection, is distance-based, ensuring that skies are definitely scarier for carriers making long-haul flights from Australia and New Zealand. Qantas, Australia's flagship carrier, has made it very clear that escalating costs pose a significant financial risk. In the short-to-medium term, the aviation sector is working hard to cut emissions by making incremental improvements to existing fleets, taking weight off aircraft to lower resistance in flight, buying more efficient aircraft and working with alternative jet fuels that produce lower carbon emissions. Qantas has 50 Boeing 787 Dreamliners on order, which it says will consume 20 percent less fuel than similarly sized planes, while its existing fleet of Airbus A380s, newsworthy for operational glitches, is also prized for its fuel efficiency. Beyond climate change regulation, airlines also face exposure to major physical risks. Fierce storms have now moved to the top of airlines' risk agendas in the face of continued natural catastrophes. Scientific evidence suggests not only is the severity of weather events such as tsunamis, flash floods and typhoons increasing, but also the frequency. Changes in weather patterns - temperature, wind speed, direction and humidity - determine aircraft performance. Extreme weather events or even changed weather patterns can affect the jet stream (fast-flowing air currents) and cause severe disruption to flight schedules. Flying around a major weather event burns more fuel, so costs rise as aircraft change course to avoid more frequent extreme weather events. Beyond the expense of additional fuel, changing flight tracks poses a major financial risk for airlines due to related disruptions - chronic delays and cancellations, including the cost of accommodating stranded passengers. Transport chaos is predicted to become common. "The risk could be massive; we just don't know how massive," says Justin Wastnage, national aviation manager of the Sydney-based Tourism & Transport Forum. "Airlines can't do much about bad weather. But to some extent the problem can be dealt with by developing more efficient operational practices and better traffic management. That means better aircraft landing procedures and more flexible flight paths." Switching engines to idle Historically, planes have flown pre-determined routes. They flew in a straight line between beacons or "way points" to ensure they were on track. Many of these routes have stayed the same despite technological advances. Following these routes often meant planes "fought" against the wind. Now, with more direct routes, more flexible flight paths and smaller separation limitations between aircraft in flight, pilots can use the weather system and take into account jet streams and prevailing winds. Commonly, airlines now hold aircraft on the ground prior to departure - rather than in the air - if delays are anticipated at the destination airport. However, the big money saver is "the new landing". Pilots used to rev the engines to make a stepped descent before dropping altitude and queuing for landing. Now, there's a move for them to save millions of litres of fuel by shifting engines to idle when descending into airports, before gliding onto the runway on a straight path. The new landing is facilitated by navigation technology called Required Navigational Performance (RNP), which directs planes departing or entering the airspace around airports to fly on pre-programmed computer-plotted routes. Some features of the RNP system are already used at airports in Europe, Canada and Australia, and RNP trials are being held globally as companies seek to reduce fuel burn. RNP saves Qantas an estimated A$20 million annually in fuel costs, according to John Valastro, Qantas's head of business resilience and environment. Each RNP descent is estimated to save 3596kg in carbon emissions. "A lot of the new aircraft we purchase have this capability," says Valastro. Qantas has been one of the leading proponents of optimised flight planning since its introduction in 2004. "Being long-haul flyers, we had to invest in RNP quite early and once you start developing that skill you start applying it to regional and domestic flying," explains Valastro. "Obviously, the law determines how we fly as well as the conditions at the time." Given Qantas is one of Australia's largest fuel users - consuming 4.6 billion litres of jet kerosene per year - improving fuel efficiency is a major part of the carrier's environmental strategy. But Wastnage believes improvements to air traffic management have been slow. Generally flight paths are fairly inefficient and could be improved, he says. Better air traffic management could cut fuel burn by 20 percent, suggests Wastnage, although savings are difficult to calculate. Weather events are unforeseen and it is not possible to forecast how much fuel will be used to escape a catastrophic event. Science is not advanced enough to understand the full impact of changing weather on airlines and the regions they service, says Ben McNeil, a senior fellow at the Climate Change Research Centre at the University of New South Wales. "Some routes would make flying more costly if jet streams slow down or not, but others would make it easier to fly. The pattern is not solid enough yet." In the interim, adopting new radar technologies and algorithms for optimisation makes sense. Larry Dwyer, an expert in tourism economics at the Australian School of Business, notes that technology can only make incremental advances in fuel efficiency. "Airlines cannot come up with a whizz bang engine. But they can cut costs by looking at more innovative traffic movement in the air and less time circling around airports," he points out. Flying in the face of uncertainty Companies must forge ahead with risk management programs in the face of uncertainty. The trick is having the ability to adapt and change direction swiftly. Adaptive techniques are required to identify and manage potential risks without focusing too heavily on one type of risk. "Climate change as a risk is evolving - as are other risks - so it's about being very active in monitoring and adapting quickly to the environment," says Valastro. "We can try to anticipate and, importantly, be open to the possibility that change is coming. Rather than saying, 'I can't believe another weather event is happening', we recognise and acknowledge the environment we are in and know how to adapt to it." The prevalence of severe weather events meant Qantas has had many opportunities to test scenario analysis. "We use scenario testing to check what might change the way we operate and how flexible we can be," says Valastro. While David White, Virgin Australia's manager of sustainability and climate change, acknowledges the potential for flights to be affected by more frequent and severe weather events, at this stage there is not enough information on the extent of any change and when it would occur. That makes forecasting the impact difficult, particularly as any after-effects could be mitigated by other factors, such as alternative fuels. To Virgin Australia and Qantas, sustainable alternatives to traditional jet fuel will be essential to long-term sustainability. "While we will continue to fly as efficiently as possible using traditional fuels, in light of the fact that passenger numbers continue to grow markedly worldwide, biofuels are the key to achieving significant emissions reductions," White says. The technology already exists to produce plant-based fuels but the next step is producing the required quantities at the right cost. It's early days. Virgin's biofuel partners have 13,000 hectares of mallee - small eucalyptus shrubs and trees native to Australia - in the ground in Western Australia, but essential work is still to be done on the supply chain to ensure fuel made from the plants can be delivered sustainably at the required volumes and price. A number of airlines have flown commercial flights with alternative fuel blends primarily to get stakeholders comfortable with the concept. "There is still a lot of work to be done to ensure that not only does conversion of biomass to fuel make economic sense, but that we are also able to produce the right quality from sustainable sources," says White. Dwyer believes the lack of a commercial-scale low-emissions alternative fuel market is stopping the aviation sector from switching to low greenhouse-gas-emitting operations. And McNeil agrees. Strategically, advanced bio-fuels seem like the only technology for the long-term. And, creating efficient planes and non-oil renewable fuels that aren't dependent on geopolitics and price shocks would be an enormous economic advantage for whoever gets there first. "The airline business is one of the most technologically inelastic areas to make big revolutionary changes towards clean technology, as the car industry did on hybrids and electrification, for example," says McNeil. "Toyota and Honda did it for cars and reaped the rewards. The question is, who will be the first for airlines? The race is on. The US military is probably the place to look to, since they use 7 billion litres of fuel annually. They have already flown many of their jets on biofuel and are retrofitting them all to potentially run on biofuels by this year with the aim to have 50 percent fully run biofuel jets by 2016." Destination reputation The highly visible nature of the aviation sector makes it vulnerable to reputation damage, even if such attacks are disproportionate to the sector's overall greenhouse gas contribution. This negative view was inflamed by Australia's lateness - 44th in the world - to introduce a carbon tax. Australia has a comparatively low profile in world news. Only major events, such the Queensland floods, receive overseas news coverage. As debate raged in Australia over whether to introduce carbon mitigation measures, the overseas coverage (limited as it was) was reporting that some Australian political parties did not believe the climate change science. Due to the protracted debate, the eventual passing of legislation for a climate tax in November 2011 did receive coverage. However, many suggested Australia looked like a laggard, and that perception may stick in the minds of potential visitors. The threat of tourism numbers shrinking poses a serious problem for the airline business. According to Nina Mistilis, from marketing at the Australian School of Business, the impact of climate change on tourism is already being felt. "It's not just the actual event, such as the (2011) Queensland flood, that affects tourism, but the images of those floods projected around the world made people think the whole state was flooded," she says. Other countries have better organised media handling as part of their tourism risk management process, Mistilis points out. Immediately they distinguish between affected and unaffected areas. "Many Asian countries are well prepared here. For example, after the 2004 tsunami, the Thais promoted the beaches that weren't destroyed, including large parts of the beaches in Phuket. We need to be more proactive, because in Queensland the wrong message got out unintentionally." The tourism sector faces climate change challenges globally. Changing snowfall patterns and the resultant huge cost in relocating ski resorts and infrastructure is one. The erosion of beaches on tropical island destinations - as well as hurricanes or typhoons wreaking havoc with planes flying those routes - is another, while airports located on low-lying coastal land face the risk of inundation by heavy rain and storm-surge events.Qantas and Virgin's economic future is intrinsically linked to preserving the earth's natural assets. As Dwyer concludes: "Tourism generally will become a more costly business as all players focus on retaining market share. And this will change as some destinations go out of favour and others come in. Climate change will mean a continual shifting of strategies in the leisure or convention markets." Australia has well-defined seasons, but any change will mean tourism companies will have to become more strategic with their marketing - altering flight schedules and pricing in the different seasons, Dwyer suggests. "Given its topology, bush fires and tropical cyclones, Australia will be one of the biggest losers. It has a huge coast and increasingly higher shorelines. And our airlines depend more on tourism than business travel." Australian airlines have weathered the "constant shock syndrome" well. The phrase was often used by former Qantas chief Geoff Dixon as he steered the carrier through the vicissitudes of 9/11, SARS, bird flu and a currency crisis in Asia. Then came a global financial crisis and massive escalation in jet fuel prices. Now, as they face a global economic slowdown, it's tougher than ever to be a long-haul carrier.


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