IATA calls for increase in SAF incentives

The International Air Transport Association (IATA) estimates that Sustainable Aviation Fuel (SAF) production will reach at least 300 million litres in 2022 — a 200 percent increase on 2021 production of 100 million litres. More optimistic calculations estimate total production in 2022 could reach 450 million litres. Both scenarios position the SAF industry on the verge of an exponential capacity and production ramp-up toward an identified tipping point of 30 billion litres by 2030, with the right supporting policies. Airlines are committed to achieve net zero CO2 emissions by 2050 and see SAF as a key contributor. Current estimates expect SAF to account for 65 percent of the mitigation needed for this, requiring a production capacity of 450 billion litres annually in 2050. Having agreed to a Long Term Aspirational Goal (LTAG) on climate at the 41st Assembly of the International Civil Aviation Organization (ICAO) in October 2022, governments now share the same target for aviation’s decarbonisation and interest in the success of SAF. “There was at least triple the amount of SAF in the market in 2022 than in 2021. And airlines used every drop, even at very high prices! If more was available, it would have been purchased. That makes it clear that it is a supply issue and that market forces alone are insufficient to solve it. Governments, who now share the same 2050 net zero goal, need to put in place comprehensive production incentives for SAF. It is what they did to successfully transition economies to renewable sources of electricity. And it is what aviation needs to decarbonise,” said Willie Walsh, IATA’s director general. To date, over 450,000 commercial flights have been operated using SAF, and the growing number of airlines signing offtake agreements with producers sends a clear signal to the markets that SAF is needed in larger quantities, and so far in 2022, around 40 offtake agreements have been announced. “Until we have commercialised options for alternative power sources such as hydrogen, all of aviation’s SAF supply will be derived from biofuel refineries. These refineries produce renewable biodiesel, biogas, as well as SAF and their refining capacity is set to grow by over 400 percent by 2025 compared to 2022. The challenge for aviation is to secure its supply of SAF from this capacity. And to do that successfully governments need to put in place SAF production incentives similar to what is already in place for biogas and biodiesel,” IATA said in a statement. IATA News in Brief IATA and Travalyst to Collaborate on Flight CO2 Emission Calculations: The International Air Transport Association (IATA) and Travalyst, have joined forces with the aim of providing consumers with a consistent, accurate and widely available calculation of their carbon footprint from air travel. As all sectors of the aviation and travel industries come together in pursuit of net zero CO2 goals, this new and major collaboration effort will bring even greater transparency, accuracy and consistency to how a traveler’s carbon footprint is calculated. Travalyst and IATA both possess a deep understanding of the traveller as well as relevant technical and operational expertise, which will enable the two organisations to collaborate closely to align CO2 emission calculations. This collaboration will focus on both data and standard methodology for route-based passenger CO2 emissions calculations for aviation at scale. This will include a shared position on how to account for sustainable aviation fuel. Amount of Blocked Airline Funds Rising: The International Air Transport Association (IATA) warned that the amount of airline funds for repatriation being blocked by governments has risen by more than 25 percent ($394 million) in the last six months. Total funds blocked now tally at close to $2.0 billion. IATA calls on governments to remove all barriers to airlines repatriating their revenues from ticket sales and other activities, in line with international agreements and treaty obligations. IATA is also renewing its calls on Venezuela to settle the $3.8 billion of airline funds that have been blocked from repatriation since 2016 when the last authorisation for limited repatriation of funds was allowed by the Venezuelan government. “Preventing airlines from repatriating funds may appear to be an easy way to shore up depleted treasuries, but ultimately the local economy will pay a high price. No business can sustain providing service if they cannot get paid and this is no different for airlines. Air links are a vital economic catalyst. Enabling the efficient repatriation of revenues is a critical for any economy to remain globally connected to markets and supply chains,” said Willie Walsh, IATA’s Director General. Airline funds are being blocked from repatriation in more than 27 countries and territories. The top five markets with blocked funds (excluding Venezuela) are: Nigeria: $551 million; Pakistan: $225 million’ Bangladesh: $208 million; Lebanon: $144 million; Algeria: $140 million. IATA Calls for Transition to Enhanced Ground Support Equipment: The International Air Transport Association (IATA) called for a transition to enhanced ground support equipment (Enhanced GSE) to improve safety and contain the cost of ground damage involving GSE. Enhanced GSE uses anti-collision and inching technology, improves vehicle control, and increases docking accuracy, all of which minimises the risk of personnel injuries and damaging aircraft. The call for transition to Enhanced GSE is detailed in a newly published IATA study which estimates that the annual cost of ground damage could double to nearly $10 billion by 2035 unless preventive action is taken. The cost of ground damage forecast is based on direct costs (including labor and material costs, temporary leasing costs, logistical expenses, and administrative costs) and indirect costs (lost revenue, crew and passenger repositioning costs, compensation costs for delayed services etc.). The study finds: Most aircraft ground damage that occurs once the aircraft is stationary is caused by motorised GSE striking the fuselage of the aircraft; the widebody aircraft ground damage rate is ten times higher than narrowbody aircraft, but regional jets, turboprop, and narrow-body aircraft are 30% more prone to severe ground damage; belt-loaders, cargo-loaders, passenger stairs and passenger boarding bridges (PBB), cause 40 percent of total incidents (Source: IATA ground damage incident data base); transitioning 75 percent of the global fleet of belt-loaders, cargo-loaders, passenger stairs and PBB to Enhanced GSE, would reduce the current expected ground damage cost per turn rate by 42 percent (IATA estimate). “Transitioning to Enhanced GSE with anti-collision technology is a no-brainer. We have proven technology that can improve safety. And with the cost of ground damage growing across the industry there is a clear business case supporting early adoption. The challenge now is to put together a roadmap so that all stakeholders are aligned on a transition plan,” said Nick Careen, IATA Senior Vice President Operations, Safety and Security. IATA Establishes Modern Airline Retailing Programme: The International Air Transport Association (IATA) announced the establishment of the Modern Airline Retailing programme to advance customer centricity and value creation in the airline industry. The transformation will be accelerated by a consortium of advanced airline adopters that will work together through IATA. Consortium participants include American Airlines, Air France-KLM, British Airways, Emirates, Finnair, Iberia, Lufthansa Group, Oman Air, Singapore Airlines and Xiamen Airlines. In today’s environment, the customer experience is affected by decades old standards, processes and technology and the airline industry must adopt modern retailing practices that will create additional value for travelers and reduce the hassles of increasingly complex passenger document checking requirements. Modern Airline Retailing will solve this dilemma and unleash value creation opportunities by transforming airline distribution to a system of “Offers and Orders” that will parallel what most other retailers use. “Our aim is to create value for travelers by meeting their needs. We know that passengers want a seamless digital experience; and they expect consistent service irrespective of how they purchased their travel. With the strength of a global consortium of leading airlines behind us, the next few years are set to see an accelerated and comprehensive transformation of the customer experience,” said Muhammad Albakri, IATA’s Senior Vice President, Financial Settlement and Distribution Services. IATA-McKinsey Study Shows Imbalanced Aviation Value Chain: The International Air Transport Association (IATA) and McKinsey & Company published a study of profitability trends across the aviation value chain showing that profitability varies widely by sector. The study also shows that in aggregate, airlines underperform on the financial return that an investor would normally expect. While there is no clear path to rapidly re-balance the value chain, the study concludes that there are some key areas—including decarbonisation and data-sharing—where working together and burden-sharing will mutually benefit all value chain participants. Highlights from the Understanding the Pandemic’s impact on the Aviation Value Chain study include: Capital Destruction: Despite delivering consistent operating profits pre-pandemic (2012-2019), airlines collectively did not produce economic returns above the industry’s Weighted Average Cost of Capital (WACC). On average the collective Return in Invested Capital (ROIC) generated by airlines was 2.4 percent below the WACC, collectively destroying an average of $17.9 billion of capital each year; Value Creation: Pre-pandemic, all sectors of the value chain except airlines delivered ROIC in excess of the WACC, with airports leading the pack in the absolute value of return by rewarding investors with an average of $4.6 billion annually above the WACC (3 percent of revenue). When viewed as a percentage of revenue, Global Distribution Systems (GDSs)/Travel Tech firms topped the list with average returns of 8.5 percent of revenues above the WACC ($700 million annually), followed by ground handlers (5.1 percent of revenue or $1.5 billion annually), and Air Navigation Service Providers (ANSPs) at 4.4 percent of revenues ($1.0 billion annually); Pandemic Changes: Although the pandemic (2020-2021) saw losses across the value chain, in absolute terms airlines’ losses led the pack, with ROIC falling below the WACC by an average of $104.1 billion annually (-20.6 percent of revenues). Airports saw ROIC fall $34.3 billion below the WACC and generating the largest economic losses as a percentage of revenue (-39.5 percent of revenues). “This research reaffirms that airlines improved their profitability in the years following the Global Financial Crisis. But it also clearly shows that airlines, on average, were not able to benefit financially to the same degree as their suppliers and infrastructure partners. Rewards across the value chain are also disproportionate to risk. Airlines are the most sensitive to shocks but have limited profits with which to build a financial buffer,” said Willie Walsh, IATA’s Director General. New Industry Standards Announced: The International Air Transport Association (IATA) has developed industry standards which will bring the aim of having travelers arrive at airports ready-to-fly one step closer to reality. The newly released Recommended Practice on Digitalization of Admissibility will enable travelers to digitally prove admissibility to an international destination, avoiding a stop at the check-in desk or boarding gate for document checks. Under the One ID initiative airlines are working with IATA to digitalise the passenger experience at airports with contactless biometric-enabled processes. Programmes are already in use in various airports enabling travelers to move through airport processes such as boarding without producing paper documentation because their boarding pass is linked to a biometric identifier. But in many cases travelers would still have to prove their admissibility at a check-in desk or boarding gate with physical checks of paper documentation (passports, visas and health credentials for example). The Digitalization of Admissibility standard will advance the realisation of One ID with a mechanism for passengers to digitally obtain all necessary pre-travel authorisations directly from governments before their trip. By sharing the “OK to Fly” status with their airline, travelers can avoid all on-airport document checks. “Passengers want technology to make travel simpler. By enabling passengers to prove their admissibility to their airline before they get to the airport, we are taking a major step forward. The recent IATA Global Passenger survey found that 83% of travelers are willing to share immigration information for expedited processing. That is why we are confident this will be a popular option for travelers when it is implemented. And there is good incentive for airlines and governments as well with improved data quality, streamlined resourcing requirements and identification of admissibility issues before passengers get to the airport,” said Nick Careen, IATA’s Senior Vice President for Operations, Safety and Security. For Editorial Inquiries Contact: Editor Matt Driskill at [email protected] For Advertising Inquiries Contact: Head of Sales Kay Rolland at [email protected]