Air travel could soon become more expensive as the aviation industry shifts its focus towards Sustainable Aviation Fuel (SAF) in an effort to achieve net-zero emissions by 2050. Industry experts, speaking at a conference in Dubai, emphasized that consumers would need to absorb a significant portion of these rising costs.
“The transition to net zero will require customers to pay,” stated Willie Walsh, Director General of the International Air Transport Association (IATA). “Airlines’ single biggest cost is fuel. Regular fuel costs at least three times less than Sustainable Aviation Fuel. Despite all efforts to keep prices down, the industry will ultimately have to recover these costs.”
Walsh, addressing the three-day IATA conference in Dubai, added that it was “unrealistic” to expect airlines to continue absorbing all the costs associated with the transition to greener fuels. “It is not something we like to do but it is something we have to do in order to have a sustainable financial model,” he said.
Optimism Amidst Challenges
Despite the anticipated price hikes, Sir Tim Clark, President of Emirates, expressed optimism about the long-term benefits of transitioning to SAF. He noted that while prices may rise initially, they would eventually decrease as production scales up. “It is the beginning of a long journey to SAF and decarbonisation. The trick in all of this is to get to the levels that you want to and which allow you to get more investment. Eventually, when you scale, the price will fall,” Clark explained. He also suggested that there is a possibility airlines could absorb “some, if not all” of the additional costs over time.
Scaling Up Sustainable Aviation Fuel
IATA announced its projection to triple the production of SAF this year to 1.9 billion litres, with around 140 renewable fuel projects capable of producing SAF expected to be operational by 2030. Despite this, current SAF production meets only 0.5% of the global fuel needs of airlines. Governments, through the International Civil Aviation Organization (ICAO), have set a target to achieve a 5% reduction in carbon emissions for international aviation by 2030.
Financial Outlook and Industry Challenges
Earlier in the day, Walsh presented IATA’s annual report, predicting the industry’s highest revenues ever, nearing $1 trillion for 2024. However, a record high of $936 billion in expenses is expected, resulting in a net profit of $30.5 billion and a net margin of just over 3%.. “That’s not a record, unfortunately, and represents a net margin of just over 3%. But considering where we were just a few years ago, it is a major achievement,” Walsh noted.
The airline industry’s highest net margins were achieved in 2015 and 2017 at 5%. Walsh highlighted that this translates to a profit of approximately Dh22.55 per passenger. “I don’t begrudge their profits,” he said. “But Governments who love to look to our industry for new tax revenues need to understand that our margins are wafer-thin, and we rarely earn our cost of capital.”
Despite these financial pressures, Walsh emphasized the industry’s resilience and recovery post-pandemic. “We deserve to celebrate the hard work that has brought our industry back from the brink while acknowledging that we remain squeezed between a fiercely competitive environment downstream and the oligopolistic upstream supply chain’s lack of competition,” he concluded.
Conclusion
The long-term vision remains optimistic, with potential reductions in costs as production scales and investments increase. While the financial outlook for the industry shows progress, the journey towards net-zero emissions will require concerted efforts and adjustments from both airlines and consumers.