How Sustainability Can Strengthen Airline Arands

SUSTAINABLE AIRLINES HAVE A STRONGER BRAND

Introduction

Earlier this year, a group of Swiss academics carried out an observational field study involving a final sample of 63,520 bookings made with a Swiss airline, which we assume is SWISS, as the researchers talk about the airline serving destinations globally.

What the study found was that though many passengers might have good intentions, “the median willingness-to-pay to voluntarily offset a ton of carbon dioxide from flight-related emissions is zero, with the mean willingness-to-pay being around 1 EUR.”

That’s €1, in one of the most environmentally aware markets in the world.

Meanwhile the uptake for Ryanair’s voluntary carbon offsetting scheme is as low as 3%, despite the scheme offering offsets for surprisingly low prices - e.g €1.20 for a flight from Dublin to Paris.

The carbon calculator for myclimate for instance, provides a much higher figure for this route - €10.

This value-action gap, where good intentions are not always backed up by money, was identified by Euromonitor in its 2022 Global Trends study, which showed that:

“Affordability remains an obstacle to make sustainable products mainstream. In 2021, 43% of professionals reported that the lack of consumer willingness to pay more for these products is a significant barrier.”

So if most passengers aren’t translating intent into action when it comes to the environment, do airlines really have much to worry about in the short term when it comes to consumer pressure

In fact, as we’ll show in this position paper:

1 - Environmental concerns among the travelling public are real and growing.

2 - However, few consumers, and that includes airline passengers, will voluntarily pay some kind of environmental surcharge (via a voluntary carbon offset scheme). The expectation is that businesses should take care of sustainability.

3 - Most importantly, airlines that push sustainability to the forefront are poised to strengthen their brand, and gain a significant competitive advantage.

This is because sustainability is more of a ‘pull’ than ‘push’ factor.

4 - A sustainability threat to airlines comes from the corporate sector. This is a trend we saw pre Covid, where environmental groups are successfully putting sustainability on the agenda at shareholder meetings.

Again, in the all important corporate space, airlines that are more sustainable, can benefit commercially.

Dirk Singer Research Director, SimpliFlying dirk@simpliflying.com

CONSUMER SENTIMENT, AIRLINES AND THE ENVIRONMENT

more for sustainable products and services.

Not surprisingly, environmental concerns were most likely to influence consumer behaviour among millennials, and least likely among baby boomers.

In travel and tourism, the area we are of course most concerned with, sustainability was a purchase criterion for 62% (those who said it was either slightly or very important).

However when it came to “long distance transportation” it was an important factor for 68%, compared to 8% who said it wasn’t important and 24% who were neutral on the issue.

What evidence is there that consumers are in any way willing to pay more for ‘green’ alternatives. Are good intentions (a stated willingness to pay more) actually translated into action?

Here’s a round-up of some of the research that exists, as of April 2022:

Sustainability is a factor, even if consumers aren’t always willing to pay for it

One of the biggest reports into sustainable consumer behaviour was released in October 2021 to coincide with the COP26 climate change conference in Glasgow.

Conducted by Simon Kucher and Partners in 17 countries (including in the UAE, China and Brazil), this showed that:

63% of consumers say they have made some change to their consumption patterns due to environmental concerns, yet only a minority (34%) say they will pay

Meanwhile, the country in the study that showed the most environmentally focused consumers wasn’t the Netherlands or Denmark, but Brazil, where 41% said sustainability as a purchase criteria was “extremely important” - more than any other country in the study.

This shows that sustainability concerns are not confined to the so-called Global North.

Another study by Deloitte, conducted in the UK, says that 39% claim to have reduced air travel due to environmental concerns (only 17% say they have not)

That seems significant, but as we pointed out in our Flight Shaming Report, which we produced pre-Covid, we wonder whether these were trips the respondents would have taken in the first place

Nevertheless, it shows that the intention is certainly there.

Separately, the Deloitte study says that the biggest barriers to acting sustainably are lack of interest (22% - so consumers who won’t change their purchasing decisions in the medium term), but then cost (16%) and lack of information (15%).

Lack of information and choices was also a factor in a study carried out for the Lufthansa Innovation Hub among ASEAN consumers. 41% weren’t aware that sustainable travel options were available, and 40% said they didn’t know where to find them.

However, the information needs to be presented to passengers, they often won’t even go looking for it.

According to Booking. com’s most recent sustainable travel report, 40% actively look for sustainability information. 54% do not, but will review it, if easily accessible.

Sustainability on the consumer’s terms

A separate article in CNBC makes another important point. Consumers care about sustainability - until such time as it inconveniences them.

CNBC contrasted a study by travel company Virtuoso where 82% of respondents said that the pandemic has

made them want to travel more responsibly, to one from Vacationer, which found that 48% will only opt for more sustainable travel if it does not inconvenience them.

The Vacationer also found that price remains the primary concern for 62%, while the environment is the number one consideration for only 4%

COST AND LACK OF INFORMATION STOPS CONSUMERS FROM GOING GREEN

So in summary:

1 - Environmental awareness among consumers is high, and not just in the Global North. This is also true in countries such as Brazil.

Younger generations are more likely to be environmentally aware, which of course has implications for the future. A 21 year old today is the frequent flyer of tomorrow.

2 - Consumers have good intentions, but this doesn’t always translate into action, particularly when it comes to paying money. And here, we can’t ignore the issue of rising fuel bills and the cost of living crisis in much of Europe.

3 - Looking specifically at airlines, real world examples from Ryanair and SWISS shows that few passengers will voluntarily add on a surcharge via a carbon offsetting programme.

4 - The Deloitte study carried out in the UK identified cost and lack of information as barriers to paying more by going green.

It’s worth looking at that last point in more detail, using an example from Compensaid, the initiative from the Lufthansa group of airlines.

Putting in an example of a flight in Premium Economy from London Heathrow to Dubai, produces the above result.

That flight will cost almost €100 to offset, assuming that the passenger chooses a mix of 70% climate change portfolio and 30% Sustainable Aviation Fuel (SAF)

But that chart immediately raises two points:

1 - The cost isn’t insignificant, and you are targeting passengers who have already decided to fly, and quite possibly even booked their ticket.

This is a crucial point. You are essentially telling him / her - “you’ve already paid X for your flight, now pay Y as an environmental surcharge, that will eat into the budget you have set aside for the rest of your trip.”

It’s an extra cost for a journey the passenger has already decided to take.

2 - Then, the difference between offsetting in seven years (with 30% SAF) and offsetting in ten (with 0% SAF) doesn’t seem huge - it’s only three years after all.

Yet the cost difference using the Compensaid calculator is significant.

By adding three years, and offsetting in ten years as opposed to seven, the cost goes down to under €10.

Being realistic, who wouldn’t want to do that? Especially, as it’s not explained why the passenger should pay 10x more to offset three years faster, even if s/he is willing to pay to go green.

As a result, voluntary carbon offsetting schemes are problematic in the way the information is presented to the passenger, and at what stage the passenger receives information about sustainability.

THE ‘GREENCONSUMPTION’ EFFECT IN AVIATION

A study published in a September 2019 issue of the Journal of Consumer Research found that consumers enjoy a product more, if they find out that it is in some way sustainable.

That’s a finding with real significance for airlines currently developing sustainability programmes.

According to the study authors:

“Merely using a green product makes consumers perceive an increase in the extent to which they are valued as individuals by society, which leads to warm glow feelings, and consequently enhances the enjoyment of the accompanying consumption experience.”

The authors (H Onur Bodur professor of marketing from John Molson School of Business in Montreal and Ali Tezer, assistant professor of marketing at HEC Montréal) carried out five experiments to test their hypothesis.

The first involved sustainable headphones.

In the experiment, participants were asked to listen to 45 second excerpts from three songs via a pair of Sony headphones.

One group of participants was told that Sony uses recycled materials in the headphone production process. The second group was not given this information.

The results showed that “participants in the green product condition enjoyed listening to the songs more than those in the conventional product condition.”

Remember both groups had the same product and listened to the same songs.

Sustainability on-board can increase passenger satisfaction and passenger loyalty

What’s the relevance to airlines? Sustainable on-board products and amenity kits is something airlines are increasingly looking at.

Delta for example has used wooden (so non plastic) headphones in the past, teaming up with headphone manufacturer LSTN

Though the partnership wasn’t positioned as a sustainability initiative (it was to support LSTN’s charitable work in Peru with the hearing impaired), the evidence is that premium cabin passengers would have enjoyed listening to Delta’s IFE system more had they been given the sustainability angle.

Similarly, Alaska Airlines is heavily promoting the fact that it is using boxed water on flights, highlighting it as an example of how the airline is ‘caring’ in

the recent ‘Care Coalition’ advertising campaign.

It could be argued that using boxed water, while commendable, doesn’t do anything to address the key issue that airlines are criticised for by climate change campaigners - burning greenhouse gases.

But substituting single use plastics is something consumers can understand, and this is a very visible initiative that everyone on-board sees.

Being visibly sustainable on-board, for example through substituting plastic items with sustainable alternatives potentially increases passenger satisfaction.

It also increases the likelihood of repeat purchases, so long as they experience a sustainable product first hand.

Experiencing sustainability is key

Using the headphone experiment again, the authors allowed another group to examine, but not use the headphones.

Those who used the sustainable headphones were more likely to want to buy them, but not the group who only examined them but didn’t use them.

This is despite the fact that they were given information about how sustainable the headphones were.

Presenting dry, factual information didn’t do much in terms of stimulating purchases.

But allowing people to experience a sustainable product first hand did increase purchase intentions.

In conclusion, the authors noted -

“The current research shows that marketers can enhance consumption experiences by going green. For example, a movie theater offering recycled (vs. conventional) 3D glasses, a gym implementing eco-friendly (vs. conventional) gym tools, or a restaurant offering bamboo (vs. plastic) chopsticks can improve consumer experience.”

Or indeed, an airline with sustainable in-flight items.

COMMUNICATION IS KEY: PASSENGERS NEED TO KNOW THEY ARE ON A SUSTAINABLE FLIGHT

And so, let’s bring this back to the airline world.

The SWISS and Ryanair examples show that passenger participation in carbon offset schemes is low.

And we’ve used the Compensaid example to show that it’s not even immediately obvious why a passenger should pay a higher premium to offset their flight faster.

What about if the airline takes care of offsetting, and tells passengers that the flight is sustainable?

In this case, there is evidence that passenger loyalty increases.

We know this from easyJet, which automatically offsets emissions on behalf of customers.

Pre Covid (at the end of 2019), easyJet included a figure in its Q4 2019 results, about how passengers felt more positively about the airline once they were aware of carbon offsetting, with an 11% increase in customers saying they will choose easyJet the next time they fly.

Eleven percent is a significant number, and that 11% will tell friends and family about their experience.

The most recent Nielsen Global Trust in Advertising Study (conducted among 40,000 consumers worldwide) shows that word of mouth continues to be the most powerful form of ‘advertising.’

Etihad - an example of an airline that gets this right

Etihad is an example of an airline that has launched sustainable flights and has been very visible about it.

Pre Covid, there was the “Greenliner”, a 787-Dreamliner optimised for sustainability, in partnership with Boeing.

More recently, Etihad has made a lot out of the environmental credentials of its new A350-1000, running a ‘sustainability 50’ flight to Paris. This marks both 50 years of the UAE and Etihad’s commitment to reach net zero by 2050.

Based on the research we’ve just shown, eye-catching initiatives like this make sense. Let passengers know they are on a ‘sustainable’ flight - the evidence is that it’s likely to increase passenger satisfaction and brand loyalty.

Finally, remember the study we talked about earlier that showed that many travellers care about environmentally friendly travel only until such time that it inconveniences them.

Running a ‘green’ flight, or using sustainable in-flight items doesn’t inconvenience the passenger in any way, instead it adds to the overall experience.

HOW GOING GREEN GIVES AIRLINES A COMPETITIVE ADVANTAGE IN THE CORPORATE SPACE

At the recent CAPA Airlines in Transition Summit 2022 in Manchester (UK), the global head of travel for Ernst & Young set out three rules that the company now has regarding corporate travel.

No air travel if there’s a viable rail alternative, no day trips, and a limit on the number of people going to any one event or meeting.

And so, the evidence is that it’s the all important corporate travel market that might ultimately put more sustainability pressure on airlines than consumers.

This is a trend we talked about even before the pandemic, when we identified major investment firms divesting themselves from fossil fuels, and companies like Microsoft putting in place strict internal environmental controls.

The same point was made at Travelport’s ‘Future of Retail’ event in Dubai.

Quoted in Phocuswire, John Bevan, divisional senior vice president of DNATA travel said,

“They (corporates) have huge targets, very fast targets to net zero. They want to know

what is the least impact route to go from A to B.”

Meanwhile, quoted in the Points Guy, Dan Rutherford from the ICCT (International Council on Clean Transportation ) compares

flying economy with driving a hybrid and flying business with driving an SUV.

Both have some impact, but the impact of the SUV (or flying business) is of course much higher.

And some business travel will inevitably drop off. Before the pandemic, Apple was buying 50 business class seats on United on flights from San Francisco to Shanghai every day.

Especially with China now being a Zero Covid hold-out, that’s clearly stopped. Yet iPhones and iPads continue to be made.

So, a lot of businesses have adapted and found out first hand that they don’t need to travel that much as they used to.

And of course, reducing corporate travel kills two birds with one stone, it lowers costs. At the same time as being a way that a company can show that it is more sustainable.

As a result, writing in Forbes, Ben Baldanza, former CEO of Spirit says that up to 40% of business travel may not return.

Meanwhile corporate travel providers are giving their clients the tools to measure sustainability.

For example, American Express travel issued a press release saying that its Carbon Footprint Dashboard “will also be available to American Express’ global Corporate clients,to help track emissions associated with their employees’ travel and entertainment spend – across air travel, ground transportation, hotel stays, restaurants and retail purchases.”

As a result, you have airlines chasing a smaller corporate market that’s increasingly concerned about sustainability.

Demonstrating as an airline how you can help a company meet its sustainability goals, is one way to get competitive advantage and maintain or even increase your corporate travel market share.

COMMUNICATION IS KEY - AIRLINES MUST COMMUNICATE PROGRESS

From Shashank Nigam, CEO SimpliFlying:

So far we’ve shown that airlines can get a considerable brand benefit from effective communications, where passengers know that their flight is somehow more sustainable.

Unfortunately, some airlines that have made significant progress on sustainability seldom talk about it.

Very few people know that JetBlue Airways carbon-offsets all of its domestic flights, just like Delta Air Lines.

While some like EasyJet do a better job communicating their strategies, airlines are mostly playing defence when it comes to sustainability. That cannot help airlines in the long term

The dangers of undercutting others on sustainability

Finally, airlines that are taking significant measures and communicating them well tend to focus on building a competitive advantage and taking hits at others. They believe that it’s their way or the highway.

According to Wizz Air boss Jozsef Varadi, carbon offsetting is “a bit of a joke”, despite the airline offering it to its customers.

“Just imagine that you fly a crappy old aircraft, you pollute the world like hell, and then you [plant] two trees, and you think you are done?”

Outgoing American Airlines CEO, Doug Parker, has taken a similar stance, taking jabs at competitors. Both Varadi and Parker are taking potshots at their respective competitors – Lufthansa and Delta Air Lines.

Learning from Airbus and Boeing

This kind of banter doesn’t help the industry as it casts doubts in the minds of customers and stakeholders that everyone is greenwashing.

Airlines need to learn from aircraft manufacturers’ messaging around safety. You’ll never hear Boeing and Airbus spar over the safety of their aircraft.

Manufacturers never position safety as a competitive advantage, which ultimately builds trust in all aircraft.

Similarly, airlines need to acknowledge that there are multiple ways to get to netzero, and while the methods may differ, no one is better than the other.

Many airlines have committed to achieving net-zero emissions by 2050 through various methods.

There are immediate measures that range from flying more fuel-efficient aircraft, installing lighter cabin equipment and offering carbon offset options to customers.

And then there are investments airlines are making in future technologies like carbon sequestration, sustainable aviation fuel and exploring new propulsion systems.

These are all valid methods to get to net-zero emissions, and airlines need to recognise that. It may seem confusing to the ordinary traveller, but it will help if the industry starts to communicate coherently without criticising one another’s methods.

Communicating proactively will help shape the consumer perception of the industry.

It will also truly help airlines seeking a

competitive advantage in sustainability if they hire a chief sustainability officer.

A senior professional with expertise in assisting organisations to carve a more environmentally secure future, reporting directly to the chief executive or the board, will speak volumes about how serious an airline is about achieving its sustainability vision.

Delta Air Lines did just that in December last year, as it named Pamela Fletcher as its chief sustainability officer. She begins work today and will report directly to chief executive Ed Bastian.

Ultimately, successful implementation of eco-conscious strategies will see carriers achieve higher profits and maintain customers’ trust.

If airlines continue to downplay each others’ efforts and communicate defensively, the industry may face the same fate as cigarettes yesterday and sugar today.

We want to avoid that – after all, the magic of flying truly makes the world a smaller place.

SUSTAINABILITY IN THE AIR

Sustainability in the air is our brand new podcast, hosted by Shashank Nigam:

- Each season will have 10 episodes that will deep dive into issues impacting aviation and travel globally from a sustainability perspective.

- Each episode will feature a top airline or technology C-level executive who will share their organisation’s journey to building a sustainable future.

- Each episode will have 40-50 mins of conversations between Shashank and the special guest.

Catch the podcast here, for every listener our partners at Carbon Click will plant a tree!

ANY QUESTIONS? GET IN TOUCH:

Dirk Singer, Research Director dirk@simpliflying.com

Shashank Nigam, CEO shashank@simpliflying.com

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