Tim Boon, Senior Aviation Analyst, IBA Advisory, uses InsightIQ Carbon Emissions Calculator to explore British Airways's LAX-LHR route and how new gen aircraft and sustainable aviation fuel could impact carbon emission efficiencies.
International Consolidated Airlines Group (IAG) recently announced its forward looking commitment to powering its entire fleet with a 10% blend of Sustainable Aviation Fuel (SAF) by 2030. IAG stated that they intend to purchase one million tonnes of SAF each year by 2030 which will certainly contribute towards their ambitious 2035 target of reducing carbon emissions by 78%. This coupled with a fleet renewal strategy, especially focussing on the ageing ultra and widebody aircraft will assist in driving down the group's overall yearly carbon intensity per seat.
Whilst the pandemic has obviously reduced the total CO2 output for operators; bigger emphasis is being put on the overall efficiency of the aircraft on a per seat basis. Throughout 2020, airlines have typically favoured newer generation aircraft due to the operational cost savings when compared to older more inefficient aircraft, a twofold benefit both from a fuel perspective but also a reduction in the probability of unforeseen maintenance.
Using analysis from InsightIQ's Carbon Emissions Calculator, we have analysed the London Heathrow (LHR) to Los Angeles (LAX) route served by one of IAG group's airlines: British Airways. Demonstrated in the chart below, we can show the impact on CO2 per seat/per Km metrics from the induction of more new generation aircraft during 2020 - such as the Boeing 787 family. In this example, LHR to LAX 2019 vs 2020 clearly illustrates the efficiency impact from new generation aircraft.
Using InsightIQ's Fleet and Flight data, our Carbon Emissions Calculator has the added benefit of retrospectively analysing routes with real world data across aircraft types. As demonstrated in the charts above, we can show the impact of British Airways fleet evolution across routes in the two comparison years. In 2019, high volumes of Boeing 747-400 and Airbus A380 aircraft were operating the London Heathrow -Los Angeles route; the 747 being largely inefficient aircraft in relative terms when compared to its newer counterparts. In 2020 the London Heathrow to Los Angeles (LAX) shows a significant drop off in emissions per seat due to the early phase out of the Boeing 747-400 and long-term storage of the Airbus A380. Post pandemic, British Airways opted to utilise its large 787 fleet which was favoured for many months until October 2020 when it was served solely by Boeing 777-200ER and 300ER aircraft, showing a large jump in emissions per seat.
The average age of the quad engine aircraft operating the route in 2019 and early 2020 was 17.6 years old, when compared to 2020's average new generation fleet age of 3.7 years old. When averaging the fuel burn per seat per month within a 12-month period for the London Heathrow - Los Angeles route, the overall efficiency improvement per seat is circa 25% better in 2020 when compared to 2019.
The comparisons above demonstrate the paradigm shift between the use of older generation aircraft vs new generation widebodies. Although, it must be noted that British Airways does not have a fleet of new generation aircraft large enough to serve its worldwide commitments, and will continue to utilise its ageing fleet when demand finally returns. However, if anything, the pandemic has served as a key demonstrator of what can be achieved in terms of fuel burn efficiency per seat once the old stock of aircraft has been retired.
All Data used and displayed in this article is derived from IBA's proprietary data platform IBA InsightIQ.
If you have any further questions or comments please contact: Tim Boon
IBA's InsightIQ analysis platform flexibly illustrates multiple asset, fleet and market positions, actual and potential, to inform client choices and identify acquisition opportunities. Immediate access to crucial aircraft, engine, lease rate and fleet data eases appreciation of historic and future aircraft concentrations and operator profiles.
There are various strategies lessors can adopt to reduce their fleets' carbon emissions and, in doing so, potentially benefit from lower financing costs, strengthen their investor relations' story and develop a greater competitive advantage with lessees. IBA outlines two key strategies: purchasing new technology planes with lower emissions levels and committing to offsetting a proportion of the emissions their lessees generate. 1. Buying new technology planes with lower emissions Airframe and engine OEMs are working on many initiatives that will improve technology and produce more efficient and potentially carbon free aircraft, but this is evidently a longer-term proposal. In the medium term, buying new gen technology planes will potentially provide a good investor relations story, fit with many airlines long term strategies and also potentially provide a 'Greenium' benefit, with access to lower cost finance. 2. Offsetting proportions of carbon emissions generated by the lessee There are three offsetting options, the impact of which can be calculated using rich intelligence from the InsightIQ platform and newly launched Carbon Emissions Calculator (CEC). Voluntary offset schemes at $3/tonne High quality offset schemes at $13/tonne Buying and holding emissions allowances from the EU Emissions Trading Scheme (ETS) Source: IBA InsightIQ CEC Read the full case study here Based on calculations and analysis from InsightIQ CEC, we conclude that buying and holding Emissions Allowances from the EU ETS may be the most efficient carbon reduction strategy for lessors. Although upfront costs are higher, buying emissions allowances at the start of a lease and holding them until lease end is an investment. Current market expectation is that these assets will appreciate in value by 70% - 75% by 2030. Investors will therefore have an opportunity to profit from their re-sale at lease end. Emissions trading also enjoys high environmental integrity as a regulated market. To understand the maths behind this conclusion, we have created the following Case Study: Case study- Airbus A321 neo (Non-ACF/ACTs) with LEAP-1A33 Engine A lessor can commit to offset emissions as a competitive differentiator in a bid to win a lessee. Using the example of a new A321neo narrowbody bought in April 2021 for US$ 56M and offered on a 12-year notional US$ 360K monthly rental, its residual asset value will be US$ 35M at lease end. We can mine the emissions information our CEC generates to calculate the following CO2 outcomes to calculate the offset costs and impact on IRR. All Data used and displayed in this article is derived from IBA's proprietary data platform IBA InsightIQ. If you have any further questions or comments please contact: Ian Beaumont Sign up for a demo
In response to widespread demand, IBA's Tim Boon delivers an update on sustainable aviation finance and green initiatives for 2021. This popular report provides the latest on ESG regulation and compliance, green financing initiative and new developments in SAF and OEM advances.