Ryanair’s Ambitious Plan to Purchase 400 Aircraft

The Irish low-cost air carrier, Ryanair, plans to expand its fleet of short-haul aircraft substantially over the next few years despite a worldwide economic downturn, an intense credit crunch, and the ever-present risk of increased fuel prices.  Their current fleet of 181 planes will grow to a much larger stable of approximately 581 planes by 2012 if this extremely ambitious purchase plan is realized.  Ryanair’s longtime and exclusive supplier Boeing, which provided the current fleet of 181 Model 737-800 aircraft, has been pitted against arch-rival Airbus for “one of the biggest orders ever placed by a carrier anywhere in the world” (Jones, 2009).

Despite numerous negative economic crosscurrents that currently exist, Ryanair chief executive Michael O’Leary has grand visions of expansion for his budget airline.  In his mind, this current worldwide economic crisis must present a golden opportunity for bargain-priced planes similar to the opportunity he seized shortly after the 9/11 attacks of 2001.  Following that watershed catastrophe and its widespread and severe economic effects, “Mr. O’Leary struck a bargain with aircraft manufacturers facing a dearth of orders” (Arnott, 2008).

A potential order for 400 planes should command intense interest from the world’s two largest passenger aircraft manufacturers, Boeing and Airbus.  And, a legitimate and feasible commitment to buy those aircraft should give Ryanair tremendous negotiation leverage.  The two principal manufacturers have battled each other this entire decade, and have received orders for approximately the same number of planes over that time p.  Following the 9/11 attacks, yearly orders for each manufacturer averaged approximately 300 planes for the years 2002 through 2004 (Centre for Aviation, 2009).  That economic valley should have many similarities for the air travel industry and its struggles given the current worldwide economic malaise.  Therefore, a commitment for 400 planes from a single carrier in 2009 presents a tremendous sales opportunity for Boeing and Airbus.

However, this opportunity for a huge aircraft order presents economic benefits coupled with significant risks for the three parties involved.  It will be incumbent upon the carrier and the two competing suppliers to negotiate fiercely and wisely.  Ryanair can exert significant pressure on its former exclusive supplier, Boeing.  The carrier’s Chief Executive O’Leary laid down the gauntlet when he stated, “We’ve been trying to talk to Boeing about orders beyond 2012 but their prices are too high” (Arnott, 2008).  The last thing that any manufacturer wants is to lose a major order from a current customer to their archrival.  Boeing’s desire to maintain their relationship with Ryanair, coupled with the uncertainties of future aircraft demand in a difficult economy, should give the carrier tremendous leverage over Boeing.  And, it’s safe to presume that Airbus would like nothing better than to take this very substantial order from their rival.

Both manufacturers should do a very thorough assessment of the feasibility of this huge order that will take Ryanair’s fleet from 181 planes to 581 planes.  The carrier’s financial standing, current and future, must be evaluated extremely rigorously to determine if they will be able to make this major expenditure.  Penalties for cancelled or deferred orders should be negotiated by the manufacturer into the purchase contract.  And, the manufacturers could also provide incentives to Ryanair for taking delivery of planes on time and paying on time.

Assuming their finances and their growth will allow Ryanair to complete this large order, they should have the upper hand in the negotiations with Boeing and Airbus.  The price of the aircraft, delivery arrangements that give them priority over other carriers, wing design options that enhance fuel efficiency, and volume discounts should all be viable negotiating factors.

References

  1. Arnott, S. (2008, August 8). Ryanair plans a major aircraft order. Businessweek.com.
  2. (2009, January 9). Boeing and Airbus face cancellations. Centreforaviation.com.
  3. Jones, D. (2009, February 4). Ryanair plans a spending spree as credit crunch bites. Liverpooldailypost.co.uk.

 

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Philip Condit and the Boeing 777

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Boeing Australia Case Study

Table of contents Executive Summary Barilla is operating in a very old-fashioned distribution system that needs to be changed. Implementing this new JITD will increase efficiency across the supply chain. The system will reduce manufacturing costs, increase supply chain visibility, increase distributors’ dependence on Barilla, establish better relationship with distributors, reduce inventory level and most […]

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Management Planning: Boeing

Table of contents This paper will examine the management planning of the Boeing Company. To better understand Boeing’s management planning, this paper is broken down into sections: First this paper will evaluate the planning function of Boeing’s management. Second, we will try to provide an analysis of the impacts that the legal, ethical and corporate […]

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Boeing Internal Analysis

Table of contents

The new materials allow the plane to be pressurized at a lower elevation, which results in less jet lag. Also, the cabin humidity can be raised to around 20% because these materials do not corrode like metals. Through the use of lean productions, Boeing significantly reduced the cost of machinery used for manufacturing, along with inventory costs.

For financial resources, Boeing received $12 billion from NASA to develop technology. They also received $1 billion in loans from Mitsubishi, Kawasaki, and Fuji for the development of the 787. Furthermore, Boeing had received launch aid from U. S. Government subsidies. Boeing has a reputation as one of the best manufacturers of commercial and military jets. Its strong brand and name represents the position in the aerospace industry. Boeing has encountered some scandals in upper management, however they are trying to restructure its reputation and make a comeback.

 They were able to design equipment that cost amazingly less and was much more efficient than the machines they were using at the time. A router was built for 0. 2% cost of their larger one and a drill machine was built for 5% cost of the previous model.

They used a hay loader to put the seats into the planes, rather than using a crane, which reduced production time from twelve hours down to only two hours. Production of landing gear components took 32 moves over 10 months, but with the lean production strategy it only took 3 moves and the time p was reduced to 25 days. Dynamic assembly was an important change at Boeing as well. Before, planes had to be jacked into position at one station, worked on, down-jacked from the station, and moved with a power cart to the next station.

This process could take up to two, ten hour shifts. By using a sled that drags the plane two inches per minute, Boeing reduced production time in half. Core Competencies One of Boeing’s core competencies would be utilizing composite plastics in the manufacturing of their jets. This is valuable because it allows them to build a jet that can travel faster, farther, and with more comfort than on previous jets. It can be considered costly to imitate because when Airbus built a model to compete, the A350, its performance was unable to compare to that of Boeing’s 787.

The composite materials are non-substitutable because it is currently the highest grade technology jet manufacturing industry. It is rare because only Boeing and Airbus are in the commercial jet industry, and Airbus’s model cannot compare. Another core competency would be Boeing’s ability to use lean production. This is valuable because it allowed Boeing to free up 1. 3 million square feet of space and sell seven buildings by switching to a “just-in-time” inventory. Also, they were able to reduce costs of equipment and speed up the manufacturing process drastically.

It is socially complex because it uses numerous different strategies to create one finished product. There are no substitutes that compare to lean production as far as time and money savings, and it is rare because Airbus and Boeing are the commercial jet companies to use it. The third core competency is Boeing’s dynamic assembly line. This was a valuable change to Boeing because it reduced assembly time by 50%, or from 22 days down to 11 days. The planes move 80 feet every shift and lights determine the status of the assembly line.

Dynamic assembly lines are costly to imitate and rare due to the size of the plant and the components used in order to pull such a large craft throughout the building. The only substitute of a dynamic assembly line is a static assembly line, and the dynamic one performs much more efficiently.

Weaknesses

Ineffective top management Boeing was recently faced with the scandals which hurt the reputation of Boeing. The top management recognized the problem and tried to figure it out by effective management strategies.  Outsourcing In 1997, Boeing lost $1. billion against their earnings due to problems with the supply of critical components. They had to halt the production of the 737 and the 747. In 2006, suppliers for Boeing’s 787 fell behind schedule which resulted in a delay of production. Value Chain Analysis The industry value chain is the process from the suppliers of the raw material to the end customers who demand the service of transportation. Boeing found itself in the crucial situation of having lost market share to Airbus. Boeing had to act in response by enhancing customer benefits to recapture an advantage over its competitors.

The fundamental idea was an innovative renovation in the supply chain process, which would redefine Boeing’s role as a coordinator and integrator rather than simply the manufacturer. At the heart of the supply chain transformation process was the strategy to outsource more than 70% of the 787’s production. Boeing introduced new project management techniques by sharing risk with partners. The companies sharing risk transformed the entire 787 program. The risk shared by partners in investing their own capital in the 787 program cut approximately 55% of Boeing’s development cost required for the program, which was $6 billion.

Boeing’s outsourcing process has dramatically reduced the manufacturing time from roughly two weeks to as little as three days. Saving such significant time greatly decreases labor and inventory costs for the company as outsourced components reach the assembly site with pre-fitted sub-systems. This approach streamlines and adds efficiencies to the assembly process.

Works more with both its customers and suppliers to design and build the best aircrafts on the market. R&D departments which are able to design and implement better aircrafts which reduce the costs and make more efficiency.

Flexible work schedules for the employees.  The return of assets of over 6 % shows an overall strong earning power of Boeing’s total assets. Strategic Competitiveness Boeing has implemented outsourcing to build better and more efficient airplanes by using portions of other companies’ knowledge and research with their own. This has helped them produce airplanes at a much lower cost. Boeing’s strategy was to develop the 787 at a very low cost. By doing this, Boeing believes it can compete with Airbus’ new Super Jumbo project. Boeing focused on medium capacity aircraft which can hold 250 people, whereas Airbus focused on super jumbo jets, which contain 550 people.

Overall Boeing has achieved higher quality and efficiency. Boeing pins its hope on a different strategy and does not take the hub-and-spoke concept as a given. The Boeing 787 is the solution for non-stop, point-to-point flights between secondary cities.

Conclusion

Boeing’s ability to develop lean production, use of composite materials, and dynamic assembly methods are their strengths. Their weaknesses include poor upper management and unreliable outsourcing. In the future, Boeing needs to find higher quality upper management and more reliable suppliers.

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Boeing: Selling a Dreamliner

Discuss this in terms of the core benefit, actual product, and augmented product levels of 787 Dreamliner. The 787 Dreamliner core benefit is to provide an evolutionary step in air transportation by “looking at every aspect of the flying experience”. Boeing wanted to provide its corporate clients with an aircraft that falls into the midsized wide body market with ground breaking innovations that would translate into true benefits for its customers. Boeing 787 Dreamliner brings the speed range and capacity of the big jumbo jets to the mid-size market.

It is designed to be the world’s lightest and most fuel efficient passenger jet, providing cost savings to their consumers. By looking at the entire flying experience, Boeing developed new product innovations in the 787 Dreamliner. Such innovations bring 20% less fuel consumption than comparability sized planes, an interior that offers a flexible design aimed at providing multiple configurations for seating capacity, increased cargo capacity, enhanced safety and technology to cut departure delays and improvements to the passenger travel experience.

Boeing prides itself on offering augmented product levels through superior customer relationships both during and after the sale. Boeing invests heavily in managing customer relationships during the lengthy sales cycle, through its sales and service technicians, financial analysts, planners, engineers etc. , all dedicated to finding ways to understand and satisfy airline customer needs. After the sale, the sales executives stay in almost constant contact with the customer to ensure that they stay satisfied.

In this case of the delayed product delivery, Boeing augmented the product by announcing its commitment to working with its customers to minimize the impact of the delays as well as offering incentives and penalty payments to those customers. There are three major types of buying situations in Business markets. Identify which one better describes the situations of the airline mentioned as buyers of the 787 Dreamliner and explain.

As a customer to the Boeing 787 Dreamliner, I believe this situation is best described as a New Task, A business buying situation in which the buyer purchases a product or service for the first time. Although the customer may have purchased products previously from Boeing, this product line, the 787 Dreamliner, is a brand new, revolutionary product in the market. As such, the customer, not having a previous experience with that particular product, its impact or how it would fit into their own product portfolio would have to perform a complete benefit/risk analysis.

Such investigations are including but not limited to: product specifications, their own price limits, contract payment terms, order quantities, delivery times and service terms. Without an investigation on the new product, the buyer can only leverage historical experiences from Boeing on different product lines and the company’s business reputation. This is not enough to make a purchasing decision. Discuss the customer buying process for a Boeing airplane. In what major ways does this process differ from the buying process a passenger might go through in choosing an airline?

Customers looking to invest in the Boeing 787 Dreamliner will undertake a Complex Buying Behavior for New Products. This behavior is identified for customers who are highly involved in the purchase and perceive significant differences amount brands. Consumers are highly involved with the product is expensive, risky, purchased infrequently or highly expressive. In the situation of buying the 787 Dreamliner, the purchasing cycle can take years of investigation and negotiations before the final contract is signed or the purchase is made.

The length of the purchasing cycle and the behavior of the customer is identified by a number of stages, and these happen after the customer first identifies their need for the airplane. After identifying if there is a need for the Dreamliner in the business, the customer will then go through a learning process about the product. They will investigate the 787 Dreamliner, compare the benefits and features with other competitive offerings. The customer will most likely analyze their finding through a comparative analytical model to help identify differences in the product and the value of those differences.

Not only will the customer look at the core benefit of the product, the product itself, but the customer will also analyze the augmented product levels available to them (such as, warranty, maintenance, financing planners, engineers). It is during this evaluation that Boeing can be instrumental to the customer by managing the customer relationship by offering up an extensive team of company specialists all dedicated to finding ways to work closely with customers through the lengthy buying/discovery process. From here, the customer will develop first beliefs about the product itself.

With only 2 competitors in the market for this type of product, the customer may already have a belief or attitude about the company itself (Boeing). It is now, that the customer will develop a belief, and then an attitude about the product and how the Dreamliner will fulfill their needs and what benefits it will bring to their portfolio. From there, the customer will make a purchase choice. A significant point is, that with this buying behavior, the cognitive dissonance the customer feels is relatively low, provided that the Boeing meets and provides the service and benefits that it marketed to the customer, thus providing customer delight.

If Boeing fails to meet the criteria it set forth with the customer, than, as direct relationship with the price, the cognitive dissonance is very high. In contrast to a long buying cycle and decision making process that customers make in purchasing an airplane to round out their portfolio. The end user (the buyer) goes through a much shorter decision model and most likely fall in the Dissonance-Reducing Buying Behavior or even the Habitual Buying Behavior. I will review the Dissonance-Reducing Buying Behavior first.

The Dissonance-Reducing Buying Behavior is when the buyer identifies a need they have (flying to a destination), that they are highly involved in the purchase as it maybe be an expensive, infrequent or risky purchased, BUT they see little difference among brands. As such, although the purchase price is expensive, and the buyer doesn’t see much difference between brands, the buyer may investigate options (shop around to learn what is available for pricing) but will buy relatively quickly.

Provided that all pricing is relatively equal in the market (no large seat sales to take advantage of), the customer may do a preliminary scan of price offerings, stop overs, flight times et cetera; the customer will ultimately make a choice and purchase a ticket. As with most purchases, cognitive dissonance will occur with this purchase. It will most likely not be over price, as all options available were of equal value, but it can occur from the service the buyer receives from the airline, or even through beliefs transferred from other’s experiences with that airline.

The Habitual Buying Behavior occurs under conditions of low customer involvement and little significant brand difference. A significant portion of this buying behavior is based on the repetition of the product by the buyer. If the buyer is a frequent flyer, to him/her it may not matter about services, but about brand familiarity rather than brand conviction or brand loyalty. Once again, providing that price is not a factor in the buying decision, the buyer will continually return to the same airline out of habit provided that (s)he does not have a bad experience.

As it is with Dissonance-Reducing Behavior, cognitive dissonance may occur, but most likely when the buyer receives bad service. Given that business and consumer marketers use many of same segmentation variables, which of the four categories of segmentation variables on page 242 of the textbook has Boeing used in planning for the 787 Dreamliner? Explain. Faced with a sullied reputation and suffering financial situation, Boeing fought back by first looking at the market and their products. They identified an opportunity in the mid-size wide-body market.

Their current product line did not have the depth required to attack this market. When developing the Boeing 787 Dreamliner, Boeing segmented their marketing tactics to Psychographic Segmentation, specifically targeting Benefits Sought. This segmentation group divides buyers according to the different benefits they seek from the product. With this understanding and segmentation in mind, Boeing not only developed a product to fit into this category, but Boeing focused on improving the “standard” design including a number of significant changes, (benefits added).

Boeing worked on adding “ground breaking innovations that would translate into true benefits for its customers, the types of benefits that would stand out to buyers and executives at major airlines”. The Boeing 787 Dreamliner brings the speed range and capacity of the big jumbo jets to the mid-size market. It is designed to be the world’s lightest and most fuel efficient passenger jet, providing cost savings to their corporate customers, who in which could pass along the savings to their customers, driving business and market share.

Adding on to this innovation, Boeing developed additional product innovations in the 787 Dreamliner. Such innovations bring 20% less fuel consumption than comparability sized planes, an interior that offers a flexible design aimed at providing multiple configurations for seating capacity, increased cargo capacity, enhanced safety and technology to cut departure delays and improvements to the passenger travel experience.

These changes or innovations are designed to provide their corporate customers with financial benefits through cost savings on fuel and cutting down on departure delays. The enhanced safety technology also provides a costs savings for the customer with increased safety provisions, and maintenance requirement reporting that can lead to reduced down time. The final advances, although aimed at the end user (the flyer), also promote a benefit to the customer. The customer can promote their flights to the flyer” and boast of the 60% noise reduction, more legroom, lighting that automatically adjusts to time zone shifts, and higher cabin pressure and humidity which reduce the common flying symptoms. By developing the 787 Dreamliner with innovations, cost savings, an end user comfort, Boeing was able to segment their market and target their product to the customers most interested in products that provide them with additional benefits. Identify and discuss the sources of competitive advantages for the 787 Dreamliner.

Although the 787 Dreamliner has a “hefty” price tag, as compared to comparable models, at $168M, it also offers a number of competitive advantages over the competition:

  • Worlds lightest and most fuel efficient passenger jet o Single piece fuselage made of lightweight carbon materials, eliminating 40000-50000 fasteners and 1500 aluminum sheets o Requiring 20% less fuel than comparable models o Fuel range of 8500 nautical miles and reaching speed of Mach 0. 5, bringing big jet speed and range to the midsize market, rivaling the jumbo jets o Innovations in safety technology o Technology in cutting departure delays and ground based com o Self-monitoring vital functions with maintenance reporting technology to cut on down time o Multiple interior configuration o Increased cargo space
  • The flow through (or advantages aimed at the end user or flyer) are to reduce long-haul flying misery and to better imitate the life on the ground: o 60% quieter than other planes in its class More leg room o Lighting that automatically adjust to time zone shifts o Larger over-head capacity to reduce content damage o Cabin pressures and humidity higher to reduce symptoms of flyer promoting a more comfortable ride o 19 inch self-dimming windows o Wireless internet o Entertainment system By looking at the entire flying experience, from maintenance, crew and the passenger, Boeing was better able to create a product that has distinct and definable advantages over that of its competitor.

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Airline Management (Analysis of the ‘four pillars’)

Table of contents

Introduction

In 2008, the aviation sector signed a declaration, committing itself to the ‘four pillars’, an initiative to reduce emissions from the industry, (UNFCCC, 2008).

This tone continued when world government’s met in Montreal in September 2013. The aviation industry recommended that, as part of a broad approach to address ’s climate impacts, a single global market-based measure (MBM) be agreed upon, allow for carriers to effectively compare efficiency. This should be included into a broader package of measures including new aircraft technology, more efficient operations and better use of infrastructure, (ICAO, 2013).

The industry determined that a carbon-offsetting policy would be the best method, giving carriers the opportunity to tailor their response to their business development; in effect, ensuring that carriers feel the plan still allows for expansion to meet rising demand, (IATA, 2013).

The meeting concluded with the following, (ATAG, 2013):

Agree a roadmap for development of a single global MBM for aviation to be implemented from 2020 that can be adopted at ICAO’s next Assembly in 2016.
Agree the principles for development of a global MBM, including:

  • The goal of carbon-neutral growth from 2020;
  • That aviation emissions should only be accounted for once;
  • That a global MBM should take account of different types of operator activity.

This report will evaluate the progress made on ONE of the four pillars to reduce emissions from the aviation sector; whilst also paying attention to the barriers that carriers face in achieving these targets.

The first section will provide a brief introduction to the four pillars as well as reasoning behind the choice in evaluation. A discussion will then follow answering the requirements of the report, before a conclusion summarises the findings.

4 Pillars

The four pillars cover the entire scope of feasible methods to improve efficiency and reduce emissions. The pillars are technological process, improved infrastructure, operational measures and economic measures.

This report has chosen to focus on the development of operational measures; the decision was driven by an interest in the development of fuel efficiency, business optimisation and carrier integration in a bid to reduce emissions from an industry that has always been labelled a major global polluter.

With demand for booming on the back of global urbanisation and emerging economies, more attention is being paid to carbon emissions from air travel. According to data from the Air Transport Action Group [ATAG] (2014), global emissions from air travel total 689mt, against a total of 34Billion tonnes of CO2 produced annually from human activity. With these figures, CO2 emissions from air-travel total 2% of annual emissions; in terms of transport, aviation is responsible for 12% of total emissions, compared with 74% from road transport.

Operational Measures

As mentioned above, there are a number of factors, which with improvement can lead to a reduction in emissions. This section will concentrate on fuel efficiency, which will touch upon optimal aircraft use, new aircraft design and route optimisation. Also mentioned with be business optimisation, paying attention to carrier ‘load factor’, optimisation on ground-operations and also integration between carriers, which has included M&A activity and also the introduction of alliances in the industry. The discussion will touch upon carrier cost reduction, which has become a major supporter of reduction on CO2 emissions given its link to fuel usage and so exposure to high oil prices.

Fuel Efficiency

In terms of achievements so far, the issue of fuel efficiency has supported in recent years by the economic downturn and high oil prices. Carriers have look to reduce their fuel bills to stay profitable, focusing on a number of methods which also support fuel efficiency. To start, carriers have invested heavily in new aircraft after developments from both Boeing and Airbus support greater fuel efficiency. Airbus experienced its biggest year in 2011, receiving net orders for 1,419 new aircraft, buoyed by the launch of its A320neo, (Morrow, 2013), with similar success from Boeing, (BBC Business, 2014).

The report also found that the fuel-efficiency gap between the best/worst airlines was 26%, (ICCT, 2013); the report also found that about one-third of the variation in efficiency likely comes from the deployment of different technology; for example Allegiant operates a fleet of McDonnell Douglas aircraft that date back to the 1970’s, while Alaska Airlines uses new Boeing planes that have technologies like ‘winglets’ to reduce fuel burn. These finding bode well for Boeing and Airbus as they continue to offer newer models. Recent additions such as Boeings 777X, a more fuel efficient version of the 777 Jumbo and Airbus’s A320 family have been well received; according to Boeing (2013), customers for the 777X include Gulf carriers along with Cathay Pacific and Lufthansa, with record breaking orders of 259, while Airbus (2013) confirmed its backlog of orders for the A320’s at over 10,000. These new planes will reduce both emissions and noise pollution, allowing for negative externalities to be controlled as expansion continues.

Business Optimization

Carriers have adopted a number of methods to optimise their operations. One factor has been the adoption of alliances between carriers, allowing for them to effectively ‘share’ their capacity. This has reduced the need for such aggressive expansion by some, which would have created too much competition on some routes. Furthermore, airlines have invested in newer aircraft to meet the needs of routes, such as smaller aircraft for new, short-haul routes and larger aircraft, such as the Airbus A380 for busier, long-haul routes. Emirates currently have orders for 90 A380’s as the carrier looks to expand capacity on a number of routes, (Wall, 2013).

Future Projects

Focus

As more attention is paid by governments and consumers onto CO2 emissions and other negative externalities, company’s such as Virgin Atlantic (2013) have put more into reporting their impact on the environment from sustainability reports; in some continues such as the UK, reporting into emissions and environmental impact are becoming mandatory for listed companies, (UK Government, 2013), which will only increase the amount of information that the aviation sector will make public, (Sustainable Aviation, 2014).

According to Virgin Atlantic (2013), through its Sustainability Report 2013, the company focuses on a number of programs to improve sustainability. These include:

Reducing CO2 emissions by 30% between 2007 and 2020.
Improving the fleet of aircraft – currently Virgin Atlantic are taking delivery of 10 Airbus 330-300, which will replace the older Airbus 340-600 and be 30% more fuel efficient.
Implementing technology to monitor aircraft fuel-use and routes to identify further carbon savings.

PESTEL Analysis

This section will touch upon PESTEL analysis to look into the future possibilities to meet operational measure targets.

In terms of driving-forces, a number of carriers will look to improve operational performance in a bid to lower costs and remain profitable as low-cost carrier reduce market prices and higher oil prices affect carrier margins. However, it has been noted that each carrier will take a differing approach, designed to also meet the requirements of current expansion plans. For example, take British Airways (BA); currently, the carrier is involved in its ‘One Destination’ initiative, with a number of schemes underway to make the carrier carbon neutral from 2020, (Brittlebank, 2012). According to British Airways (2013) the international community’s aim is to cut net CO2 emissions by 50% by 2050 (relative to 2005 levels).

As mentioned prior, one of main drivers will be the continued improvement and market adoption of new aircraft. For example, British Airways (2013) estimates that the new Airbus A380 will have a 16% improvement in fuel efficiency compared to the aircraft it will replace, mainly down to the capacity of the aircraft, which can be used on longer routes, such as Hong Kong and Los Angeles. Improvements such as these will continue to drive down CO2 emissions per passenger kilometres, a metric widely used in the airline industry to measure efficiency. In 2012, BA aircraft emitted 101.9g/CO2 per passenger kilometer, while Emirates emitted 100.6 (Emirates, 2013), Lufthansa 109.3 and EasyJet 95.6 (EasyJet, 2013).

One factor that each airline has in common is major deliveries of new aircraft. While new aircraft will continue to benefit both the environment and also the airline in terms of lower fuel bills, headwinds will appear in the long-term. While the current spate of aircraft orders has been supported by growth opportunities and profitability in the industry, long-term risks to demand could dampen the need and justification to purchase new aircraft.

Furthermore, it has also been noticed that the recent rise in airline purchases has been fuelled by expansion projects from carriers in the Middle East and Asia, while European airlines seen less reluctant to purchase than previously as profitability has waned. Given this, the risk is that in the long-term, order may decline, which would impact on carriers ability to further reduce emissions. For example, British Airways (2013) are targeting efficiency of 83g/CO2 per passenger kilometre by 2025, which will require the support of capital expenditure. Given the current reduction in the carriers profitability over the year, continued weakness may make current expenditure plans un-obtainable.

The process involves inputting commercial/ residential organic waste into a boiler, where extremely high-pressure plasma breaks down the waste into gases. These gases are then cooled and cleaned, before the Fischer-Tropsch process re-forms the gas into low-carbon jet fuel, (British Airways, 2013). BA is currently involved in a UK-based project with Solena Fuels Corporation to construct a waste-to-fuel plant, which at its peak will convert 500,000 tonnes of water into 50,000 tonnes of jet fuel each year, (British Airways, 2013). Cathay Pacific (2013) also remained optimistic on biofuels, implementing a number of projects itself. While development will be buoyed by social/ political acceptance of biofuels in the future and the green-credentials it provides, there are also factors, such as the costs involved and its competitiveness with current kerosene supplies.

Another driver identified is the purchase of emission reductions, or ‘carbon offsets’, with the money invested into initiatives to reduce emissions in other areas, which could be seen to offset the emissions from carrier operations. For example, Cathay Pacific (2013) has used money raised to invest in hydropower/ wind power projects in China. These programmes are now run by over 35 airlines, however require voluntary donations from passengers, IATA (2014). The main risk is that the projects rely on the social responsibility of customers; an over reliance on these programmes to reduce emissions could back-fire if customers do not share the view; PriceWaterhouseCoopers (2013) suggests that carriers may need to purchase an extra 1.1 Billion of carbon offsets annually by 2030 to reach targets.

PriceWaterhouseCoopers, hereafter PWC, (2013) backs up the above in its latest report. After mentioning the halving on aviation emissions by 2050, PWC shows its scepticism, saying that reaching the target will not be easy and would require improvements in carbon intensity of 5.1% every year. Ultimately, advances in fuel efficiency would need to be accelerated along with adoption of biofuels. To add, the report mentioned that a global consensus on sustainable aviation was needed before acceleration in improvements can be seen. The fear is that any improvement from airlines operating in advanced economies could be offset on a global scale by less-efficient emerging airlines from China and India etc., who may not have the financial means to invest heavily in the newest aircraft.

Ground Operations

As mentioned in the Four Pillars, efficiency in ground operations will also support a reduction in emissions. Easyjet (2013) mentioned that they avoid ‘congested hubs’, such as Heathrow and Frankfurt, to help reduce taxiing and holding patterns, which will use less fuel and so emit less carbon. Furthermore, low-cost airlines have also been known for quick turnaround, allowing for greater efficiency from their current fleet, (Barrett, 2009).

Summary

The report chose to focus on operational management as a tool to reduce emissions, focusing on fuel efficiency, new aircraft, and route optimization. The report found that fuel efficiency, driven by new aircraft models has become a high priority; while the decision will have been impacted by a move to reduce emissions, there is also the thought that the trend of high-oil prices, coupled with lower earnings over the economic crisis would have pushed a number of carriers to seek cost-reductions and efficiency drives.

Given this, past improvements in efficiency have been strong; however, strong growth in demand from emerging economies has led to a marketable rise in flights, pushing overall emissions higher. For example, Emirates, seen as one of the fastest growing carriers could be used as a barometer. While the carrier has reported improvements in fuel efficiency, due to new aircraft and routes, the carrier reported a 15.9% increase in overall CO2 emissions to 22.4 Million tonnes, (Emirates, 2013).

Looking ahead into the future, the report has highlighted a number of factors for improvement; being higher adoption of new aircraft, increased adoption of biofuels and purchase of emission reductions. Carriers will continue to place attention on new aircraft/ biofuels as focus remain firmly on cost-reductions; however, the level of long-term success will depend upon profitability, which will impact directly on future capital expenditure plans. To add, not all carriers may share the same plans as emerging carriers may focus on growth and profitability over the environment. To combat this, PWC (2013) identified that a global consensus is needed; currently regulation in the USA/ Europe is much higher than seen in Asia/ Middle East/ Africa, creating unfavourable discrepancy to airlines, such as BA. Carbon offsetting was also identified as a major growth initiative, however as mentioned this currently relies on customer donations; as so both social and political attention on the effects of emissions need to be heightened to encourage offsetting by the public.

Operational measures provide great opportunities to further reduce emissions; however, carriers need to ensure they have the funds available for capital expenditure, and the public support/ donations to move ahead with carbon offsetting plans.

Finally, it is important to mention that while fuel efficiency will continue to improve, strong increases in demand may lead to overall emissions increases as flight numbers/routes are increased by emerging airlines. This has been seen with data from Emirates; under these circumstances carriers would need to accelerate all initiatives in a bid to meet targets that would seem ambitious. All four pillars will need a global consensus to support target achievement.

References

  1. Airbus (2013) [Online]: Orders & Deliveries, Available at http://www.airbus.com/company/market/orders-deliveries/, Accessed 12/01/2014.
  2. Air Transport Action Group (2014) [Online]: Facts and Figures, Available athttp://www.atag.org/facts-and-figures.html, Accessed 12/01/2014.
  3. ATAG (2013) [Online]: 38th ICAO Assembly, Available at http://www.atag.org/our-activities/38th-icao-assembly.html, Accessed 22/03/2014.
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