Mexico, Netherlands: COVID-19's Impact on Airline Sustainability

The airline industry is faced with the largest fall in demand in recorded history. The COVID-19 pandemic has brought the industry to a near standstill. Air France-KLM was forced to ground 95 percent of its flights in the April-June period and reported an €815-million loss in the first quarter of 2020. As a result, the French and Dutch governments provided the airline group a financial support package worth €10 billion. The airline group receives €7 billion in French support and €3.4 billion from the Dutch government. The bailout comes with stringent sustainability rules set by each government and the support is based on loans that will have to be repaid. How will Air France-KLM be impacted by these new rules and what is the effect on the airline industry in general?

As part of the conditions stipulated by the Dutch government for the financial aid, KLM needs to cut CO2 emissions per passenger per kilometer by 50 percent in 2030. In addition, 14 percent of KLM’s fuel needs to be sustainable as of 2030, which is to be supplied from SkyNRG’s production facility in Delfzijl. In 2019, KLM was the first airline in the world to sign a commitment to the development and purchase of Sustainable Aviation Fuel (SAF) with SkyNRG. This facility will be Europe’s first plant to produce SAF. 
The French government has established similar conditions for Air France for the reduction of CO2 emissions per passenger per kilometer. For domestic flights, the CO2 reduction target is more vigorous since it needs to be cut by 50 percent by the end of 2024. Also, the French government demands the airline renew its fleet and to source 2 percent of its fuel from sustainable sources by 2025. On top of that, in France, domestic flights from Paris’ second airport, Orly, are no longer allowed, as there is a train alternative that reaches this destination within 2.5 hours.

In Mexico, thus far, no bailouts have been announced and are not to be expected for the country’s airline carriers. However, the Latin American country does have the Sustainable Aviation Fuels Initiative in Mexico, SAFI-MEX (ICSA-MEX in Spanish). SAFI-MEX is a public-private initiative, currently in process of legal formalization, that seeks to drive the integral development of the supply chain for sustainable aviation fuels in Mexico. Future members of SAFI-MEX are to include airlines such as Air France-KLM and Aeromexico, as well as government entities (including AFAC and ASA), associations like CANAERO, and industry players. Among the objectives for SAFI-MEX is to seek agreements with operators to include at least 2 percent of SAF in their total jet fuel usage by 2024 and the construction of four bio-refineries near the airports of Mexico City, Guadalajara, Cancun and Monterrey.
Apart from financial support package-related rules for sustainability, there are several other factors that impact Air France-KLM’s sustainability goals and that of the airline industry as a whole. Air travel demand and consumer preferences are leading factors. According to Morgan Stanley, air traffic demand has grown at 1.8x the rate of global GDP over the past 40 years, balancing out the benefits of improved fuel efficiency attained during the same period. Although air travel amounts to less than 3 percent of total global emissions, consumers perceive the airline industry as a large polluter. A survey conducted by Morgan Stanley to gain insights into attitudes toward sustainable air travel, showed that 54 percent of the respondents said the airline industry was one of the Top 2 most environmentally damaging industries. Respondents were given Autos, Apparel, Meat & Dairy and HPC as other options. Offsetting carbon emissions is key among consumers. Flying with a greener airline was the most popular way to reduce emissions, according to the respondents. 

The impact of COVID-19 on consumer behavior and air travel is difficult to predict. According to Morgan Stanley, the ability to cope with environmental taxes and emission reduction are at stake due to the financial positions of airlines post pandemic. Other risks caused by the financial position of airlines that are failing to comply with sustainable flying goals such as those under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which calls for carbon-neutral growth in the airline industry from 2021 onward. The global consensus is that air travel will be back at 2019 levels in four to five years, during which emissions will be lower compared to earlier projections. The question remains, though, will airlines stick to their environmental goals as the industry suffers heavy losses?

Airlines have several means to make their operations more sustainable. According to Morgan Stanley these are:

• Improved aircraft technology through new aircraft with higher fuel efficiency compared to previous models.
• More efficient aircraft operations through the use of lighter materials
• Infrastructure improvements by more efficient air routes
• The development of sustainable aviation fuels (SAF), which have 80 percent lower emissions than regular aviation fuels.

Several of these means can be linked to the efforts of KLM, which despite the impact from COVID-19 is committed to reaching the sustainability goals the airline set before the pandemic. Being in the Top 3 of the Dow Jones Sustainability Index for 15 consecutive years exemplifies that the commitment to sustainability has been a priority for many years, and the crisis only accelerates KLM’s chosen direction. In 2019, KLM achieved 31 percent lower CO2 emissions per passenger compared to 2005 levels and a 4 percent reduction in absolute CO2 discharge compared to the same year. These results go hand-in-hand with the plan of action “Slim en duurzaam,” a partnership between 20 leading transport organizations and knowledge institutions in The Netherlands. In this plan, the participating organizations work together to improve the environmental impact of the airline industry. 
As part of the Slim en duurzaam partnership, KLM has been working on more efficient air routes and procedures. The airline is participating in the Taxibot initiative, aimed at reducing CO2 emissions during taxiing up to 85 percent. In addition, KLM partakes in the Noise Abatement Departure Procedure, to improve the sustainability of start and landing procedures. 

In terms of the use of sustainable fuels, KLM will procure 75,000 tons of SAF from SkyNRG’s facility in Delfzijl. Next, the airline bought large quantities of SAF in Europe, following the ongoing purchases of SAF from Los Angeles. SAF is made of sustainable biomass, waste and/or CO2 and reduces CO2 emissions by 80 percent.

Airlines are making efforts to improve their sustainability, but what should be the role of the Mexican government in airline sustainability and how critical can the industry be toward their efforts? 

Mexico has made progress toward airline sustainability in the country by initiating the SAFI-MEX cluster together with other stakeholders in the industry. This initiative was initially to be funded by the Mexican government and the original agreement included government subsidies worth US$18 million, most of which was destined to SAF. However, austerity policies of the new administration have put a hold on contributions. Apart from policy setting, Mexico’s government needs to have an integral role for all stakeholders in the airline industry and their joint ambitions toward sustainability.

Sustainability, through offsetting carbon emissions, is becoming an increasingly important factor for the consumer. A trend that cannot be ignored by the stakeholders in the industry. Mexico’s airline industry could play a prominent role when it comes to SAF, and by doing so have an impact on airline sustainability. 

At Holland House Mexico (HHM), we are aware of the importance of sustainability. Our mission and one of our core values is to promote sustainable business development between The Netherlands and Mexico. We strongly believe in the concept of sustainable development in the broader sense of the concept; taking into account not only ambient factors but rather striving to create positive effects through business development on social and economic circumstances on the local market, while building toward a harmonious interaction of business, society and planet. HHM organizes events targeted at, among other topics, renewable energy and corporate social responsibility. 

HHM’s mission is to support Dutch businesses by offering soft-landing services that range from local representation, matchmaking and guidance on how to do business in Mexico. HHM has specialists covering sectors like Energy & Maritime, Agri-Food & Horticulture and also assists companies active in other industries, such as Life Sciences & Health.