Elisabet Tiirinki
Carbon Reducing Initiatives as a Strategy to Achieve Sustainable Competitive Advantage
Case Study: The Airline Industry
Metropolia University of Applied Sciences Bachelor’s Degree
European Business Administration Bachelor Thesis
28.04.2022
Abstract
Author(s): Elisabet Tiirinki
Title: Case Study: The Environmental Strategies of The Airline Industry
Number of Pages: 48 pages + 1 appendices
Date: 28 August 2022
Degree: Bachelor’s Degree
Degree Programme: European Business Administration Specialisation option: Business Administration, Marekting Instructor(s): William E. Simcoe, Senior Lecturer
Airlines as a part high intensity energy industry are searching for best cost-effective
approaches of decarbonization. Compounded with political and economic factors as well as regulative and financial challenges, many airlines have devised sustainability and
environmental strategies to tackle upcoming environmental threats. This research uses multiple case study method to evaluate environmental strategies of three airlines and argue the potential benefits of sustainable aviation fuel, operational efficiency, and carbon offsetting schemes. The significance of a research lies in difficulty of evaluating which airlines are greener than the others. The research is contributing to this topic by discussing strategic stance of airlines in terms of sustainable competitive advantage, and whether an airline can differentiate itself with well-developed sustainability policy. As a result, this study has confirmed the hypothesis that despite many challenges carbon offsetting schemes are the most effective measure for airlines to tackle climate change in the short-term.
Keywords: Voluntary offsetting, strategic sustainability, sustainable competitive advantage, strategy, SAF, operational efficiency
Contents Glossary
1 Introduction 1
2 Background information 4
2.1 Industry factors 4
2.2 Low-cost vs Full-service Carriers 7
2.3 Long-haul vs Short-haul routes and availability of substitutes 8
3 Literature Review 9
3.1 Operational Efficiency 10
3.2 Carbon offsetting 13
3.2.1 Greenwashing 15
3.3 SAF 17
3.4 Strategy and Sustainable Competitive Advantage in Energy Intensive
industries 19
4 Method 22
5 Results 24
5.1 EasyJet. Case Study 1. 24
5.2 Finnair. Case Study 2 26
5.3 SAS. Case Study 3 27
6 Analysis 28
7 Discussion 33
8 Conclusion 36
References 39
Appendix 1 44
Glossary
ASK Available seats × kilometer RPK Revenue per Passenger × kilometer SAF Sustainable aviation fuel
SCA Sustainable Competitive Advantage ICAO International Civil Aviation Organization ETS Emission Trading System
HEFA Hydroprocessed esters and fatty acid
1 Introduction
Substantial growth of air travel caused respective growth in carbon emissions of airlines. If aviation was a country, it would emit as much as one of the top ten countries in the world. (Reducing emissions from aviation - Climate Action - European Commission, 2022) International Civil Aviation Organization (ICAO) has suggested that in the absence of extra environmental measures, the
emission levels could grow by over 400% by 2050 in comparison to 2010. (Cui, 2019) With increasing pressure on sustainability and prevention of climate change, aviation is required to make investments into sustainable development and make operations greener. While airlines are very efficient mode of
transportation, this is not enough as the number of passengers is expected to grow four times faster than efficiency improvements. (Rutherford, 2020) In European Union aviation emissions increased by 94% while other industries saw a decrease of 20%. (Blanshard and Cserep, 2021) As aviation represents one of the main physical factors of globalization it gives people an opportunity to connect all around the world, across land and ocean in just hours. It is hard if not impossible to imagine a modern world without fast and easy connectivity and affordability of traveling.
Countries have uneven shares of participation in the aviation industry and contribution to the emissions, which makes it harder to distribute the
responsibility of global pollution between them. (Graver, Rutherford, and Zheng, 2019) Number of CO2 emissions depend on many factors such as type of
aircraft, transported weight, and fuel efficiency measures among other factors.
Each CO2 emitted has also different value and benefit to the society. For example, a premium airline and low-cost airline emitting the same amount of CO2 can vary in flight revenues and number of people to whom that flight has benefitted. (Graver, Rutherford, and Zheng, 2020) In addition, the industry is characterized by high fixed costs, fierce competition, and vulnerability to economic cycles. (Belobaba, Barnhart and Odoni, 2015) These are several factors adding the complexity of decarbonization in air industry.
The purpose of this work it to investigate sustainability as a part of airlines’
strategies and whether it can result in sustainable competitive advantage. The research focuses on discussing potential limitations and problems of strategic initiatives in reducing carbon emissions and evaluating their strategic
effectiveness in mitigating environmental challenges. Therefore, the objectives set in this work are the following:
(1) Evaluate airline’s sustainability strategies
(2) Discuss how airlines can implement sustainability strategies into sustainable competitive advantage
The scope of this work is limited by the airlines that are located within European geographical area and investigation of such topics as sustainable aviation fuel, operational efficiency, and voluntary carbon offsetting schemes as strategic activities. Other carbon reducing measures such as infrastructural efficiencies, carbon tax, and investigation of regulative measures is out of scope of this work. Research attempts to generalize the findings into a more general perspective of high intensity energy industries.
A theoretical framework for a case study will incorporate topics that are discussed as a part of literature review. For aviation industry sections of background information and literature review will identify crucial factors that affect and drive environmental strategies of airlines. These will be used to construct a case study that defines strong relationships and interconnectedness between the airline’s strategies and greater context in which they exist. To construct the study, following research questions will be used to address the objectives of a study:
(1) How does an airline implement sustainability strategy?
(2) In what ways are the company and its sustainability strategy affected by factors and issues discussed in literature review?
(3) To what extent current efforts in sustainability strategy give an airline a potential for achieving sustainable competitive advantage?
The importance of this research lies in projected increased growth of air travel and corresponding growth of emissions, as well as such social problems as greenwashing. The research is also a valuable contribution towards the field of sustainability and marketing, providing an insight in importance of strategic sustainability. The research is also concerned with brand image of airlines and whether airlines can achieve sustainable competitive advantage by
implementing effective, and transparent green strategy.
Current research is slowly expanding as academic literature on sustainability and aviation grows. More studies address complexity of decarbonization in aviation and solutions related to them. Academic interest in sustainability and aviation is likely to grow as the industry undertakes green restructuring and high investment into new technologies, better regulations, reporting standards, and new business models. This work found series of research by Graver, Zhang, and Rutherford (2017a, 2019b, 2020c), Stefan Baumeister (2020) as well as studies by Kharina, Rutherford, and Zeinali (2016) and others as a strong basis and framework for further research. However, there seems to be a gap in
literature concerning strategic sustainability, and environmental competitiveness of airlines. Most importantly, there is a gap in academic literature on how to evaluate sustainability strategies of airlines in comparison to each other. This work will build on previously researched challenges of environmental
sustainability in aviation, as well as marketing theory to conduct exploratory research of airline’s strategies.
Carbon offsets are a key part of sustainability strategy of many organizations. It is a measure that enables to reduce the emissions where the costs and
investments for decarbonization are the lowest. (Kollmuss et al., 2010: 1) Some airlines have adopted voluntary offsets by offering customers to donate or compensate for emissions that the passenger has emitted by traveling. Airlines invest compensated funds in adoption of alternative fuels or offsetting projects such as EasyJet's forest regeneration in South America or establishing solar energy in India. (Carbon offsetting, n.d.) Some offsetting schemes can be highly effective in mitigating emissions. Most of the challenges associated with carbon offsets require good administrative body and well-thought plan to avoid risks
associated with the offsets. Therefore, this thesis's hypothesis is that:
while offsetting programmes can be inefficient in the design of administrative structures that support them, carbon offsetting programmes are the only economically and financially feasible short-term option for the continuation of growth in aviation because offsets promise to compensate for carbon
footprint, they do not impose limits on airline profits, and they don't diminish flying capacity of airlines.
Society, investors, customers, and government pressurize aviation into
decarbonization. (Bessoles, 2022) Well-devised environmental measures can boost competitive advantages against rivals, improve quality and lower costs.
(Walley and Whitehead, 1994) Aviation used to be a highly regulated sector, which was liberalized a few decades ago. (Sabaityte, Davidaviciene and Van Kleef, 2020) It is highly dependent on safety standards, noise regulations, and local, European, and international laws. (Belobaba, Barnhart and Odoni, 2015) The success of global offsetting schemes and other carbon reduction measures will dependent on the success of local, regional, and international standards.
For example, Norway has already implemented local standard for airline to utilize 0,5% of sustainable aviation fuel, while also airport encourages use of biofuel. (Blanshard and Cserep, 2021)(Dixit, Kumar and Jakhar, 2022)
2 Background information
2.1 Industry factors
Air travel has a political role that allows cultures and countries to participate in talent exchange, open national borders, attract businesses, as well as mitigate conflicts. Aviation is one of the main drivers of globalization and the
interconnectedness of the world. (Baumeister, 2020) Because of that air industry tends to imitate global economy repeating its cycles and being highly volatile to any political changes. (Belobaba, Barnhart and Odoni, 2015) While from 2006 to 2020 on average demand for air travel grew by 5.97%, during the times of the economic crisis of 2008 and the closure of the economy in 2020 the demand for air travel was twice as little or even lower. (Growth of global air
traffic passenger demand, 2020) COVID-19 has also affected airlines and air travel very severely because of the imposed restrictions, new requirements documents, and recommended governmental guidelines. Recently, many airlines in Europe have been impacted by the closure of Russian skies when flying internationally to Asia through Russian territory. This situation forced many airlines to reassess routes, increase operational spending, and accept disadvantages compared to Asian competition.
The role of air travel in the global economy corresponds to around 4% of global GDP and nearly 90 million jobs all over the world, many of which are skilled and specialist labor. (Commitment to Fly Net Zero, 2022) Globalization, growth of global trade, and prevalence of technology made the world more connected and led to a higher demand for transport connectivity. Aviation is associated with foreign direct investment, technological spillovers, the global economy, capital flow, and economic development. (Baumeister, 2020) The profitability of an airline highly depends on the economic and political situation as well as the cost of fuel. (Fuel Fact Sheet, 2019) The industry continues to grow expecting more passengers throughout 2050, while the global fleet is expected to grow by nearly 290% by the year 2050 compared to 2010. (Kharina, Rutherford, and Zeinali, 2016)
Air travel has various social benefits such as tourism. (Button, 2008) Unlike for business purposes, tourism often cannot be replaced with alternatives for traveling. While business travel nowadays can largely be substituted with digital meetings and conferences, going abroad for vacation, study, traveling and family visits cannot. On the other hand, traveling has only been available and affordable mainly for people from high-income countries. More than a half of all flights are coming from high-income countries and growing economies such as America, Europe, and China. (Graver, Rutherford, and Zheng, 2019)
While the industry is technologically constrained when it comes to lowering emissions, there are still several efficiencies and investment initiatives that an air industry could adopt. However, due to financial constraints, many of these could be on hold. Airlines postponing the delivery of new enhanced and
advanced aircraft, while cost-cutting strategies dominate the industry because of pandemic. Yet, some airlines use the time of pandemic to rethink their
operations and retire aircraft that have been fuel inefficient. (Graver, Rutherford, and Zheng, 2020)
CORSIA is a global offsetting scheme that has been designed by ICAO
organizations to offset 80 % of emissions of the year 2020 from 2021 to 2035.
Though the scheme is voluntary in its first stages, all countries and airlines are expected to join it. (Baumeister, 2020) CORSIA is still developing an
understanding of the market. For example, current carbon pricing doesn't reflect differences between the premium and economy class tickets as they are based on the total fuel divided by total seats. (Graver, Rutherford, and Zheng, 2020) Besides, there are significant differences between short-haul and long-haul flights, aircraft fuel consumption, markets, aircraft types, and class that should affect the pricing of carbon offsets. (Graver, Rutherford, and Zheng,
2020) These challenges and other factors should influence international programs such as CORSIA to avoid the distortion of competition and unfair regulations.
International Aviation is not expected to reduce aircraft emissions significantly without interference of advanced technology and scaling of sustainable aviation fuel. However, pressure from stakeholders seems to increase significantly.
Investments into environmental practices rise, while new requirements for financial assets and bailouts require environmental initiatives to be
implemented. (Blanshard and Cserep, 2021) Tough environmental
commitments have put a financial stroll on aviation industry, they are essential to keep the industry growing, environmentally and socially viable. Severe whether disruptions have already doubled in past decade and will cost aviation about 60 billion dollars per year. (Blanshard and Cserep, 2021) Therefore, environment is a significant risk identified by majority of airlines.
2.2 Low-cost vs Full-service Carriers
Low-cost carriers in Europe emerged on the edge of 2000, following the model of Southwest Airlines operating in the USA. Sabaityte, Davidaviciene and Van Kleef (2020) in their article discuss several characteristics of low-cost carriers’
business models. Low-cost airlines do not have extra services such as catering, and they use secondary airports which give them a possibility to grow outside of slot-constraint airports. Pricing strategy of low-cost airlines offers lowest
possible fare, while point-to-point operation model supports the sale of one-way tickets over the return tickets allowing operational flexibility. Low-cost carrier’s main competitive advantage is to achieve cost superiority which means that airlines would try to be extremely economic. (Sabaityte, Davidaviciene and Van Kleef, 2020)
On the other hand, traditional airlines, or full-service airlines tend to use hub business model, where they operate from one or two major airports. They also provide better customer service and focus on comfortability and uniqueness of experience. Many of full-service airlines are partially owned by governments and have a long history of operating certain routes. Their cost structure has historically been different from low-cost airlines.
Low-cost airlines have pushed full-service carriers from a short-haul market. At first, low-cost airline offers more regular flights and flexible fares. Secondly, many customers are willing to sacrifice comfort to save on traveling that lasts only few hours. Finally, low-cost carriers are on average more efficient than full- service carriers.
On the other hand, low-cost airlines lose their competitiveness on longer routes, as they are unable to implement point-to point strategy, fast check-ins and allocate many routes for an aircraft during a day. Passengers that need to travel long haul will not compromise as much on the comfort for an 8-hour flight.
Instead, full-service carriers have advantage in the business model and
competitiveness on longer routes. Often full-service airlines have business class and premium seats. The division between premium and the economy class ticket comes with difference in environmental impact. Around 20% of emissions
came from passengers from premium class seats that use up more of the aircraft's space and emit between 2.6 and 4.3 times more CO2 per revenue per kilometer than the economy class seat. (Graver, Rutherford, and Zheng, 2020) Therefore, the emissions per seat will always be lower in the airline that uses more seats per aircraft.
2.3 Long-haul vs Short-haul routes and availability of substitutes
Short-haul flights have 35% higher carbon intensity than medium-haul flights, while flights less than 500 km, will double carbon emissions. (Graver,
Rutherford, and Zheng, 2020) Aviation is the only available mean of
transportation when traveling long distances, so there are few alternatives to it.
Even within Europe some of the flights might reduce travel time significantly allowing people to connect quickly. Therefore, for short-haul aviation, there is an alternative possible mode of traveling.
Globally two-thirds of all flights in 2019 were between 1,500-4,000 km. (Graver, Rutherford, and Zheng, 2020) For short-haul flights of a distance less than 1,500 km, the average emissions are 110g CO2/km.(Graver, Zhang, and Rutherford, 2019) In comparison, for a flight of 3,000 km in length, emissions set between 75-95 g of CO2 per passenger per kilometer. (Graver, Zhang, and Rutherford, 2019) In some cases, short-haul aviation can be completely
substituted with high-speed rail connections or car travel. The CO2 emissions of a plane are at least twice as high as a high-speed 300 km/h train and four times as high as a conventional 200 km/h train, while in countries such as Norway, the train can be up to 10 times less polluting than a plane. (Kemp, 2009) The primary reasons for the popularity of regional and short-haul aviation are that traveling by train can take more time, and cost more. Kemp (2009)
analyses the competitiveness of different modes of transport on the distance of 200-1000 km concerning energy sources, load factor, the carbon intensity of electricity generation, speed, space per passenger, and a range of other factors. The paper indicates that existing rail services can be time-competitive
up to a distance of at least 600 km (London–Edinburgh or Paris–Amsterdam).
However, for distances over 1000 km, it is difficult for rail to compete on journey time. On routes over 600 km, the car is unlikely to be time-competitive with short-haul aviation other than in sparsely-populated areas with little public
transport infrastructure. (Kemp, 2009) Also, a car with only a driver would not be an equally environmentally-friendly choice as a plane operating full passenger capacity traveling longer distances. (Graver, Zhang, and Rutherford, 2019) In addition, to fully compete with short-haul aviation several additional factors such as frequencies, factors, airline hubs, and the structure of urban regions should be considered. (Dobruszkes, 2011) Airline and train integration is beneficial to airlines when the train route is no more than 20% longer than the planes’ and the average speed of a high-speed train on a route of under 600 km is at least 250 km/h. (Givoni and Banister, 2006) The supply of air services will continue growing for distances for which high speed train are not very
competitive in terms of travel time. (Dobruszkes, 2011)
While on some routes such as London-Paris, high-speed trains win the competition against the aircraft, on other routes the financial viability of high- speed rail services depends on the availability of international flights. (Givoni and Banister, 2006) The airports are often situated in the suburban area of the city that requires a high-speed railway connection. So a smooth connection between airport and rail services benefits the overall traveling experience, by making it easier to connect to the city center.
3 Literature Review
Airlines are often affected by any economic and social issues. The list of things that hinders the operations includes international emergencies that restrict flying, labor strikes, unstable or poor economic growth, laws, and evolving safety and noise standards. The airline industry, however, is known to recover from those circumstances better than others. (Belobaba, Barnhart and Odoni, 2015) The next approaching danger to airlines among others is the challenge of
making flying sustainable. Among the solutions there are voluntary market- based measures such as voluntary carbon offsets which airlines could adopt.
On the other hand, there are also technological advances and operational efficiencies that promise to slow down emission growth.
3.1 Operational Efficiency
Many airlines adopt measures that improve fuel efficiency as a part of a cost- cutting strategy and environmental commitment to reduce carbon emissions.
Fuel efficiency saves considerable costs by reducing the fuel consumption of an aircraft, while decreased fuel consumption creates fewer carbon emissions.
Increased fuel efficiency also sets airlines ahead of environmental policies benefitting airlines long-term. Fuel efficiency has been rising since the year 2000, presenting a cumulative improvement of 36.2%. (Aviationbenefits.org, 2019) However, significant increases in airline traffic in the past several decades diminish efficiency improvements. (Rutherford, 2020)
To reach better operational efficiency, airlines can renew and advance their fleet. Many aircrafts are re-engineered with better engines, higher bypass ratios, and geared turbofans. (Graver, Rutherford, and Zheng, 2020). Additionally, airlines can implement operational improvements such as optimization software, luggage policies, and effective route scheduling. (Bessoles, 2022) The rate of fuel efficiency improvements currently set at 1% annually can be doubled, for example, by “reducing aerodynamic drag and trimming aircraft empty weight”.
(Kharina, Rutherford, and Zeinali, 2016) Aircrafts such as Airbus A320neo and Boeing 787-9 consume less jet fuel and emit around 30-50% less than aircrafts longer in service. (Graver, Rutherford, and Zheng, 2020) However, renewing an airline's fleet requires high initial fixed costs and investments. Complete renewal of the fleet can take up to 40 years for some airlines. (Belobaba, Barnhart and Odoni, 2015) Moreover, retired airplanes would need to be old enough to benefit airlines in costs.
Fuel and maintenance costs account for a significant percentage of spending for an airline. To achieve increased profitability an airline can either increase its
revenues by altering product and market strategies or by reducing costs of fuel bills. (Moutoussamy, 2014) Savings increase as the cost of jet fuel increases.
Fuel efficiency effectively cuts operational costs, especially when the price of jet fuel is high. (Kharina, Rutherford, and Zeinali, 2016) Therefore, airlines are likely to focus their strategies on cost-cutting and fuel efficiency improvements.
Despite the general industry’s fuel efficiency motivation and demand for fuel- efficient aircraft, operational and technological improvements in the industry are less effective than they would be technologically possible. (Kharina, Rutherford, and Zeinali, 2016) The lower the price of jet fuel, the less market pull there is for more effective operational efficiency strategies. (Noh, Benito and Alonso, 2016) With fluctuating fuel prices, returns on advanced aircraft investments are
uncertain and hard to predict. (Kharina, Rutherford, and Zeinali, 2016) In addition, if an industry were to design an aircraft from scratch, rather than re- engeering previous models, new technologies could be implemented to achieve even more efficient operational performance. (Kharina, Rutherford, and Zeinali, 2016)
Improving operational efficiency is also one of the most adopted environmental practices by airlines. Globally airlines have the potential to decrease the
consumption of fuel by 19% through the adoption of cost-effective technologies.
(Kharina, Rutherford, and Zeinali, 2016) However, while CO2 per RPK (revenue per kilometer) has lowered by 12% between 2013 and 2018, passenger traffic has grown four times faster than improvements in efficiency, suggesting that fuel efficiency is only partially compensating for airline pollution. (Graver, Rutherford, and Zheng, 2020) Traffic increases historically reduce
improvements achieved by fuel efficiency. (Rutherford, 2020)
Fuel efficiency is also a key measure for reducing long-term risks of potential regulations and environmental standards. Governmental regulations tend to tighten with the emergence of new improved aircraft and the adoption of operational efficiency practices. (Moutoussamy, 2014) Many airlines tend to oppose the regulations and governmental measures mentioning the industry’s fierce competition, already high motivation for fuel efficiency, and decreased
profitability. (Rutherford, 2020) Some regulations and efficiency standards might stimulate innovation of new technologies and improve average industry fuel efficiency standards. (Kharina, Rutherford, and Zeinali, 2016) Besides, without global efficiency standards, suppliers can lose their customers from the areas and countries that adopted governmental regulations. (Rutherford, 2020) Yet many airlines are far ahead of the legislative standards by 10%–20% on average. (Kharina, Rutherford, and Zeinali, 2016)
Fuel efficiency is an effective practice that lowers the direct operating costs of airlines and works towards greater sustainability. Improved fuel efficiency offers superior service to a customer while also lowering costs. Depending on jet fuel prices, “if passed on a passenger's fuel efficiency savings could decrease the price of tickets up to 20 $ for short-haul flights and up to 105$ for long-haul flights”. (Kharina, Rutherford, and Zeinali, 2016) Fuel efficiency saves significant costs by reducing the fuel consumption of an aircraft. It is an effective,
countable, technologically possible, and financially feasible solution for the reduction of carbon emissions with the benefit of lowering operational costs.
Fuel efficiency is a solution to a defective and flawed service that creates a disadvantage. (Porter and Van Der Linde, 1995) By improving fuel efficiency, the disadvantage is canceled out. Lowering carbon emissions and lowering costs complement each other.
Fuel efficiency can also be less of an environmental measure and more of a strategic profitability measure. For an investment in an advanced aircraft with higher fuel efficiency, a company could expect around $3 saved in fuel and maintenance costs over 17 years of operating aircraft for each dollar invested.
(Kharina, Rutherford, and Zeinali, 2016) The investment will have the most return with the jet fuel prices high. Organizations should choose solutions to environmental problems that have the most benefits with the least costs.
(Walley and Whitehead, 1994) Therefore, improving operational efficiency is the least environmental commitment that airlines can do as it is comfortable for them.
Improving fuel efficiency also brings benefits of increased competitiveness and protection against future risks and environmental costs. Becoming profitable while adopting green practices can be an impossible parallel as the costs of eliminating environmental flaws are becoming increasingly high. (Baumeister, 2020) In aviation, there is little that companies can do. (Walley and Whitehead, 1994) Therefore, fuel efficiency is an important part of a strategy that helps avoiding competitive disadvantages. (Ghemawat, 1986)
3.2 Carbon offsetting
An offset is a market tool developed to finance a project that compensates for the pollution. (Polonsky, Grau, and Garma, 2010) Offsetting projects mitigate or reduce equivalent CO2 emissions that neutralize, cancel out, or balance
emissions produced by an organization, allowing flexible decarbonization and transferring the rights to pollute between firms. (Aviation carbon offset programs IATA guidelines and toolkit, 2008) Offsets' advantages lie in finding
opportunities to decarbonize and cut emissions in places where it is most cost- efficient. For high-intensity energy industries implementing green strategies may mean that they must invest in unprofitable initiatives that cost several times as much as the worth of an entire company. (Baumeister, 2020) Companies that are hard to decarbonize are, for example, the energy industries, such as natural resource extraction and heavy manufacturing, chemical industry, and
transportation, such as the air industry. (Walley and Whitehead, 1994)
The voluntary offsetting programme is an opportunity for a passenger to offset the environmental impact of their flight by investing in projects in renewable energy, reforestation, and other. (Aviation carbon offset programmes IATA guidelines and toolkit, 2008) Voluntary offsets differ from mandatory as they are less regulated and considered to be goodwill of a firm. Some airlines have already adopted voluntary offsetting programs. Many of those have received criticism from the government or from the public because of a lack of
transparency, available information as well as lack of offsetting standards.
Offsetting schemes present several problems which concern transparency and efficiency. The previously implemented ETS offset trading system showed many weaknesses and raised multiple debates on offset’s effectiveness and fairness.
(Cato, 2010, p.204) However, there is little doubt that if done correctly, offsets can do better than any other airline measure in a short period of time and require relatively little investment. The lack of offsetting standards is nearly the main problem of offsetting schemes. It is hard to ensure their effectiveness and deliver the results. The complexity of offsets lies also in the development of international and environmental law as well as scientific advances.
The principles of voluntary offsets outline that they must be complimentary, tracible, and additional to the business-as-usual activity, while independently verified, officially registered, and guaranteed. (Aviation carbon offset
programmes IATA guidelines and toolkit, 2008) At first, it is unclear how to price the offsets and how to determine this price. Secondly, the voluntary offsetting projects are not under the scrutiny of regulations or verifying standards of
independent organizations. While some offsets are voluntarily accredited, not all firms choose to follow the best practices. Thirdly, the uncertainty of how to calculate the emissions and who is producing them raises questions on who will pay for the projects and how is it possible to find out the relevant data to sustain the projects avoiding the problem of double-counting. (Cato, 2010)
Polonsky, Grau, and Garma in the paper on “Potential marketing problems with offsets” discuss some problems that make offsets misleading for customers.
Firstly, as an offset is only a market tool that is used to finance the offsetting project it means that the firm itself is transferring emissions to another industry.
Hence, the offsets are externalizing the existing problem making it only a relatively short-term solution. Secondly, offset numbers are not covering passive emissions which, in the case of airlines, could appear because of deicing the plane or transportation services to and from the airport. In most cases, offsets relate to kilometers flown rather than overall operations of an airline. This may distort the image of how much the airline is actually polluting.
(Polonsky, Grau and Garma, 2010)
Next, there are no uniform standards for offsets. The lack of standards is
complicated by disagreements in scientific terms, measurements, and numbers.
The estimation of the carbon offsetting results could be misleading as calculations might demonstrate uncertainties. (Polonsky, Grau and Garma, 2010) Voluntary offsets are not tailored and customized enough for an individual customer. Graver, Rutherford, and Zheng (2020) have stated that premium seating on the flight would emit 4,5% more CO2 per RPK, even though overall emissions will drop. (Graver, Rutherford, and Zheng, 2020) There is a need to better price carbon emission tickets, for example, by applying progressive pricing. (Graver, Rutherford, and Zheng, 2020)
Another point of critique for an offset is that the project's future results and achievements are accounted for in the past. It is impossible to predict whether the project that provided an offset was successful and whether without the project there would indeed be more harm to the environment. (Polonsky, Grau and Garma, 2010) Positive outcomes of an offset may only be achieved
sometime in the future. In the case of reforestation, the real offsetting might be achieved only 5 years after financing the project. In the case of reforestation and afforestation projects, it is debatable whether the project would have happened without finances and whether enough carbon emissions have been offset. Polonsky, Grau, and Garma mention the possibility of double counting,
“one firm claims the planting of a plantation as an offset, whereas another firm in the future claims the purchase and protection of this new ‘forest’ as an offset”.
(Polonsky, Grau and Garma, 2010) Lastly, the price for carbon offset has been a debatable issue as Paris Agreement defined it between 80-120 euros per tonee, while currently it is priced 1-60 euros per tonne. (Rolan Berger, 2021) 3.2.1 Greenwashing
Communication of environmental numbers has been a challenge in business and often is misleading. According to Lu and Shon (2012), not all customers are educated or interested enough in environmental science to compare numbers of climate change. Moreover, those who are educated have struggled to evaluate the numbers presented by environmental science in an accurate way. For
example, customers’ knowledge about offsets is that “close to 65% knew nothing about it, and only 6% were aware of the details of the scheme. While 36% consider the carbon-offset scheme to be ineffective in reducing aviation emissions, and only about 5% deem the scheme to be useful and to have a useful effect on reducing carbon emissions”. (Lu and Shon, 2012)
The misleading environmental information used in marketing is referred to as greenwashing. The definitions of greenwashing vary from author to author.
According to Oxford English Dictionary, greenwashing is “disinformation disseminated by an organization to present an environmentally responsible public image.” Polonsky suggests the following definition: “Marketing hype to give a firm a green tinge, without reducing the firm’s detrimental environmental impact. Occurs when firms make fewer substantive claims and more posturing claims in environmental advertising.” Delmas and Burbano offer the definition that greenwashing is the intersection of two firm behaviors: “poor environmental performance and positive communication about environmental performance.”
Greenwashing is considered a fairly old term and seemed to be dying out with the expansion of information availability. However, it should be treated
differently in industries where the information is highly difficult to establish like aviation. The other important concern which must be addressed is how powerful those marketing strategies turn out to be and to what extent they disinform the potential customers. (Lu and Shon, 2012) It is unclear whether the customers would change their product choice with the full information availability, though over studies claim that up to 90% of customers would switch to more
sustainable brand. (Rolan Berger, 2021)
It is unclear whether current administrative structures could support the market- based solutions to achieve useful, practical, and fair results. According to Molly Scott Cato, creating a pseudo-market for trading carbon offsetting projects or carbon polluting rights is a bold move because there has not yet been a somewhat successful result and not enough experience to make a pseudo- market successful. (Cato, 2010: 208) To achieve meaningful results offsets must be complimentary, tracible, and additional, and opt for independent
verification, registration, and guarantees. (Aviation carbon offset programmes IATA guidelines and toolkit, 2008) Challenges that relate to the production and distribution of carbon offsets are misleading calculations, lack of quality
verification, double selling effect, and wrongful communication also known as greenwashing. International Aviation is not expected to reduce aircraft
emissions significantly in near future. (Graver & Rutherford, 2018c; Pavlenko, 2018) Offsets cannot be a single tool for solving climate change problems in aviation due to their challenges such as project delays, political instabilities, misleading and hard to interpret information. However, the offsetting programs can potentially compensate for the growth of future emissions and stimulate future decarbonization of an industry.
3.3 SAF
Replacing traditional fuel with sustainable aviation fuel or alternative fuels is the practice that airline industry hopes to adopt in the long-term to decarbonize aviation. More than a half of the countries have committed or are in process of commitment to zero net emissions from aviation by 2050. (Bessoles, 2022) Using sustainable aviation fuel is generally perceived as the best long-term approach to tackle emissions that are coming from aviation. Some countries have already introduced the mandatory blend of drop-in aviation fuels, though the quantities have been limited. In general biofuel cannot have a high market share of aviation fuel until all the challenges with scaling and mass-producing biofuel sustainable will be addressed. (Noh, Benito, and Alonso, 2016)
Benefits of biofuel are reduction of emissions, security of fuel supplier for the EU market, and increasing rural income. (Noh, Benito, and Alonso, 2016) SAF can successfully reduce emissions by up to 80% and is considered
irreplaceable future measure for industry’s decarbonization. (Bessoles, 2022) Sustainable aviation fuel can also potentially allow to redirect the investments into rural areas that focus on agriculture and help secure EU’s sufficiency in aviation. However, the industry needs to significantly scale the production of biofuels to reach the net zero emissions, which can bring challenges and obstacles. (Bessoles, 2022)
Sustainable Aviation Fuel requires substantial investments in infrastructure and raw materials even though there is potential for its production. (Blanshard and Cserep, 2021) SAF production currently is measured in millions, while to reach the target SAF will have to be produced in billions of litres. (Bessoles, 2022) In addition, SAF’s comparative costliness is at least twice as much comparing to kerosene. (Blanshard and Cserep, 2021) SAF can costs over 2000 euros per tonne, while kerosene is only 700 euros per tonne. (Noh, Benito and Alonso, 2016) Therefore, price of biofuel will be more attractive when the long-term petroleum fuels will rise in price and become scares and less attractive resources. (Noh, Alonso, Nair and Dahdi, 2015)
Production of biofuel is highly inefficient as it is limited by the availability of land, competition with food industry, and other indirect factors. (Noh, Benito and Alonso, 2016) Currently, the method called HEFA is the most used by airlines.
HEFA uses raw materials such as cooking oil and animal fat to process them into hydrocarbons and produce SAF. (Blanshard and Cserep, 2021) While HEFA is relatively simple method to produce biofuels and make them affordable, it is limited by availability of land. (Bessoles, 2022) Other two
methods of producing SAF, that use agriculture and forestry residues to convert them to syngas (synthesis of different gases such as hydrogen, carbon
monoxide) or ethanol, have lower material costs than HEFA, but need high initial investments. (Noh, Benito and Alonso, 2016) Production of biofuel by the two latter methods has potential for growth and negative cost of raw materials, as they focused on recycling residues and waste. (Blanshard and Cserep, 2021) However, the key challenges for these production methods are high initial costs, low demand, and limited economic benefits.
Scaling production of biofuel can have limited effects on both environment and the economy. Previously increased production of biofuel restricted Europe’s self-sufficiency instead of decreasing its dependency on the natural resources coming from the abroad. (Noh, Benito and Alonso, 2016) Producing biofuel has to be highly regulated to dismiss any possibility of competition with food industry and higher food prices. A guaranteed market for SAF boosted by the well-
planned regulation would help towards adoption of biofuels. (Blanshard and Cserep, 2021) From technological point of view biofuels must be produced to be suitable for the typical engines and aircrafts, while be equally as well-performing as traditional fuels. Finally, no indirect environment effects form producing biofuels such as emissions from fertilizers, change of land use, and
deforestation must be used to meet the demand for biofuels. (Noh, Benito and Alonso, 2016) The biofuel is genuinely sustainable, if it is “grown on land that has no other agricultural use… that will not release methane or CO2… or…
place unsustainable demands on water or other resources”. (Kemp, 2009) Biofuels lead to airline's long-term environmental sustainability. (Noh, Alonso, Nair and Dahdi, 2015) There is a lot of potential towards decarbonization of aviation through sustainable aviation fuels. For example, an opportunity to recycle municipal solid waste that will come in billions of tonnes by 2050 into SAF. (Bessoles, 2022) However, creation of high-scale market for biofuel is very challenging that requires market-based incentives encouraging the demand and production, avoiding potential negative factors. As the oil price is low, the price gap between alternative fuels and kerosene increases making biofuel non-competitive for now. (Noh, Benito and Alonso, 2016) Therefore, in the short-term decarbonizing aviation by adopting sustainable aviation fuels is hard and unlikely, while current market mechanisms are not suitable for
production of biofuel. (Noh, Benito and Alonso, 2016) Biofuel must cause actual savings rather than produces more greenhouse gas emissions. (Kemp, 2009)
3.4 Strategy and Sustainable Competitive Advantage in Energy Intensive industries
Strategy is a set of goals and main principles. (Tilles, 1963) Market trends and fierce competition require companies to be flexible in operations and adjust their strategies to achieve the best possible results. Strategy is a direction of an organization that targets specific customers, identifies product positioning, and sets how are the value activities implemented. (Porter, 1996) Strategy can focus on achieving short-term goals. However, often the strategic position
incorporates a long-term strategic plan of 10 or more years. (Porter, 1996) The
strategy provides an opportunity for reducing costs or offering the market superior quality products. (O’Shannassy, 2008)
A sustainable competitive advantage happens when the firm has developed a value-creating strategy that is not simultaneously adopted by rivals, when other firms are unable to duplicate the benefits of a strategy. (O’Shannassy, 2008) All companies strive to achieve sustainable competitive advantage (SCA). SCA is an outcome of strategy or establishment of a position of value that includes certain activities. (Porter, 1996) Sustainable competitive advantage plays a key role in securing a difference from competition in achieving superiority. Strategic positioning results in benefits of access to customers, superior use of
resources, and restricting competitors’ options. It can also put a company on the favorable side of public policy and benefit the organization’s image and
reputation. (Ghemawat, 1986) The traditional sustainable advantage is achieved by either superior cost leadership or differentiation and innovation.
(Rolan Berger, 2021)
A sustainable competitive advantage is a set of resources and capabilities that allow the organization to meet customers' needs better than the competition. To achieve sustainable competitive advantage, resources and capabilities of a firm have to be unique due to historic and social conditions of the firm, provide a link between the resource and competitive advantage that is difficult for competitors to understand, or be a result of social and interpersonal relationships that are hard to imitate. (O’Shannassy, 2008)
Sustainability has become a standard practice for many airlines, and following the rules, standards, and regulations will not make it a sustainable competitive advantage. According to Loannou and Serafeim (2019), the adoption of
common sustainability practices would not lead to increased profits or greater value. Sustainability practices adopted across the industry share too many similarities and become more of a compliance measure than a strategic advantage. (Loannou and Serafeim, 2019) However, strategic sustainability activities will likely result in advantages. Sustainability can be considered a strategic advantage if the practice is long-term, not easy to imitate, has value to
a customer, and takes time for a competition to acquire. (Porter, 1996) For example, implementing a waste management system that can positively affect organizational costs can be acquired by competitors from a third-party provider.
(Loannou and Serafeim, 2019) It is possible and easy to imitate and, hence, is different from SCA.
Traditionally sustainable competitive advantage is associated only with reaching financial and strategic objectives. However, the current changing world and changing customer requires companies to reassess the balance of
organizational performance across other perspectives in a way of what customer, innovation, learning, and internal environment mean for an
organization. (O’Shannassy, 2008) Sustainability is increasingly converging with the process of value creation, as products and services cannot be always
produced at the expense of the environment. (Garza, 2013) Sustainability cannot be just a part of corporate social responsibility anymore, as it is an equal strategic threat and opportunity to a business operation as anything else.
(Garza, 2013) Organizational competitiveness and whether a company addresses its climate impact or not will soon become a crucial driver of the success of the company. (Rolan Berger, 2021) Firms that capture
environmental opportunities may experience similar advantages to first movers.
(Garza, 2013) As longer-term targets require drastic changes to a business model, it will take time for companies to adapt. (Rolan Berger, 2021) So, the earlier a company starts, the more likely it will achieve transformative results.
Failure to address environmental problems might stimulate a negative reaction from consumers, stakeholders, and environmental regulators. As a result, the companies can have limited access to financial resources, insurance, markets, and demand, while their business model might be less viable. (Rolan Berger, 2021) Larger companies and industries will be under greater environmental scrutiny from the stakeholders. (Garza, 2013). If these risks, threats, and negative effects are not addressed on time they might become a competitive disadvantage. The competitive disadvantage will be the leading predictor of weak organizational performance. (O’Shannassy, 2008)
More than 90% of consumers would consider switching to a more sustainable brand. (Rolan Berger, 2021) However, for energy-intensive industries, the corporate customers are going to be the first to leave because of their corporate principles and partnerships with sustainable brands if no comprehensive environmental commitment is developed. (Lynnes and Dredge, 2006) In terms of the travel industry, all non-essential travel can be replaced with digital
technologies and online conferences. Market conditions such as fierce competition, green benefits in regulations, enhancement in technology, and perceived importance of long-term savings can stimulate the development of strategy resources helping firms achieve sustainable competitive advantage in the future and building better organizational performance. (O’Shannassy, 2008, Lynnes and Dredge, 2006) However, the supply of finance and customers are still a much stronger push.
4 Method
The purpose of this study is to evaluate airlines’ sustainability strategies and discuss whether they lead to a sustainable competitive advantage. To achieve this, the research is based on a multiple case study approach that attempts to assess the environmental strategies of three airlines and compare them. A multiple case study is a suitable method for research because it allows demonstrating exploratory findings that give an in-depth description of a contemporary situation, providing real-world examples. The research uses a mixed methods approach and secondary data to collect case study information.
For example, the airline’s annual reports and other freely available sources of information were used to complete an in-detailed case study. The limitation of this research is the availability of primary data and the potential subjectivity of sources. However, as this study’s nature is exploratory, the data collection method is justified. Also, data analysis techniques and validation methods reduce subjectivity and prove the validity of the research.
The case study method is suitable for describing, comparing, and evaluating different aspects of the research problem contributing to public understanding of
the topic. (Simons, 2009) This research defines a case study as an integrated holistic analysis constructed around the bounded issue, phenomenon, group, or a case of interest. (Yazan, 2015) The research will collect data using external secondary sources such as academic sources, government, officially published data, and media sources. Media is a suitable source for data collection as it provides instant insight and information on current issues and develops a context for a research problem. (Bajpai, 2018) The suitability of secondary data for the research is justified by its availability, exploratory nature of research, and difficulty in attaining high-quality primary data. The limitation of this method lies in the inability to establish what percentage of people would support or be supportive of certain policies and strategies, as well as there are difficulties in defining an appropriate sample and neutralizing the bias of research as random picking of articles is impossible. (Walliman, 2011)
As case study is prone to subjectivity, it is under a threat of researcher bias that can influence the results. Therefore, a mixed methods approach is chosen to reduce bias. Mixed methods are a form of triangulation and can mitigate weaknesses related to qualitative methods’ unconscious subjectivity. (Noble and Heale, 2019) Triangulation is a data validating method that ensures that a researcher is collecting data from multiple sources and ensures that it is consistent, making research more complex and complete with detail. (Yazan, 2015)
The research will use several methods of case study research design to
complete the study. The case study methodology is often discussed in different ways with various perspectives that vary the use of qualitative and mixed methods, definitions of case study, data collection practices, and validation.
(Yazan, 2015) At first, the research will conduct a literature review. Next, it will draw a theoretical framework to build boundaries for the case study. Following the selection of the three case study airlines, the research will use a flexible data collection and analysis approach using research questions stated in introduction (see page 4). Such structure allows for flexibility in building the case study, reduces the need for a strict research design, and allows capturing relationships that were not identified in the designing stage. (Yazan, 2015) The
limitation of such an approach is that it is more dependent on the skills of the researcher and requires consistent data validation.
Three airlines are chosen for the multiple case study method. There are the following criteria for choosing case studies:
1) An airline has to have an environmental/sustainability strategy 2) An airline has to complete environmental reporting
3) An airline wants to become a leader in sustainability 4) An airline operates either from or within Europe
The case study companies were also chosen to have variating business models to develop a better understanding of environmental strategies in aviation. The selection of these case studies, therefore, allows for the maximization of learning and holistic representation of aviation as a case study.
The result of data collection will be analyzed by building comparisons and defining contrasts. Data analysis is going to focus on qualitative data defining relationships, dependencies, and interpretations. Data will be represented in three stages: descriptive, which defines the situation and how things are, analysis which identifies why things work, and interpretation which focuses on making sense of things. (Simons, 2009)
5 Results
5.1 EasyJet. Case Study 1.
EasyJet is low-cost point-to-point European airline with headquarters in England, Luton airport. (EasyJet plc., 2021) Its business model is secured through cost advantages, operational efficiency, and leading position in primary airports which are supported with loyal customer base, and network. (EasyJet plc., 2021) Like other airlines EasyJet has been impacted by pandemic. In 2021 the traffic of EasyJet was 20.4 million passengers that is 57.5% less than
previous year and around 80% less than year 2019. (EasyJet plc, 2019) While COVID-19 pandemic seemed to slow down, it still can unexpectedly affect the
aviation. EasyJet has recently cancelled as a precaution around 50 flights impacting 52,000 passengers. (Robinson, 2022) Due to pandemic an airline experienced higher employee’s sick leave and disruption related to rebuilding the operations. As a result, the airline implemented strong cost-saving strategy and ended the year with a loss before tax of 1,136 million pounds. (EasyJet plc., 2021)
In 2021 EasyJet operated 927 routes flying to 157 airports. (EasyJet plc., 2021) The airline is focusing on broadening its network of routes around Europe, deepening into short-haul flying. EasyJet continues to expand its leadership at the Gatwick and Milan airports with additional slots, while also expanding routes to holiday destinations. Focus on the short-haul flying is one of the opportunities identified by EasyJet with many competitors focusing on long-haul destinations because of the costs. (EasyJet plc., 2021) Moreover, company’s strategy to be number one or number two in the airports with high customer demand allows EasyJet to better compete with full-service carriers than other low-cost airlines.
EasyJet focuses sustainability strategy on three following aspects: “reducing carbon emissions, promoting technological development, and doing more than just carbon”. (EasyJet plc., 2021) EasyJet’s pledged to be “fully committed to UK Government and EU targets of net-zero emissions by 2050”. (EasyJet plc., 2021) EasyJet claims to be “the first airline to offset all the carbon emissions from the fuel used for all the flights”. The company also participates in
collaborations and cooperations stimulating technological progress and innovation. EasyJet invests into development of future net-zero technology, stating its “hope” for emergence of new emission-free technology. In addition to this initiative, EasyJet wants to increase customer’s awareness of
decarbonization and cites the positive difference in satisfaction of customers who are aware of offsetting that EasyJet has implemented on their behalf. The company does not belief that sustainable aviation fuel is the best possible solution for the short- haul aviation, and that waiting for the emission-free technology while implementing heavy offsetting schemes is the best strategy.
Lastly, EasyJet’s sustainability strategy includes such initiatives as reducing
plastics, recycling, and implementing environmental management systems.
(EasyJet plc., 2021)
5.2 Finnair. Case Study 2
Finnair is a network airline that focuses on operating passenger and cargo routes between Europe and Asia. (Finnair, 2021) Finnair sees itself as a premium airline and as a main strategical advantage of itself points out its geographical position on the border of Europe and Asia. (Finnair, 2021) Political tensions, and the closure of Russian airspace was one of the biggest risks for success of Finnair business model. Currently, avoiding Russian airspace requires the airline to fly a 3-hour detour on its flight from Helsinki to Tokyo.
(Avoiding Russian airspace: From a shortcut to a detour, 2022) In addition to political tensions, Finnair is also affected by the pandemic that reduced the number of passengers to 20% of pre-pandemic levels. (Clausnitzer, 2022) The company is also affected by strikes and the union protests that impact its operations. Finnair ended year with loss before tax of 581,9 million. (Finnair, 2021)
While flights to Asia through North pole is nothing new to Finnair, they increase in-flight time, fuel consumption and costs associated with work of employees.
This means that fewer flights will be available, and more safety measures must be implemented as there are less airports in north pole. (Prisco, 2022) The viability of flights will make them available only for passengers with premium class seats. In addition, Asian airlines are going to have a cost advantage when flying to Europe from Asia as some of them are still allowed to cross Russian skies. However, as most of Asian traveling is still halted by coronavirus pandemic, the effects are not as strong as they would be in peaceful times.
(Lee, 2022) With the current circumstances of flying, Finnair will have to focus on premium class passengers when flying long-haul if it wants a chance to stay profitable.
Finnair is focusing its sustainability on becoming a leader in green aviation.
“Finnair’s long-term goal is carbon neutrality by 2045, with a 50% reduction in
net emissions in 2025 compared to the 2019 level.” (Finnair, 2021) There are several initiatives that an airline is planning to undertake. At first, an airline emphasizes that market-based measures will allow it to reach carbon naturality in the short-term and allow for the time to adopt more efficiency-related and technological zero emission solutions. (Finnair, 2021) Secondly, Finnair committed to purchasing sustainable aviation fuel. (Finnair, 2021) Lastly, an airline implemented a set of activities to support the promotion of circular
economy principles and development of sustainable flying. These are identified in the objectives of sustainability strategy of improving fuel efficiency by 1%
annually, supporting and encouraging development and diffusion of solutions to environmental challenges, undertaking initiative to encourage and promote
“biodiversity thinking” and environmental responsibility. (Finnair, 2021) 5.3 SAS. Case Study 3
SAS is Scandinavian airline operating routes from, to and within Scandinavian countries. (SAS, 2021) SAS is aiming to develop sustainable and competitive business model that will be flexible for fluctuating demand of air traveling. The key objective is to achieve efficiencies with employees, fleet, suppliers, and productivity. (SAS, 2021) SAS carried 7.6 million passengers which is 40,1%
less passengers than in 2020 and 75% less than in 2019. (Mazareanu, 2021) The key reason for reduced traffic is effects of coronavirus pandemic. Closure of Russian airspace has also affected SAS, for which it decided to pause all the flights from Denmark to Japan, and detoured flights to China with a difference of 2 hours. (COVID-19 updates - Travel and service updates, 2022) SAS is
impacted by strikes organized by worker unions. In 2021 SAS finished financial year with negative earnings before tax of 6,4 billion SEK. (SAS, 2021)
SAS focuses on two general strategic objectives: retaining its position as a market leader of Scandinavia and ensuring flexibility in reaching
competitiveness. (SAS, 2021) About 75% of revenue is coming from passengers that are in Scandinavia. (SAS, 2021) As the demand for air traveling is also getting more seasonal and external impacts such as weather changes and political tensions affect airlines, SAS attempts to protect itself from
those factors by introducing more flexibility in operations. SAS is Scandinavia’s strongest brand with a loyal customer base of 6 million customers and over 100 partners. (SAS, 2021)
Sustainability strategy in SAS is set to demonstrate global leadership in sustainability. “SAS has set an ambitious target to reduce its total CO2
emissions 25% by 2025 in comparison with 2005”. (SAS, 2021) The key initiatives undertaken by SAS include various partnerships on development of new technologies, purchasing and using SAF, introducing efficient aircrafts and offsetting carbon emissions. These are supplemented with promotion of
sustainability principles in supply chains, development of customer awareness and reducing operational waste. (SAS, 2021)
6 Analysis
Strategy’s goals show what an organization hopes to achieve and what it tries to be. (Tilles, 1963) Sustainability strategy of Finnair, SAS and EasyJet have relatively similar goals, but take slightly different direction and approaches.
EasyJet’s goal focuses on compliance with overall industry standard of the UK and EU. (EasyJet plc., 2021) The commitment is to reach net zero emissions by 2050 aligns with the industry’s greater ambition of reaching net zero emissions by 2050. (Air Transport Action Group, 2021) Finnair goes a step further setting a goal of reaching net zero emissions to be by the end of 2045. (Finnair
continues its journey towards carbon neutrality and invites customers to offset their flight emissions, 2022) Lastly, SAS has a target of reducing its absolute total emissions by 25% by 2025 in comparison with 2005, while SAS is planning to achieve net-zero emissions before 2050. (Environmental Responsibility - SAS, 2022)
Current economic downcycle has affected all three case study airlines. The passenger demand and capacities are significantly less than they were previously in 2019 as indicated in results sections (see pages 21-24). Every airline is focused on growing and capturing the potential of new or existing
markets. EasyJet is planning to deepen it strategy into short-haul aviation, discovering new routes, while Finnair set up new routes from Stockholm to the US. (EasyJet, 2021, Teivainen, 2021) Results are consistent with the
continuous growth of aviation.
Aviation industry can introduce following measures for tackling environmental challenges: technological innovation, sustainable aviation fuel, operational efficiencies, infrastructure efficiencies, and market-based measures. (Aviation industry reducing its environmental footprint, 2022) All three airlines choose to implement somewhat holistic sustainability strategy that recognizes
effectiveness of all these measures. Strategies use the combination of initiatives of carbon offsetting, purchasing of sustainable fuel, technological
improvements, collaboration and investment, operational efficiency, and fleet improvements. All the airlines implement efficiency initiatives to cut operational costs and reduce risks of environmental regulations. Also, all three airlines point out cooperation and investments into development of advanced aircraft
technologies to be of crucial value to a long-term sustainability goal. Lastly, all three case study airlines implement voluntary offsetting measures or
sustainable aviation fuel compensating measures for their customers.
However, the strategies seem to prioritize different environmental measures depending on business model of airline, target customer, competition, and network of routes.
Scandinavian Airlines, Finnair, and EasyJet seem to achieve similar level of efficiency of operations. EasyJet is practicing continuous decent approaches, Finnair is focused on digitalization and optimization, while SAS is renewing its fleet into more efficient and uniform. (EasyJet plc., 2021, Finnair, 2021, SAS, 2021) Analysis of efficiency in case study airlines had shown that most of airlines have undertaken similar initiatives. Although collaboration,
sustainability, and culture can still improve airline’s operational and
environmental results. All three airlines focused on improving efficiency in these three areas: fleet, route planning, and fight related activities.
EasyJet has the largest of case companies’ fleet of 308 aircrafts, SAS of 134 aircrafts and Finnair of 60 aircrafts. (EasyJet plc., 2021, Finnair, 2021, SAS, 2021) All the airlines are continuously renewing their fleet with latest
technologies and aircrafts. 52% of aircrafts of EasyJet are A320, A320neo and A321neo respectively 12% and 5% of the fleet, while remaining aircrafts are A319. (EasyJet plc., 2021) (see Figure 1)
EasyJet Finnair SAS
Fuel consumption liter/seat/km
Range km
CRJ900 - - 16 % 0,039 2100
E195 LR - - 4 % 0,037 2400
A330 - 14 % 6 % 0,033 10100
Boeing 737-
700 - - 8 % 0,032 4400
A319 31 % 10 % 3 % 0,031 3100
A320 52 % 17 % 8 % 0,029 3900
Boeing 800 - - 5 % 0,029 4200
A321 - 31 % 6 % 0,028 3800
A350 - 28 % 5 % 0,028 13800
ATR-72-
600 - - 5 % 0,026 930
A321 LR - - 2 % 0,026 7000
A320neo 12 % - 33 % 0,024 4600
A321neo 5 % - - 0,022 7400
Total 308 60 134
Figure 1. Fleet distribution, consumption and range of EasyJet, Finnair and SAS (Fleet - SAS, 2022, EasyJet plc., 2021, Finnair, 2021)
EasyJet’s fleet is the most efficient relative to Finnair and SAS. (For further explanations see Appendix 1) However, the differences in efficiency are not very significant for a single passenger to notice changes in the cost of offsetting emissions. These results partially could be explained by relative superiority of all three airlines with the fleet efficiency. All three airlines stated in their annual reports that they have one of the most efficient fleets in the industry. EasyJet is
more efficient on average than SAS or Finnair. This is consistent with findings of literature review that low-cost airline are generally more efficient. However, if to compare the value that was produced by a company, SAS can be considered more value efficient than Finnair and EasyJet.
Due to the pandemic each of the case companies undertook different strategy towards renewal and fleet maintenance. EasyJet postponed the fleet renewal programme, mainly because of lower demand and higher percent of aircraft ownership comparing to other companies. (EasyJet, 2021) Out of three case study companies, EasyJet has the highest ratio of owned to leased aircraft.
(EasyJet, 2021) During times that were not affected by low demand for air transportation higher ratio of owned aircraft was saving costs on leasing. During the pandemic, on the other hand, it is more financially beneficial to lease aircraft like what SAS is doing. Their ratio of owned to leased aircraft is the lowest equaling to 32% owned to 68% leased. (SAS, 2021) This allows SAS to be more flexible with its fleet and change the airline capacity on projected demand.
As high proportion of SAS fleet is leased it is also easier to maintain younger average age of fleet. In comparison to EasyJet 8,9 years, SAS has achieved 8,4 years mainly by retiring its old aircrafts and replacing them with newer fuel- efficient planes. Finnair average age of fleet is the oldest equaling to 11,4 years.
(Finnair, 2021)
Fuel prices have been historically low in the past decade. That downsized the need for scaling biofuel that cost comparatively more. Nevertheless, SAS and Finnair have programmes that allow customers to purchase biofuel that will be used by a company. While SAS and Finnair advertise using biofuel, the
proportion of it is less than 1%. EasyJet seems less keen to adopting biofuel, however, they have been testing its use on some of their flights. (EasyJet plc., 2021) The use of biofuel reduces CO2 emissions by 60-80 percent depending on the raw material. Finnair customers can buy biofuel for EUR 10, 20 or 65, to reduce the emissions of a return flight in Finland, return flight within Europe or return intercontinental flight. (Finnair introduces carbon offsetting and biofuel service for customers, 2022) SAS customer can purchase blocks of biofuel for
