Article Overview

-EU ETS will include Aviation from 01 JAN 2012

-The UK Deadline for filing your benchmarking and emissions plans is 31 March 2011

-Are you included on the latest list of operators issued by EUROCONTROL in early February 2011?

-Do you know if you are covered by EU ETS?

-Do you know what flights are exempt from EU ETS, and are your included?

-If you are not sure what to do in regard to EU ETS, or even are unsure if you are covered by the new regulations please feel free to get in touch.  We can help!

 The EU Emissions Trading Scheme (EU ETS) is set to include aviation from 01 JAN 2012.   EU ETS brings with it a whole new level of new dynamic market pricing that aircraft operators will need to  factor into their formulas, and if initial estimates are correct we could be talking about anywhere from €5-18 per passenger (depending on the route) if prices for EUAs stay at today’s levels.   

Before we get to that point, however, there are many foreign carriers and aircraft operators who may not be aware that they have been listed on the latest version of EUROCONTROL’s ANNEX I.    Are you?   If you are not sure you can refer  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:039:0001:0120:EN:PDF

While many of the US carriers have filed suit to contest this EU Directive (and the individual EU Member State Laws related to it) and that the has not yet been ruled on by the European Court of Justice.  The US airlines involved are still, as we understand it, voluntarily complying with the requirements of the scheme.  For other carriers this means those who are not exempt from the scheme have hopefully already applied for the “allocation of free credits” as well as submitted benchmarking plans, obtained certifying bodies, and put in place monitoring plans that are acceptable to their respective EU State they have been allocated to by 31 MAR.  Carriers are due to hear in September of this year from their regulatory EU Member State as to what their share of the “special reserve” or other “free credits” are to be.   

Last Monday the EU made the formal announcement about the final CO2 caps, and the simple math says that while approximately 80% of the carbon credits needed by the industry will be part of the free allocations, that leaves 20% subject to market forces.  With an EUA trading at around €15-16 at the moment, there is some level of exposure to the several thousand of the world’s carriers operating into the EUROCONTROL zone. 

Some analysts are looking for a price correction with the introduction of AAs to the ETS marketplace, with some projections taking them up to €18-20 per credit.  I believe the number will be somewhere between €19-22 when AAs are introduced to the market, based on the projected shortfalls, and also a number of non-EU carriers who did not meet the criteria for a “free allocation” scramble to cover their exposure not fully understanding that the first point of surrender of these credits is not until MAR-APR 2013. So airlines, and other air carriers, have time to play the market a bit and participate in EU Member State auctions to make up their shortfalls.  Though we would not want to be in the market for significant AAs or EUAs in early 2013!

Many of our foreign carrier aircraft operators have required some assistance with the regulations, compliance, and even just the overall processes involved in the scheme.   If you are need of assistance or support, we would be happy to help!  Please feel free to contact us today at +44 208 588 0602 for an initial consultation.

The ever-increasing number of individuals around the globe who are over-sized for the average airline seat will have a major impact on aircraft interior design. Two separate trends in body types, the larger passenger and the taller passenger, will require that airlines revisit their design approach and focus on people centred innovation to provide solutions.

Obesity, as measured by medical professionals in terms of BMI (Body Mass Index) and the prevalence of taller people are an undeniable part of our future. Trends also show that this very BMI may have a flaw in the future, due to the fact that some people are now growing taller than their ancestors. In some cultures, primarily Asian and South American, there have been dramatic changes that are beginning to be seen by medical professionals.

While there is a lot of discussion around the core reason for these changes, that is not as important to the commercial airline industry as what to do with the changing size and shapes of passengers. Some carriers already have a policy about “obese” passengers, but they are defined by a set of inconsistent factors. One of the more common measurements (and one that got a certain amount of notoriety from actor Kevin Smith while attempting to fly Southwest Airlines) is if a passenger “can comfortably lower the armrest”. I am relatively confident that this will be an issue in years to come.

Airlines and Obese Passengers
Another common policy that airlines follow is to have larger passengers purchase two seats on a flight, or to pay to upgrade their travel to another cabin. As capacity reduction continues to put some pressure on the ability of airlines to deliver these seats on short notice, there will also be a need to identify passengers ahead of the flight.  This has some potential legal and social implications that may be unpalatable to most carriers.

Often lost in this discussion is the comfort of other passengers who are sharing the space with the obese passenger.   There is a potential customer service issue for airlines as other passengers potentially complain about the loss of personal space already at a premium.

There are potential issues around aircraft safety, as passengers changing shape and sizes may cause some to question if some aircraft emergency exits are even accessible to these individuals.

What can airlines do for Super-size Passengers?
What new innovations are available to carriers to deal with this evolving need in all classes of service? There are some changes with so called “sliding seats” that may allow for airlines to offer slight adaptations to seat size. However, these represent safety challenges with the size of the aisle being potentially reduced.

I believe that there are not commercially available economy seats to deal with this issue, as airlines do not fell that they need or want to invest in this area of development. I believe that a more proactive approach is called for, and developing adjustable seating or even select seating that is truly wider will offer both passengers and airlines a better solution to addressing this emerging “mega-trend”.

At the same time, there are premium seating solutions in forward cabins that do make flying more comfortable for people of all sizes. However, these may be economically unfeasible for many passengers.  In this case, I do see a day where additional potential legal challenges may be faced by air carriers in places like the USA by an obese person who may claim that their size is due to a disability and is therefore protected by law. Carriers will need to proactively examine the potential range of solutions that could be available.

Airlines and the Taller Passenger
In a completely separate issue, there is obviously better news for taller passengers and travel on some airlines.  Some airlines have a gate control policy that allows them to “gate control” the seats with more legroom for passengers they feel could benefit from the additional space.

There are also a number of carriers offering “extra legroom” or “premium seats” in the economy cabin. That said, some carriers also charge for these seats, which some taller passengers may feel is unfair. In addition, with the increase in Low Cost Carriers (LCCs) over the last decade, there has also been ever so slight erosion in seat pitch (the distance between one row and the next). This presents the taller passenger with comfort challenges, but may give some carriers an advantage with this segment of the traveling public.

What can airlines do for taller passengers?
For this particular trend, most carriers have a product that is already available in their economy class, including on some smaller regional jet services. Overall, while there may be an increase in demand for more legroom in economy class, I do not foresee airline economics allowing for what American Airlines used to refer to as “More Room throughout Coach”- a product that offered the entire cabin more space.

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If you are you interested in knowing more about this subject, here are a few links that talk about the core of the issue and offer additional insight on the causes and social impacts in a broader sense:

Inside Government Workshop on Obesity
http://www.insidegovernment.co.uk/health/obesity/index.php

US National Institute (NIH) of Health on Obesity
http://health.nih.gov/topic/Obesity

Air Travel and Our Ageing Population

One of the most intriguing social and economic topics that will have a major impact on the future of most nations, regardless of geography, is the issue of an increasingly ageing population.

What is significant about this trend is that in the next twenty years the population over the age of 65 will at least double in most industrialised nations. These numbers are unprecedented in all of human history, and the demands and needs of this market segment will likely impact airport and airline operations.

While the population is ageing, it does not necessarily mean that they are doing so in quite the same way as previous generations.  Medical advances and social and financial drivers are keeping people fitter longer, extending their overall health and mobility well past that of previous generations. In many nations, the average retirement age for both men and women is rising and this can occasionally be linked to a change in the social contract between individuals, their company’s  retirement plan, and structured national social support for the aged.

One of the most likely impacts to airlines may be those who currently classify themselves in the “Low Cost Carrier” (LCC) category.  With a focus on quick turnaround times and often utilising second-tier airports from forward and aft exits on a hard stand, they stand to lose the most from a changing passenger demographic.  This is particularly true in the European sector of the airline business, as in the United States the prevalence of jet-bridges is more widespread.

Onboard the aircraft there may be a number of design changes that need to be considered to accommodate this new passenger demographic. 

These could include:

• The installation of new or additional moveable aisle armrests to facilitate access to seats, particularly in economy class
• The installation of new or additional power outlets on long haul aircraft to accommodate the use of a growing number of medically necessary devices (such as respiratory support devices, etc.)
• The addition of larger, more accessible lavatories on the aircraft.  With ongoing current security restrictions on passenger cabin movement, there may be a requirement for both forward and aft accommodation.
• The study of one-touch, or motorised, retractable tray tables and IFE devices in bulkhead seating.  Often these can be challenging for some passengers to deploy.

In addition to cabin changes, there may also be a number of changes recommended for In-Flight Entertainment (IFE) devices. These may include updates such as:

• The ability for the passenger to manipulate the font size of a subtitle on a safety video or entertainment programme
• The opportunity for a passenger to use their blue-tooth enabled hearing aid devices to interface with the IFE without the potentially invasive insertion of ear buds

Operationally, there are also a number of challenging issues for the industry in regards to a mobile ageing population. 

These could include:

• Safe accommodation and gate check delivery of a growing number of sophisticated mobility devices (such as “scooters”) to enable passenger the maximum of personal mobility without additional assistance. In association with this change, there may need to be an overall review of “checked luggage liability” associated with these high-value devices.
• For those who do not have access to personal mobility devices, there could be an increased demand of airline staff on the ground and in the air to support and assist customers through all aspects of their journey.

These are just a few of our thoughts on how this particular segment of the travelling public may influence the future of aircraft interiors, airport procedures and carrier policies.

If you would like to know more about this subject, or any other in our series, please feel free to contact us

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We can also recommend this link for The European Union Statistical Office

According to Eurostat, the EU’s statistical analysis unit, in the year 2060 over 30% of the entire population of the European Union will be over the age 65. In 2008, Eurostat reported the  same population was at 17.1%

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The original interview can be found on the AO site at:  http://airobserver.wordpress.com/2010/02/15/what-could-we-expect-for-airlines-in-2010-ao-interview-of-carter-stewart/

Posted on February 15, 2010. Filed under: AO Interviews |

First, I’d like to thank Carter for answering my questions, I’m glad we’ve managed to publish this Interview. This is part of my new desire to invit and interview more aviation profofessional. We discussed the globlal situation of airlines industry for 2010. Please, feel free to comment and add your point!  Carter Stewart is founder and chief consultant at TWC Aviation, and a managing director at the London-based consortium Constellation Aviation Limited. He found his passion for the airline industry in his youth, and learned the trade with a variety of management posts at  TWA, American Airlines, and Silverjet. He specializes in the commercial airline sector and has managed airline projects around the world including airline start-ups, developing strategic futures, and managing airline mergers and acquisitions.  He lives in London, United Kingdom, with his wife and spends 75% of this time as a “wing warrior”.

AO:  Let’s start with the global state of the aviation industry, what you do you foresee for airlines in 2010?
According to you, what will be the main trends and events? We have seen some positive moves on the U.S. front, as this past weekend we saw the news about the Department of Transport (DOT) clarifying its position on AA/BA, which can only be beneficial in levelling the playing field between alliances. I think that we have not seen the end of economic challenges around the world, specifically in U.S, Europe, and Gulf Region. As a result I think that airlines can expect to see continued pressure on both premium passenger numbers, and also on total traffic- and further airline failures in 2010 are likely. I also do not foresee successful launch of any new trans-Atlantic carriers in this environment, such as companies like Aer Fair or Scotland’s Nimbus look for start-up cash in a tight credit market. I also believe that we will see a widening gulf as more European carriers experiment with some degree of “un-bundling” of fares such as BA, and those who opt for the more legacy “single price” model like SWISS.

AO: I know that you’re particularly been following JAL’s situation. JAL is now cutting thousands of jobs, costs and routes as ANA is performing well. For a few months now, ANA has gone increasingly international, in other words, competing on JAL’s playground. Do you think Japan can support two major legacy airlines?
The short answer is a resounding yes.  I maintain that there are a number of common misconceptions about the Japanese economy, and about the fundamentals behind the JAL bankruptcy that needlessly cloud this issue. The Japanese Home Island economy does has some challenges ahead of it. Japan is still the second largest developed economy in the world, with their nearest neighbours, China, coming in a very close third place.  So, here you have two of the largest economies of the world, which are closely commercially linked and geographically close. That single fact alone offers Japanese and Korean carriers some enviable opportunities. JAL may be at a small competitive disadvantage as it restructures,  but it is important to remember that Japanese laws surrounding international aviation regulation are not at all liberal, and you only have to look as far as the new Japanese-U.S. bilateral to see how restrictive and conditional the Japanese regulatory environment is. As a result, the international Japanese market is not as vulnerable to the forces of foreign competition as some other word markets, and Japanese carriers will still have retain advantage in the very lucrative trans-Pacific market.

AO: The BA-Iberia merger will take place soon. Do you see any other bridge-building possibilities among European carriers in 2010?
Well, I think there is ample room for those European carriers who are not already owned by Lufthansa. On a more serious note, obviously, the U.S. part of the equation of AA/BA/IB and ATI was long overdue, now need to keep a close eye on what the EU decides to do with this matter.   Clearly, Iberia has not been spooked by BA’s pension deficit, and is moving forward. As for other potential possibilities, it is relatively common knowledge that Aer Lingus has been looking at a potential of “re-joining” an alliance to shore up its future fortunes, but there are obvious ownership roadblocks to that. Also, it remains to be seen how well the LCC markets will adapt in an environment where closer cooperation may work to their advantage.

AO: You know that my blog is more focused on the LCC market. What’s your point of view on Ryanair’s recent announcement of fare increase and what could it mean for the airline?
My personal take is that Ryanair can have no choice but to begin charging an increased fare, as they have exhausted all other obvious forms of gaining ancillary revenue. Clearly what they do well is actively manage fixed costs such as labour, which so often are the most difficult part of some carriers bottom line. Their fleet is young, but not as young as it once was, and this will slowly increase operating costs as well.  Overall, Ryanair faces a number of challenges as a business, not the least of which is pushing the limits of consumer tolerance for “un-bundling” and customer service. It will also be interesting to see what the Ryanair culture and product will be like once O’Leary steps aside, and the process of separating the brand from the man will be an interesting one.

AO: We recently observed a budding cooperation between two main Asian low cost airlines, do you think such an alliance could take place in Europe?
I do believe that there is a room for cooperation between LCC carriers, but the EU regulatory environment is not as easy or conducive to that cooperation as say the Asian market. There are many potential legal and regulatory hurdles that LCCs may encounter in the event that they seek closer cooperation. I think it more likely that we could see a carrier seeking to acquire another, but the idea of a traditional alliance would be potentially difficult. In my view, traditional alliances are generally about five interconnected goals:  code-sharing, schedule coordination, some form of revenue share, ground handling savings,  and enhancing passenger experiences (i.e. frequent flier programmes, lounges, etc). Given their tight margins, I don’t see any of the EU LCCs being willing to subject themselves to the pressures of a potential alliance in this current environment.