Www.ecometrica.co.uk ETS IMPLICATIONS ON ROUTE AND NETWORK DECISION MAKING Barry Moss Special...

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ETS IMPLICATIONS ON ROUTE AND NETWORK

DECISION MAKING

Barry MossSpecial AdvisorECOMETRICA

Gary CrichlowAviation Analyst

ASCEND

www.ecometrica.co.uk 2

Introduction

1. The fleet (Ascend) Traffic analysis Current fleet 2012 and beyond: fleet evolution

2. The science (Ecometrica) CO2 calculation modelling

Scenarios: indicative emissions costs in context

Cost of compliance versus non–compliance

3. The implications

AGENDA


OUR THESIS: ETS IS EFFECTIVELY A FUEL “TAX”

ETS higher costs, in proportion to fuel burnt

“Tax” set by market forces: fluid

Fleet / route planning: already

a dynamic exercise

EUA cost

EUA market demand

CO2 emitted

FUEL BURNT


AIRCRAFTTECHNOLOGYINVESTMENT

INCREASED OPERATING

COSTS

EUETS

CO2

EMISSIONS

FUEL BURN

EUETS

Price elasticityof demand

Profitability

Monitoring,Reporting &Verification

Fuelefficiency

Science: 1kg Jet A-1

= 3.15 kg CO2

Compliancecosts

EU ETS IN CONTEXT

4


SETTING THE SCENE — ETS-COVERED ROUTES

Long-haul:>3,000nm7% of 2008 mvmts14% of 2008 seats

Medium haul: 1,501–3,000nm4% of 2008 mvmts6% of 2008 seats

Short haul:<1,500nm90% of 2008 mvmts81% of 2008 seats

Frankfurt

EU ETS would have covered 4m scheduled airline movements, 0.5bn seats in 2008


SHORT-HAUL 2008 SCHEDULED AIRLINE MOVEMENTS

90% of 2008 scheduled airline movements

A320 family / 737 types dominate

Average stage length: 800 km (440 nm)

A320 family31%

737 NG14%

CRJ family6%

737 Classics

12%

ATRs6%

146/RJ5%

Embraer RJs5%

MD80/90 family

4%

Fokker 70/100

4%

Dash 84%

Other9%

Source: OAG, Ascend analysis


MEDIUM-HAUL 2008 SCHEDULED AIRLINE MOVEMENTS


A320, A330, 757 and 737NG dominant types

Average stage length: 3,800 km (2,000nm)


7675%

A3405%

7779%

Other10%

75714% A330

15%

737 NG16%

A320 family26%


LONG-HAUL 2008 SCHEDULED AIRLINES MOVEMENTS


Widebody twins dominate

Other types include: 757 (mainly

transatlantic sched / charter)

737 / A319 long-haul premium operations

Average stage length: 7,500 km (4,000nm)


77722%

76719%

A33015%

747-40017%

Other 7473%

A34016%

Other8%


0

1,000

2,000

3,000

4,000

5,000

2004 2009 2014 2019

CSeries

737 NG

A320 family

737 Classics

MD-80/90

28%

20%

30%

0

1,000

2,000

3,000

4,000

5,000

2004 2009 2014 2019

CSeries

737 NG

A320 family

737 Classics

MD-80/90

28%28%

20%20%

30%30%

9

EUROPEAN NARROWBODY FLEET FORECAST

Older generation

virtually nonexistent in

Western Europe by

2014

No A320 / 737 NG

replacement before

2020

Source: Ascend Global Aircraft Forecast 2009-2019


0

250

500

750

1,000

1,250

2004 2009 2014 2019

MRJ

ARJ

Superjet 100

CRJ700/900/1000

E-Jets

146/RJ

<50 seat RJs

-3%

35%

35%

0

250

500

750

1,000

1,250

2004 2009 2014 2019

MRJ

ARJ

Superjet 100

CRJ700/900/1000

E-Jets

146/RJ

<50 seat RJs

-3%-3%

35%35%

35%35%

10

EUROPEAN REGIONAL JET FLEET FORECAST

Decline in smaller RJs

Balance shifting

towards Embraer E-Jet

family

Superjet expected to

be strong in Eastern

Europe / CIS



0

250

500

750

1,000

1,250

1,500

2004 2009 2014 2019

A350

787

A380

777

A330

A340

747

767

A300/310

5%

14%

37%

0

250

500

750

1,000

1,250

1,500

2004 2009 2014 2019

A350

787

A380

777

A330

A340

747

767

A300/310

5%5%

14%14%

37%37%

11

EUROPEAN WIDEBODY JET FLEET FORECAST

Twinjet trend

Conversions extend

life of current-

generation models



THE FLEET — KEY POINTS

A320 / 737 families’ dominance will continue well into the

foreseeable future

Short-haul flights account for the vast majority of movements

and seats majority of ETS impact

Long-haul flights have a proportionally greater CO2 footprint

than movement data indicates

2004–2006 average baseline: 2012 fleet more fuel-efficient

BUT larger growth in carbon footprint


.

Aviation greenhouse gas (GHG) emissions come from combustion of jet fuel and

aviation gasoline

Aircraft GHGs : 70% CO2

≤ 30% H2O ≤ 1% each for NOX, CO, SO & particulates

1 kg of jet fuel = 3.15 kg of CO2

CO2 has the same climatic effects at all altitudes

Generally about 10% of emissions occur during LTO phase and 90% during cruise

Except hydrocarbons & CO where emissions are closer to 30% during LTO phase and

70% during cruise

THE SCIENCE


ALLOCATION OF ALLOWANCES

Cap CO2 emissions to 97% of baseline levels (being

average emissions between 2004 – 2006) in 2012 and 95%

of baseline levels from 2013

3% of allowances to be set aside for new entrants and

operators whose activities have rapidly increased

85% of baseline allowances to be issued free of charge –

This may only be 82%!

15% (or 18%) of allowances to be auctioned


€114 €121

40

50

60

70

80

90

100

110

120

130

Co

st o

f al

low

ance

s re

qu

ired

per

ro

un

d-t

rip

SWISS AVRO 146-RJ100 KLM Cityhopper Fokker 100

REGIONAL: ZRH–AMSGCD: 603 km

Google mapsGoogle maps

LX RJ100

KL F.100

Allowance cost per pax* €2.08 €1.80

Typical round-trip fare €130

CO2 allowance add-on 1.6% 1.4%

Assuming round-trip, 65% load factor, €40 cost per allowance


€3,933

€5,604

0

1000

2000

3000

4000

5000

6000

Co

st o

f al

low

ance

s re

qu

ired

per

ro

un

d-t

rip

Boeing 777-300ER Boeing 747-400

LONG-HAUL: LHR–SINGCD: 10,869 km

SQ 777

SQ 747

Allowance cost per pax* €17.68 €18.68

Typical round-trip fare €500

CO2 allowance add-on 3.5% 3.7%

Google maps

Assuming round-trip, 80% load factor, €40 cost per allowance


Scenario – EU ETS Compliant, Purchase 18% of Allowances– Short Haul Airbus A320

COMPLIANT

ETS allowance costApprox. €144,000


Scenario – Non Surrender of Allowances (100%) Airbus A320 No Grandfathering

NON-COMPLIANTETS allowance cost approx. €800,000plus

Fines €2,000,000


Scenario – EU ETS Compliant, Purchase 18% of Allowances - Long Haul Boeing 777


Scenario – Non Surrender of Allowances (100%), No Grandfathering – Long Haul Boeing B777

NON-COMPLIANTETS allowance cost approx. €5,000,000 plus

Fines €12,500,000


SUMMARY AND KEY TAKE-AWAY POINTS

EU ETS: equivalent to fuel tax Allowance costs directly proportional to fuel burnt

Penalties for non-compliance are stiff

Practical implications still far from set in stone

Supply-side costs vs demand elasticity — ability to pass on

costs will vary by market

Technology development incentives e.g., engine tech,

biofuels – weak, but will eventually strengthen as fossil fuel

prices rise

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