Airlines need more bouquets not brickbats

By Tim Clark
Published: July 13 2008 19:10

Oil at $140-plus has changed all aviation realities. While Emirates remains one of the more optimistic airlines, the overall view of our industry is dire. This year many airlines have grounded aircraft or gone bankrupt and an estimated 100,000 jobs will be cut.
Some environmental ideologists would applaud this loss – but aviation, on which almost 33m jobs and 7.5 per cent of global gross domestic product depend, is vital for the world’s economic future. This truth is too often lost in countries where environmental arguments have escaped all reason.
We are in uncharted territory. This is the greatest crisis in aviation’s history – bigger than the Gulf wars, the attacks of September 11 2001, severe acute respiratory syndrome and past oil shocks.
There is a myth that only a high oil price is capable of forcing airlines to reduce energy demand. Over many decades, airlines have, hand-in-hand with the manufacturers, helped to develop more efficient aircraft. Yes, the oil price is accelerating further efficiency. But reducing energy demand has always been part of our business models. Ultra-efficient new aircraft, such as the Airbus A380, are the direct result of airlines such as Emirates working with the aerospace industry to create the most aerodynamic, fuel- and emission-efficient, lightest aircraft possible.
Our industry was too slow to communicate this and respond to the shifting political sentiment on the environment. We are correcting this misconception and, of course, we have more to do to become more eco-efficient businesses. However we will not achieve this – or indeed survive as profitable entities – if punitive taxes, charges and unfair trading schemes continue on their present trajectory.
When the European Union emissions trading scheme was first devised, it was based on $40 oil. The most ideological parliamentarians hoped the ETS would be the equivalent of pushing oil above $100. They got their wish on price – without ever enacting the legislation. But they are not finished. They want significant further increases in the cost of business and leisure.
Our industry understands the logic of the original ETS proposal: encourage efficiency and price those not pursuing it into action. It is a shame the current EU ETS is now nothing more than an aggressive tax designed to hurt one of the world’s most important industries.
The UK government’s aviation duty proposal is equally alarming. This “environmental” tax is essentially a billion-pound grab by government from the pockets of passengers and airlines. None of this tax windfall will go into environmental research but, instead, into general revenue. Excuse my cynicism.
Incredibly, UK policymakers want to punish heavier aircraft and longer-haul flights. This is despite the fact that aircraft such as the part British-built A380 are deliberately heavier because efficiency means flying more passengers per aircraft. These aircraft reduce fuel burn, emissions and noise by up to 30 per cent per passenger, yet will be disproportionately taxed. Why, as an island nation, would Britain want to increase tax on long-haul aviation? This insularity can only punish exports and hurt important trading relationships.
In spite of all of these hurdles, Emirates remains cautiously optimistic. We operate in an environment in Dubai where it is survival of the fit-test, with no government protection, subsidy, cheap fuel or restrictions on competitors.
Long-haul has seen most of aviation’s greatest recent environmental improvements. For every new aircraft we order, our fuel use and emissions per passenger improve. This must be our industry’s model. There is certainly a good argument that those airlines with old gas-guzzlers need to retire such aged aircraft quickly.
Notwithstanding an oil Armageddon, aviation should be able to grow and facilitate economic prosperity through greater efficiency. Sadly, the policy levers I mentioned above offer few positive incentives to do so. Profitable airlines that reinvest in new aircraft allow manufacturers to create better models. Without profitability, the eco-efficiency model fails.
Governments should be encouraging, not punishing, such a formula. Why can there not be positive discrimination in favour of efficient aircraft? Why not reward a new A380 with slots at congested airports? Why not recognise lower-emission aircraft? Why do governments not earmark funds for research and development?
Instead, they seek to use blunt instruments to tax punitively an entire industry.
The writer is president, Emirates Airline
Copyright The Financial Times Limited 2008