By Peter Alagos
Business Reporter
The International Air Transport Association (IATA) said it welcomes the production and supply of alternative feedstock to produce jet fuel, the prices of which have soared and has put a huge strain on the airline industry.
IATA chief economist Brian Pearce made the statement after delivering his presentation entitled “Adding Value Despite Difficult Business Conditions” during the 70th IATA Annual General Meeting at the Ritz-Carlton in Doha.
“We have never faced a period of such sustained high fuel costs,” said Pearce, who added that there is “little sign of much decline.”
According to Pearce, IATA has seen valid developments with different feedstock from biomethane “and other sorts of different materials,” which he attributed “largely to address the environmental impacts of burning jet fuel.”
“It is very welcome to see countries innovating and looking for different ways of supplying feedstock to produce jet fuel. There are other local alternatives…The more alternatives we have from refining crude oil, the better. I think, at the moment, there aren’t any signs that this is putting any pressure on jet fuel prices,” Pearce added.
In its 2014 mid-year report, IATA estimates that airlines will spend $212bn on jet fuel, which represents almost 30% of their total operating costs.
Though jet fuel prices are stable, the report noted that “there has never before been a three year period when energy costs have remained so high.”
It added that profit from jet fuel is not made in the refining part of the value chain but upstream by oil producers. IATA also estimates that purchases of jet fuel by the airline industry in 2014 will generate a $24bn profit for the upstream part of the jet fuel supply chain.
On environmental impact, IATA said that airlines’ environmental performance continues to improve. In 2014, airlines are expected to use some 271bn litres of fuel, which will emit 722mn tonnes of carbon.
“While that is a 3.2% increase on the previous year, it is decoupled from the 5.2% increase in overall operations to meet consumer demand,” IATA said.
IATA added that the industry remains committed to achieving carbon-neutral growth from 2020. This is in addition to a 1.5% average annual improvement in fuel efficiency to 2020 and complements the long-term goal of cutting net emissions in half by 2050 (compared with 2005 levels).
Pearce noted that high fuel prices are helping drive further fuel efficiency gains. He said in 2013, the industry improved its fuel efficiency by 1.9%.
“We forecast that fleet renewal will help achieve a similar improvement this year,” Pearce said. But while jet fuel prices remain high and despite relatively weak economy growth, Pearce said air travel growth remains very robust, specifically in the first quarter of 2014.
On the other hand, he noted that premium travel has taken a downturn. Pearce said business travel on premium seats has got weaker, reflecting fall of business confidence.
Three new pilot programmes announced
The International Air Transport Association (IATA) announced three new pilot programmes to test the New Distribution Capability (NDC) schemes. Pilot participants include Aeroflot, Aer Lingus, Qatar Airways, and JR Technologies (JRT).
NDC is a travel industry-supported programme launched by IATA for the development and market adoption of a new, XML-based data transmission standard. NDC will enable the travel industry to transform the way air products are retailed to corporations, leisure and business travellers, by addressing the industry’s current distribution limitations: product differentiation and time-to-market, access to full and rich air content and finally, transparent shopping experience.
“We are delighted to be the first Middle East airline to launch an NDC pilot,” said Qatar Airways Chief Executive Officer Akbar al-Baker. “We believe that given our position as a leading full service carrier, Qatar Airways will be able to benefit significantly from NDC features as this will enable us to better showcase the value of our five-star product offering to our passengers.”
This is the second NDC pilot for JRT. In 2013, JRT participated in pilots with American Airlines and Air New Zealand. This time, JRT will pilot a live implementation of an NDC Aggregator platform. American Airlines and Air Canada, among others, will join this demonstration.
“We want to help all the players in the airline distribution value chain wrap their arms around NDC. We hope they will all benefit from this exercise” said George Khairallah, President of JRT.
On May 21, the United States Department of Transportation (DoT) tentatively approved Resolution 787, which is the foundation document for NDC. In its decision, DoT said, “the use of common technical standards could facilitate the marketplace development of distribution practices and channels that would make it easier for consumers to compare competing carriers’ fares and ancillary products across multiple distribution channels, make purchasing more convenient, allow carriers to customise service and amenity offers, and increase transparency, efficiency, and competition.”
“We welcome the participation of Aer Lingus, Aeroflot, and Qatar Airways, as well as JR Technologies. The new pilots will support the development of the NDC standard to modernise the way that airline products are presented through travel agents and help to promote efficiency, and innovation,” said IATA Director General and CEO Tony Tyler.
The NDC pilot programme was launched in 2013 with pilots involving American Airlines, Air New Zealand, Hainan Airlines, China Southern Airlines and Swiss International Air Lines. Earlier this year, additional pilots were launched by Shandong Airlines and Air Canada.