Air New Zealand chief executive Greg Foran says passengers face having to “put their hands in their pockets” to help airlines tackle climate change, as moves speed up to make alternative fuel for planes mandatory in this country.

Speaking at a recent CAPA Centre for Aviation virtual event, he said the development of sustainable aviation fuel (Saf) to power-long haul aircraft would need input from airlines, government and consumers. Passengers would have to bear some of the higher cost of new fuels.

The Government announced on Tuesday that a biofuel mandate for Saf would be developed next year, taking in work already underway.

While mandates for land transport are planned from 2023, Ministry of Business, Innovation and Employment officials recommended to Cabinet that aviation be given more time, with a regime by 2025.

Establishing production of a sustainable avaiation fuel in New Zealand, or even securing reliable imported supply, requires extensive infrastructure investment at an average cost of about $1 billion, the policy paper for Cabinet says.

It quotes a study by the Wood Fibre Futures project run by the Ministry of Primary Industries, which investigated making biofuel from wood fibre and says scale will be critical for making Saf commercially viable.

“However, [the study] recommended waiting for 3–5 years to allow other first movers to prove that the technology pathway is commercially viable, technical problems are ironed out and the cost of the plant is lower,” the Cabinet paper says.

Air New Zealand has signed a memorandum of understanding to partner with MBIE on a feasibility study for domestic production of Saf and what government support might be needed to make that commercially feasible.

Qantas this week announced it will buy blended Saf from next month, helping to reduce its carbon emissions by around 10 per cent on its flights from London.

The airline says it has signed an agreement with a strategic partner to buy 10 million litres of Saf in 2022, with an option to purchase up to another 10 million litres in 2023 and 2024 for flights from Heathrow Airport. This would represent up to 15 per cent of Qantas’ annual fuel use out of London.

The fuel will be produced with certified bio feedstock from used cooking oil and/or other waste products. This is then blended with normal jet fuel.

While Qantas and subsidiary Jetstar have flown several demonstration flights using Saf – including a 2018 flight across the Pacific powered by biofuel derived from mustard seeds – this is the first time an Australian airline will purchase Saf on an ongoing basis.

In spite of a surge in development and production, Safs are up to five times as expensive as standard aviation fuel.

Foran said this left a “wicked problem” for airlines, passengers, other industries and governments.

“And it’s not a problem that can be solved just by airlines. Everyone’s going to have to contribute to it and probably the customer as well.”

Airlines on their own couldn’t absorb the extra costs, particularly those such as Air New Zealand, where fuel costs are a high percentage of expenses on long-haul routes.

“But if everyone puts their hand in their pockets and we rethink some other things we do, this is solvable. In our view in Air New Zealand, it is the serious issue that we are leaning into right now. I think Covid pales into insignificance compared to what I see occurring with climate change.”

Exhaust from planes is responsible for between 2 and 3 per cent of global emissions but this had been growing quickly in the decade leading up to the pandemic.Airlines have committed to carbon neutral growth from last year and a reduction in net aviation CO2 emissions of 50 per cent by 2050, relative to 2005 levels.

Foran said he hoped some Saf would be used in Air New Zealand planes next year and the airline was working with Airbus on hybrid hydrogen-powered planes for regional routes. As well, he hoped battery-powered planes could be flying by the end of the decade.

He told CAPA chairman emeritus Peter Harbison that Air New Zealand didn’t want to be a laggard on electrifying its fleet.

“We’re prepared to get out there a bit earlier. It’s something that we believe in as a business and it plays well with New Zealand Inc. I can tell you it’s a big deal for our customers — we’d rather be out leading on this.”

Running newer, more efficient planes fully loaded with passengers and cargo also helped, he said.

“None of this is easy. We can put it off but we’re putting off a problem that we’re going to leave for our children and our grandchildren and I think there’s more than enough evidence to suggest that we need to do something.”

Panic slowly

Foran has been in the top job at Air New Zealand for nearly two years, starting just as the pandemic hit.

At the CAPA event he joked that he had “timed the move perfectly. It wasn’t in the job description but there you go and these things happen.”

He came from big roles in global retail businesses, heading Walmart’s US operation before starting at the airline.

As the impact of the coronavirus spread in concentric circles from its epicentre in Wuhan, airlines were hit first and hardest.

There was uncertainty about what the impact of the virus would be.

Foran said those running the airline had to breathe deeply, gather information and ”panic slowly” as the crisis hit.

Since the CAPA event, the Government has announced $500 million more support for the airline on top of a $1.5 billion loan to give it funding flexibility should an equity raise be delayed again. The proceeds of the raise will be used to repay the Government.

Foran said the pandemic had given the airline time to re-assess and it was focused more intensely on digitising the business.

“I would much rather Air New Zealand work out how to disrupt ourselves before someone comes along and does it to us,” he said.

“Whether you’re working at airports or whether you’re designing our routes,loading and planes, serving customers – [there] is generally a much better way of doing it by infusing digital.”

Asked about the recovery of high yielding corporate travel, Foran said he had been surprised by how strongly it came back last year on domestic routes, but international demand may be slower to recover.

The airline didn’t share other carriers’ reliance on business travellers filling seats at the front of the plane, and was moving towards an all-Boeing 787 long-haul fleet, with fewer seats than Boeing 777s.

“I’m pleased thatAir New Zealand is as much a premium leisure airline as anything else and so I’m comfortable with the way we’re structuring our fleet and moving from the 777sto the 787s. The way we’re thinking about configuring our aircraft puts us in a reasonable position.”

Air New Zealand faced cost pressure from rising fuel prices and steeply risinginflation across the business.

“I think we’re in for a really interesting few years navigating these changing inputs but I feel that Air New Zealand is reasonably well positioned. We’ll certainly feel some impacts for sure and we’ll navigate our way through those sensibly.”

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