It’s an unavoidable topic. Whether you’re surfing TV channels, browsing your timeline or flipping through the pages of a newspaper or magazine, you see it – it’s everywhere. I’m talking about climate change, specifically relating to CO2 emissions.
CO2 Emissions from the Aviation Space
As you can imagine, the airline industry and its massive consumption of fuel is a major part of this discussion. There was even a cover story about this very subject a few days ago in the popular Dutch publication de Volkskrant.
While the concerns are warranted — in 2017, airlines accounted for about 2% of all human-induced CO2 emissions (859 million tonnes) — people simply will not stop flying. As a matter of fact, IATA projects air travel growth doubling to over 8 billion passengers by 2035. At the current rate without action, airlines will account for 27% of all human-induced CO2 emissions by 2050.
This means we must adequately prepare for what lies ahead. That’s why we’ve made it our purpose to facilitate efficient, sustainable and profitable air travel growth.
IATA itself also has lofty sustainability goals. IATA aims to:
- Improve fuel efficiency by an average of 1.5% per year from 2009 to 2020.
- Cap net aviation CO2 emissions from 2020 (carbon neutral growth).
- Reduce net aviation CO2 emissions by 50% by 2050, relative to 2005 levels.
Preparing for Exponential Air Travel Growth
In order to achieve these targets, a four-part strategy has been launched by IATA:
- Improved technology, including the deployment of sustainable low-carbon fuels.
- More efficient aircraft operations.
- Infrastructure improvements, including modernized air traffic management systems.
- A single global market-based measure, to fill the remaining emissions gap.
With tight margins, fluctuating fuel prices and environmental demands airlines need to improve on their organizational flaws. Embracing digital demand strategies, direct customer relations and organizational innovation hold the promise to a better future for airlines, passengers, and even our environment.
The blueprint is already there if we look to adjacent industries. Uber has demonstrated how personalization, real-time forecasting and dynamic pricing can produce a new generation of demand management. Amazon has proven the benefits of collecting detailed customer records in order to personalize retail in great detail.
The next step is for airlines – and low-cost carriers in particular – to become better retailers and optimize beyond the seat, by optimizing the revenue per traveler. This is mostly done through techniques that have revolutionized retail the past decade: personalized offers, prices and messages.
Airlines can gain distinct advantages by offering the entire product bundle via relevant messaging. So instead of just focusing on the seat, airlines also focus on pushing ancillaries such as extra luggage and premium seats.
This requires data that is both personal and real-time, with predictive analytics tools to act on that data. The convergence and automation of revenue management and marketing will move airlines into the next era, from seat revenue optimization to total revenue optimization.
The Way Forward for Airlines
So how exactly does Yieldr plan to contribute towards these aspirations? By enabling airlines to establish a direct relationship with their passengers through predictive analytics software and artificial intelligence.
Yieldr’s product supports airlines in two key areas of their strategy. First, Yieldr helps airlines become more efficient and profitable, which will allow airlines to make the required investments for more sustainable aircraft — each new generation of aircraft is on average 20% more fuel efficient than the model it replaces.
For the second — and arguably more impactful part — Yieldr’s product contributes to airline fuel efficiency by increasing the passenger load factor. It’s Yieldr’s mission to maximize global load factor by increasing the demand for the 18.5% of unsold seats.
Not only can airlines optimize revenues and profits, but by harnessing such insights, airlines can also better understand their demand and use their data to predict customer needs and increase load factors.
Two examples in the airline market demonstrate the potential impact of this approach: Norwegian and Ryanair. Ryanair shows the impact of aggressively optimizing load factor, while Norwegian’s investment in modern aircraft has a dramatic effect on the emission per passenger mile. Combining both approaches is a meaningful step toward reaching industry targets.
Efficiency Gains from Load Factor
Load factor – the portion of available seats filled on a given flight – has a major influence on each passenger’s footprint, because total emissions are divided among the passengers on board. Fewer occupied seats mean a larger share assigned to each person. According to IATA, 81.5% of seats were sold globally in 2017. However, load factor varies widely across the aviation industry.
A flight in the 90th percentile for load factor is more than 1.5 times as full as one in the 10th percentile. An airline’s average load factor is a significant driver of overall competitiveness on efficiency per passenger mile. Among the 20 largest airlines globally, Ryanair and easyJet have the highest load factors. In other words, they have the fewest empty seats.
Seat occupancy rates have risen steadily over the past decade, increasing from an average of 70% in 2001 to 81.5% in 2017 – an improvement of more than 0.7% per year. No other efficiency driver has seen this rate of progress.
If airlines can better manage their demand, they can increase load factors and eliminate waste by getting more passengers to fly on fewer planes. Increasing load factor has a direct effect on emission intensity per flown kilometer per passenger.
This is clearly shown by the success of Ryanair. Ryanair is the lowest emissions- intensity airline – 69.4 grams CO2 emissions per passenger kilometer in 2017 – below Easyjet at 80 grams. This success is closely correlated with their chart-topping load factor, reaching a record high of 94.7% in 2017 with a profit per passenger of 11.15 EUR. In comparison to Ryanair, Lufthansa’s European flights emitted 95 grams on average, with a load factor of 71%.
Efficiency Gains from New Aircraft
Airplane technology is improving fast and each new generation of aircraft brings advancements in fuel efficiency. IATA has stated that each generation is on average 20% more fuel efficient than the model it replaces.
Investing in newer, cleaner planes has clear benefits for airlines. For instance, over transatlantic routes – the most-active intercontinental market – the average fuel consumption in 2017 was 34 passenger-kilometers per liter.
The most fuel-efficient airline was Norwegian Air Shuttle with 44 passenger-kilometers per liter, thanks to its fuel-efficient Boeing 787-8, a high 85% passenger load factor and a high density of 1.36 seat/m2 due to a low 9% premium seating. This is 33% higher than the market average.
Another example of an airline that understands the importance of investing in newer aircraft is WizzAir. "In our view, the A321neo aircraft is the game-changer aircraft and it is the aircraft that we are [moving to]. The A321 is the most efficient narrowbody aircraft today and will probably continue to be in the next few years,” said Wizz Air’s CEO, József Váradi. “When you look at the A320 classic, the A321 classic is a 10% lower cost reduction and the A321neo is a 20% lower cost reduction.”
Váradi goes on to say: “[The A321neo] produces the lowest fuel burn, in terms of carbon and noise. I think sustainability and the impact on nature will become an increasing issue going forward.”
“The new generation of consumers are much more responsible with regard to the environment than previous generations.”
Help Us Change the Future of Aviation
We have big ambitions for the coming years.
We want to manage the demand of 5 billion travelers by 2035.
We aim to contribute to a 5% load factor increase for all of its airline customers over a 3-year timeframe.
We want to continue to build forecasting and decisioning products for the entire commercial airlines operations in order to contribute to efficient, sustainable and profitable growth for air travel – in that order.
However, to get there, we need your help. We want to invite you to join us on our journey as an investor to make a significant impact. If you’re interested, visit our investors page and get an in-depth look by requesting our investment material.