Alaska Airlines and Climate Change: Cleaning-Up the Skies

How Alaska Airlines Can Leverage its Supply Chain to Combat Climate Change

Air transportation cumulatively accounts for 2-4% of worldwide carbon emissions. The airline industry has reacted appropriately over the past decade, led by the International Air Transport Association, which in 2009 established targets to include an average improvement in fuel efficiency of 1.5% per year from 2009 to 2020, a cap on net aviation CO2 emissions from 2020 onward, and a reduction in net aviation CO2 emissions by 50% by 2050, benchmarked to 2005 emissions levels [1].

Meanwhile, aviation traffic worldwide is forecasted to double over the next 15 years [2], representing further opportunities for airlines to leverage supply chains to not only mitigate global warming risks, but also to build competitive advantages in a domestic transportation market that is now largely consolidated into five main airlines [3].

Source: World Economic Forum. Digital Transportation Initiative: Aviation, Travel and Tourism Industry

 

Source: PricewaterhouseCoopers. 2017 Commercial Aviation Trends

 

Alaska Airlines, recently ranked as the most fuel-efficient U.S. airline for the fifth year in a row by the International Council on Clean Transportation [4], faces the challenge of improving its supply chain model amid growing concerns over climate change and its recent merger with Virgin America. To further compete with industry titans United, Delta, Southwest, and American, Alaska Airlines must align technological, operational, and digital efforts to create value along its supply chain amid the effects of climate change.

From a technological approach, airlines can benefit in the future from biofuels [5], which may lessen the dependency on standard jet fuel and also create a buffer from volatile fuel prices. Alaska Airlines, from a short-term perspective, is already making strides by partnering with universities and private companies to develop alternative jet fuels. In late 2016, Alaska flew the first commercial flight with alternative jet fuel made from limbs and branches of trees leftover after forests harvests [6]. From a long-term strategy, it will be prudent for Alaska to continue leveraging these partnerships, as the airline seeks to eventually replace 20% of its Seattle airport fuel-supply in order to reduce CO2 metric tons by 142,000 per year [7]. This will require a continued, dedicated effort in working with the public and private sector to drive further innovation in this space.

Operationally, from a short-term perspective, Alaska Airlines has leveraged a younger, more fuel-efficient aircraft fleet and small technological improvements, including adding split-scimitar winglets, to increase fuel efficiency by 1.5% per aircraft [8]. From a long-term perspective, Alaska has purchase commitments of 68 fuel-efficient aircraft between 2016-2022 [9], reinforcing its commitment to addressing environmental concerns through its supply chain and purchasing posture. However, in its larger portfolio of Alaska, Horizon, and now Virgin America aircraft, which all use different aircraft suppliers, Alaska must continue to reassess the age of its fleet and make conscious decisions to purchase aircraft that will pay off in the long-term via improved fuel-efficiency and lower lifetime maintenance costs. Furthermore, climate change has increased the probability of severe weather effects, which can impose significant risk to ground operations and add considerable fuel costs in the air due to stronger winds [10].

Source: https://phys.org/news/2016-02-climate-transatlantic-flights.html

Looking forward, a robust aircraft spares management program and improved forecasting programs across its route network can lessen the impact of these severe weather impacts. This may require heavier up-front investments in aircraft, maintenance resources, and forecasting, but the investments would allow the airline to minimize catastrophic, costly effects across its daily operations over the long-term.

Alaska should also consider leveraging improved digitalization across its supply chain to mitigate climate chain effects. With the increasing power of simulation and forecasting, Alaska in the short term can seek to manage and optimize supply chain and logistics processes, such as improved visibility and efficiency between suppliers. Additionally, recent research suggests that through improved forecasting and simulation, optimizing aircraft routing can lessen overall climate impact while minimizing fuel costs [11]. As the power of digitalization improves, Alaska must evaluate processes to optimize routes on the ground and in the air that lessen the environmental burden and improve the bottom line.

Overall, Alaska Airline has led the way in environmental efforts to address climate change concerns across the airline industry. However, questions remain about how Alaska and the broader industry will combat climate change in the future:

  • What supply chain synergies can Alaska leverage with Virgin America to posture itself to continue to be the industry leader in combatting climate change?
  • In an extremely competitive domestic business environment, to what extent will airlines invest in new technologies across their supply chains to lessen the industry’s contribution to climate change?

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[1] International Air Transport Association, “Climate Change,” http://www.iata.org/policy/environment/Pages/climate-change.aspx, accessed November 2017.

[2] World Economic Forum, “Digital Transformation Initiative: Aviation, Travel and Tourism Industry,” January 2017, http://reports.weforum.org/digital-transformation/wp-content/blogs.dir/94/mp/files/pages/files/wef-dti-aviation-travel-and-tourism-white-paper.pdf, accessed November 2017.

[3] PricewaterhouseCoopers, “2017 Commercial Aviation Trends: Digitize and reassess your competitive position,” https://www.strategyand.pwc.com/media/file/2017-Commercial-Aviation-Trends.pdf, accessed November 2017.

[4] Alaska Airlines, 2016 Annual Report, p. 19, http://investor.alaskaair.com/phoenix.zhtml?c=109361&p=irol-sec, accessed November 2017.

[5] Risky Business Project, “From Risk to Return: Investing in a Clean Energy Economy,” p. 38, https://hbs.instructure.com/courses/3730/files/folder/Case%20Related/TOM%20Challenge%202017/Climage%20Change%20Readings?preview=247502, accessed November 2014.

[6] Popular Science, “Alaska Airlines just flew across the country using wooden chips,” November 15, 2016. https://www.popsci.com/alaska-airlines-just-completed-forest-powered-flight, accessed November 2017.

[7] Alaska Airlines, “News Releases”, Novemeber 14, 2016. https://newsroom.alaskaair.com/2016-11-14-Forest-powered-flight-heads-to-Washington-D-C, accessed November 14, 2017.

[8] Alaska Airlines, “2016 Annual Report, p. 5, http://investor.alaskaair.com/phoenix.zhtml?c=109361&p=irol-sec, accessed November 2017.

[9] Alaska Airlines, “2016 Annual Report, p. 6, http://investor.alaskaair.com/phoenix.zhtml?c=109361&p=irol-sec, accessed November 2017.

[10] Coffel, E. and R. Horton, “Climate Change and the Impact of Extreme Temperatures on Aviation,” American Meteorological Society (2015), http://journals.ametsoc.org/doi/abs/10.1175/WCAS-D-14-00026.1, accessed November 2017.

[11] Volker Grewe et al, “Feasibility of climate-optimized air traffic routing for trans-Atlantic flights,” February 24, 2017. http://iopscience.iop.org/article/10.1088/1748-9326/aa5ba0/pdf, accessed November 2017.

 

 

 

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9 thoughts on “Alaska Airlines and Climate Change: Cleaning-Up the Skies

  1. I’d like to address the competitive market conditions surrounding the airline industry and how this might drive technological change resulting in a more environmentally conscious market. While I agree that the airline’s contribution to carbon emissions is high, I am not confident in the ability of one firm to change the operating model for the industry and impact the supplier network. Last month the Wall Street Journal reported on third quarter earnings for the top five US Airlines. The report highlighted the industry’s close ties to fluctuations in consumer demand and labor/fuel prices [1]. Transformational change in the industry would require a coalition of regulation and partnering airlines to underpin the current operating model. Fuel efficiency improvements are an effective means to combat carbon emissions, but may not be a long term solution and if that is the case, airline’s will be deterred from making large scale advancements such as alternative fuels or supply chain. If airports, municipalities, and nations could promise or work to provide the infrastructure for larger efforts towards sustainable applications across the industry I would look to Alaska’s commitment to sustainability as a key driver on implementation.

    [1] Susan Carey, “Strong Revenue at American, Southwest Airlines Helps Offset Rising Costs,” Wall Street Journal, October 26, 2017.

  2. I’m not confident that Alaska Airline alone can help mitigate the effect of climate change. Maybe Alaska airline can leverage economies of scale through more efficient supply chain management and develop alternate fuel by partnering up with other major airlines. For airlines to consider to invest in new technologies to lessen the negative externality to climate change, the gains in new technologies need to be able to cover the cost of investment. This is a highly competitive industry, I’m worried that airline companies will be more focused on short-term bottom line growth rather than the potential super long-term positive impact to environment and the business. I feel that strict government regulation on green fuel and pollution may be more effective in the medium term.

  3. Alaska Airlines is making some great advancements, as you displayed above. But like the other comments above, I don’t think that the 5th player in the airline industry is going to be able to make a substantial impact on it’s own. Yes, it can prioritize green fuel internally, and yes, it can be an industry example and garner positive PR and potentially even increase brand loyalty. However, with the investment required to make real headway in this space, regulation will be have to play a heavy hand in forcing change. Right now, airlines have a responsibility to current regulations and then to shareholders. As long as they are meeting the necessary improvements, their stock price is going to be the next priority instead of initial investment that might not have a proven payout. I admire what Alaska is doing but they are just too small to have it be enough.

  4. After comparing this to the IKEA case we did a few weeks ago, the general question I have is how much can a business integrate sustainability and a focus on climate change if that is not absolutely integral to its business proposition and model. Simply put, I think one of the reasons that IKEA was able to go beyond PR lip service was because they ran into a tangible risk of seriously depleting their wood supply as a large consumer, the impact of which was directly traceable to the bottom line. You do talk about the reasons why Alaska Airlines would benefit from fuel-efficient aircraft fleet from a cost perspective and avoid disruption in ground operations due to weather patterns, but I am not sure if those reasons are key enough for Alaska Airline to make, and justify a large investment across supply chains to its shareholders.

  5. Great write-up! I would need to have a better understanding of the cost of biofuel relative to traditional oil to have a betterssense as to whether or not Alaska Airline can (or would) go all-in here and lead by even greater example on the emissions footprint front. Oil is the largest variable cost that affects airline profitability – and much of barrel prices are controlled by macro events outside of an airline’s control. If biofuels are substantially (or even slightly) more expensive than current fuel, it’s hard for me to see airlines transitioning to the former, given how high an input fuel cost is to profitability. Conditions I could see leading to an increase in biofuels in the fuel input mix of Alaska Airlines (or any airline) are: 1) a significant increase in the price of oil rendering biofuels cheaper (or considerably less expensive) in comparison, 2) biofuels comprising a small percentage of an airline’s fuel cost, or 3) airlines transitioning to biofuels to get out of the volatility of the oil market, or 4) proof that airlines can attract substantially incremental revenue by highlighting their sustainability practices. The latter of these seems the least likely, but as the impact of business operations on the climate continues to worsen, I hope that companies – and their employees – act soon.

  6. Interesting post! Climate change and air travel worry me because the increasing strength of the jet stream worries me because of more likelihood for turbulence. As such, I’m glad to see Alaska Air is leading the way for airlines to clean up their carbon footprint. Air travel seems to be mandatory for today’s globalization, so I believe the best case scenario is to find fuel efficiencies. Perhaps one day airlines could plant trees to more than offset their carbon emissions!

  7. In my view it is critical that sustainability efforts align with a company’s business objectives in order to have long-term impact. For example, I see the use of more fuel-efficient aircrafts as a primary way to reduce operating costs, while reduction of CO2 emissions serves as a side benefit. Similarly, an optimized route network in collaboration with Virgin America can improve overall efficiency Alaska Airlines’ operations both from a top- and bottom-line perspective, which will lead to a reduction of unnecessary airmiles and subsequently CO2 emissions.

    On the other hand, expanding use of biofuels as an energy source across the Alaska Airlines and Virgin America fleets does not guarantee long-term success in fighting climate change. As long as biobased jet fuels do not present a cost-competitive (without the use of subsidies) or higher-performance solution, they are not a viable long-term option. Even if biobased jet fuels become competitive from a cost or performance point of view, availability will become an issue, as more airlines turn to them as their main fuel source.

  8. In making investments towards offsetting its carbon footprint, Alaska Airlines has both symbolically and practically demonstrated its commitment to combatting climate change. I would argue though that greater progress could be made if the company looks to partner with industry leaders in the renewable tech / energy space to drive continued improvement. Naturally, the company’s resources will be primarily focused on its core business, and without any mechanism for direct corporate accountability with respect to climate change, companies (Alaska included) willl only be incentived to do “enough” to be perceived as proponents of the cause without making truly meaningful contributions to reversing climate change. The day of reckoning will come eventually, and when it does, Alaska will want to be adequately prepared for a future where the cost of carbon pollution will far exceed the needed investments in renewable energy sources.

  9. Interesting read and very well researched article! Interesting to see what Alaska is doing with alternate fuels, a younger fleet and more digitization across the supply chain to limit its emissions and reduce the impact to climate.

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