Aaron Robinson’s Post

An important lesson from my former boss Natalie Mindrum was the concept of WIIFM—"What’s In It For Me?” Driving change in corporate sustainability isn’t easy. Internal colleagues are focused on their objectives, their budgets, and their career ambitions. If sustainability distracts from those goals, even if they may personally care, they will push it to second, third, or hundredth in their priorities. In other words, they have human fallibility. Corporate sustainability roles have long been summarized by Asok’s dismay in the below cartoon (slightly revised by me). We can’t make all the changes ourselves, we need the entire business. Over the years, I’ve selectively escalated to senior leadership, and more often than not, they already recognized the long-term value of sustainability and pledged support (though not always the budget). How can we overcome the everyday challenge and escalate less often? An effective way is to build sustainability into leadership’s objectives, and they then cascade sustainability down to one’s peers. We did this at United by building sustainability into 20% of long-term executive compensation. At IAG, 10% of executive and management bonuses are linked to carbon intensity targets. Overcoming Asok’s challenge is possible—if you not only identify, but change, your colleagues’ WIIFM.

Last night Jonathon Counsell and I were delighted to accept FlightGlobal's ESG Leadership Award at the Airline Strategy Awards on behalf of International Airlines Group (IAG). It was great seeing many new and old friends like Brian Pearce, Christina Cassotis, Patrick Edmond 🇺🇦, and Yasar M. Yetiskin; and also getting to meet Alan Joyce and Rigas Doganis! A big thank you also to RTX for sponsoring this award and hosting our dinner table.

The most common question I received at conferences used to be, “How confident are you that SAF will scale up to decarbonize?” Now it’s increasingly, “How are airlines going to pass on the cost of decarbonization?” After some small surcharges (up to €24) by Air France and KLM in recent years, Lufthansa Group has provided a more expensive (up to €72) opinion—via press release, no less. That’s another topic. Microeconomics makes it clear that a cost increase is ultimately borne by parties that are price-/cost-insensitive (e.g., business travelers), and offers remarkable clarity on how airlines should rationally behave in the face of cost increases. ► Left: Airlines start by analyzing market demand and their cost structure. They then determine how much capacity (aircraft, seats, flights) to offer for sale, and price their tickets at multiple fare levels to try to maximize revenue—i.e., as capture as much revenue as possible under the demand curve. ► Center: If costs rise, e.g., needing to decarbonize, then the supply curve shifts upwards. Airlines will have excess capacity that can’t be supported by existing demand. The only time it makes sense to raise prices is if they aren’t already maximizing that revenue. ► Right: The rational response to a cost increase is to reduce capacity. While this won’t alter demand, it will mean that the lowest fares in the market—leisure travelers and LCCs in particular—will be impacted. Yes, the average fare will rise, but only because the lowest fares will no longer be available. A €5,000 ticket will still be €5,000 tomorrow, but fewer €50 tickets will be available. So who pays for decarbonization? Unless governments step up, then both airlines and customers pay in different ways. Airlines realize lower profits (the gap between the two supply curves), and customers take fewer low-priced trips. The complicating factor is that the real market is dynamic—i.e., demand will continue to grow, but traffic will grow more slowly.

Yesterday the British government released its long-awaited SAF mandate announcement. While there are many different views about mandates, I think it’s worthwhile to review their justification and shortcomings. Economists generally agree that the free market is imperfect, and governments need to step in to correct market failures. In the case of sustainability, every company wants to decarbonize, but no one wants to blink first and take a costly step forward if competitors won’t do the same—rational inaction. In 2023 airlines spent $756 million on SAF (source: IATA), but 10 times as much on new aircraft. Ultimately, SAF mandates aim to break this competitive failure by shifting an airline’s spending decisions at the same rates. When I moved to London last year, I hadn’t seen my cousin in several years due to COVID. I was surprised and delighted to see he had lost a lot of weight. “I pay my personal trainer hundreds per month, but he’s worth it,” he said. Indeed, everyone wants to have a healthy diet and work out every day, but few of us have the personal discipline to do so—a personal trainer is an expensive solution, but one with an effective track record. Similarly, how many of us in childhood promised our parents we would put away our toys and complete our homework? Parents frequently return with additional incentives (another scoop of ice cream?) when initial promises aren’t met, but eventually have to resort to more extreme measures (toys taken away, no dinner, etc.). Previous voluntary decarbonization goals have fallen short, forcing the parent to intervene. So how much SAF will the UK mandate enable? The intent is to mandate 230,000 tonnes (~75 million gallons) in 2025. But lest we forget, the UK Air Passenger Duty began as an environmental tax on aviation—and revenues have gone to the treasury rather than recycled back into aviation. At forecasted revenue of £4.9 billion in 2025 and the UK’s new buyout penalty of £4.75 per liter, this is enough to buy ~825,000 tonnes (~270 million gallons) of SAF in 2025, or 7% of UK demand—though the penalty can be paid instead, making production no guarantee. The money to decarbonize has existed for decades, just not directed to that purpose.

My third and final speaking engagement of March, alongside colleagues Henrik von Storch and Nicole Sautter. Thank you to to the Ishka team for rearranging the timing so I can fly to the US and ABLC that evening!

Three exciting pieces of news at one time! 1) Today International Airlines Group (IAG) announced the world’s largest purchase agreement for e-SAF (power-to-liquid sustainable aviation fuel) by annual volume with Twelve. Over 14 years starting as early as 2025, we plan to buy ~785,000 tonnes (260 million gallons). Power-to-liquid is critical to continuing advancing SAF when bio-based feedstocks eventually reach limits, so this is an important step to advance this new technology. This is our—appropriately—twelfth SAF supplier, the most announced relationships and diversified supply of any airline globally. (https://lnkd.in/eBwUfteX) 2) Today we also received Air Transport World’s 'Eco-Airline of the Year' award, recognizing how we have used our scale, influence, and track record over the last 30 years to transform our business and drive industry-wide change. We were the first to publish our carbon footprint, offer a carbon offset program for our customers, set a target for net zero emissions, and set a target of 10% SAF use, all of which are now best practices. (https://lnkd.in/eDjrNTpm) 3) Finally, I’m pleased to report that in 2023 IAG used ~53,000 tonnes of SAF (~17.5 million gallons), or 12% of the global supply, and a significant increase from our ~10,000 tonnes in 2022 (~3.5 million gallons). For comparison, 2023's figure is double what I bought from 2016 to early 2023, when I led SAF purchasing for United Airlines, and was often the largest buyer globally. Aviation decarbonization is rapidly accelerating!   Thank you to (apologies there is a limit on how many of you I can tag): ► Our new partners at Twelve: Nicholas Flanders, Ashwin Jadhav, Ira Dassa, Heidi Lim, Brooke Curran, MayLin H., Alisa Leonard, Jenna Mesic ► Air Transport World: Karen Walker, Gabriel Balmes ► Customers who enable our SAF—unfortunately I can’t name all of you: Odile Maarek, Claude Picciotto, Antoine Vessière, Kathrin Brost, Noelle Fröhlich, Nora Imdahl, Bettina Paschke, Jenny Scheibe, Henrik von Storch, Marcel Fujike, Dr. Fabiano, Nico De Golia, Julia Fidler, Michelle Lancaster, Diane Lundeen Melanie Nakagawa, Elizabeth Willmott, Nick Warren

With so many new people in the world of sustainable aviation these days, I'm glad to be speaking alongside many longtime friends and colleagues on March 1. You can register to listen below.

Join me at the Energy Transition Summit on 4 March, where I will be speaking alongside Joe Franses, Julia Matthews, and Sara Cronenwett on Scope 3 reporting and how to turn measurement into action. You can join in person or virtually. We'll be moderated by Matthew Oxenford.

I’ve been (slowly) reading a World War II history and have finally arrived at September 1, 1939 (page 600!). I’m struck by the unfortunate parallels between today’s climate crisis and the pre-war buildup. The common factor: leaders unwilling to properly address today’s challenges, leaving their successors in a bind.   In 1936 French Foreign Minister Pierre-Étienne Flandin opted not to stand up to Hitler occupying the Rhineland—because mobilizing would require 30 million francs per day, and the resulting devaluation would be politically unacceptable before the upcoming election.   Defense spending is expensive, largely unpopular, and often dismissed as unnecessary. But ask 1940 France and Britain (or 2023 Ukraine) the cost of being unprepared for war. Ask yourself if you’re grateful that governments funded basic research in the 2000s that led to COVID vaccines. Ask yourself if Boeing should have prioritized shareholder returns over safety and product quality in light of the 737 MAX and many other problems.   Voters, shareholders, and customers must reward leaders for taking decisions that are critical in the long run, even if they have short-term costs. Yes, the cost of action is high—but the cost of inaction is often higher.   (Bonus points if you can identify the well-known book.)