(Image source: NASA)
Oceans have majestic lungs. Not literally, of course, but saltwater does absorb carbon. And how much they do depends on the amount of saltwater and the deep ocean currents. They are also called ‘undercurrents’ or ‘overturnings’.
These grand undercurrents form a network of awe-inspiring ocean currents that are part driven by the downwards movement of cold, dense saltwater towards the sea bed near Antarctica. The currents carry vital heat, oxygen, carbon and nutrients around the globe.
So, what’s up?
Meltwater makes saltwater less salty (and less dense) and this slows down undercurrents, which also impedes cold saltwater to reach Antarctica, thereby warming it up and creating more meltwater elsewhere. In the North-Atlantic, it’s the opposite, a slowdown there could lead to a colder Europe as the currents from the southwest don’t reach Atlantic Europe.
All this is reducing saltwater’s ability to absorb carbon. Not good.
We’re seeing rapid changes in the last 150 years, which also led to changes in the oceans’ ecosystem. So, the rules that have governed overturnings and their functioning appear to change to become unruly.
I see some similar undercurrent in aviation. And it may lead to either a push for nationalization or further consolidation in the airline industry.
Read on to learn more about politically changing and commercially promising undercurrents in aviation.
Noisy Voices
In the Netherlands, and mainly near Haarlemmermeer (the municipality in which Amsterdam Airport Schiphol is located), noisy voices call for change. Not only do 8% of the complainants represent over 80% of the complaints but this minority also influences wider societal beliefs. One of these beliefs has slowly but gradually caused people to question the role and importance of transfer traffic.
But let’s stick to pollution first. Noise, emissions, and increasingly horizon pollution. The horizon pollution is related to (1) seeing aircraft in the air, and (2) contrails of overflying aircraft at higher altitudes.
Since contrails create 57% of the sector's warming impact, significantly more than the CO2 emissions from burning fuel, this is getting the proper attention now and airlines such as Etihad are deploying contrail mitigation solutions.
With all this noise, some of which appears louder as aviation’s flight volume is now near 90% of 2019’s level, there are some erratic moves.
Erratic Noise
The Dutch government and even the airport itself have called for a 30% “shrink plan” to reduce the number of flights to 400,000 per year after 2025 (to 460,000 until Sept. 2024). This is to curb both carbon dioxide (CO2) and nitrogen oxides (NOx).
At the same time, the government has allowed 900 tonnes of domestic weight to be transported from Rome to Amsterdam so it can be burned in ovens by a company called AEB. This also releases CO2, naturally, but is meant to generate power.
On the aviation side, things get rocky.
Emissions and noise have called for the removal of night flights, typical vacation flights, and even cargo flights. Even if this happens, cargo flights would go elsewhere and the freight would have to be hauled over the road. But less flights!
It’s not that there is a shift toward more intolerance to even quieter modern aircraft (the sheer volume is a problem).
It’s that the overall benefits of aviation and especially the hub function are questioned. By government officials, the general public, and even those that used to support air transport’s role in the wider (global) economy.
Glocal View
The globalization trend that fueled much of the O&D growth through dense networks (see article) is being undermined by local politics.
In a way, the glocal view is gone, because:
Local overtourism (inbound), like in Amsterdam, is seen as a global problem
Destination marketing’s role in developing nations dependent on tourism is downplayed or royally overlooked
The fact that the aviation sector connects supply chains and is itself an important link in global supply chains is blindly ignored
Transfer traffic is seen as a nuisance and having no function.
So, all the changing views that are exacerbated on social media are a reflection of (1) people being more vocal in general and having a channel to voice it, but also (2) a growing trend to diffuse and broadcast ungrounded ‘facts’.
Hence, it has led many to look at transfer traffic a bit closer. Not so much in the local economic value of this traffic.
But particularly the detours involved in hub & spoke (H&S) systems, which mainly applies to markets that are tapped into with a certain 500-1500 km catchment area and/or the parallel markets that exist where neighboring airports tap into the same catchment area (like London Gatwick, London Heathrow, London Stansted, Amsterdam, Brussels).
So, this is a reality:
From an environment standpoint, yes, we detour and do not fly the shortest distances for most passengers; but we do as soon as we generate sufficient traffic by offering P2P flights.
From an economics point of view, the airline industry’s market structure with H&Bs outweighs the economic inefficiencies. Then:
As air transport’s volume grow, we can offer more non-stop flights with relatively smaller aircraft than we used to (A350, B787, A320-XLR).
That’s the global picture.
The local picture is staring down on every flight without knowing which O&Ds are on that flight, or how many hinterland markets (past the 1st airport-destination) it feeds, and the economic benefits it brings. Both inbound, and outbound.
A local view is nearly impossible, other than watching it collapse when you tamper with it and see that networks become economically unsustainable and bring a reduction in employment as well. Or looking at a particular city and concluding there are too many tourists (e.g. Venice, Amsterdam).
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Futher Consolidation
But there is another global picture.
If we tamper with local links in the chain, like at Schiphol, some of the demand may disappear or fall (like businesses moving in conjunction with poor commercial establishment and tax policies), but an important core will remain.
It will be picked up by further consolidation from other angles. And in order to sustain its market position, an airline like Air France KLM may have to merge with another airline group, such as Lufthansa (which also has Belgium-based Brussels Airlines).
Consolidation is good for rationalizing redundancy, frequency and local detours. But it may also lead to axing the smallest communities where there is no competition. (You cannot have it both ways).
So, consolidation may not help under-served or smaller, less economically interesting markets. Unless we get further regulation.
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Further (re)regulation
Reregulation is a real possibility if the airline industry’s global market structure cannot move away from the buffed up H&S systems.
In today’s market with so many airlines (arguably too many), the H&S system is the only effective competitive tool in a liberalized market. Even in a fully nationalized industry, economics of density and economies of scale dictate that economies of scope (combining production for multiple markets) only work with hubs.
However, it can always change. Like recent talk about near- or onshoring production and the signs to curb globalization.
And don’t forget even deregulation is only 53 years old and it’s suffered from many bad cycles and troughs because of it’s oversize structure serving overly stimulated segments. It’s been the business model for some ULCCs and LCCs.
So, it may be necessary for governments to step in to:
Protect service to remote and smaller communities
Start tackling what is considered ‘unnecessary” traffic under the H&S system’s model, which is highly political*
Provide oversight to avoid abuse of dominant power by mega airline groupings if we allow further consolidation.
* This area is ripe, though, for electric aviation to pick up the slack or correct the momentum on public opinion. But it does not solve having so many vehicles in the air.
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Country-by-Country
In terms of government policy to deal with public opinion of the vocal minority and all categories of pollution, you cannot deal with aviation in a passenger by passenger manner, or flight by flight at a take-off and landing perspective.
One needs to look at aviation at a country-by-country level, just as we do with national maritime ports, or railway companies. There is a reason we connected local tracks across borders.
The fact that airplanes are mobile does not mean the industry itself is. Too much hinges on it.
And if we mess with the predominant economics that are intertwined with other industries, you might as well regulate aviation fully and promote a nationalization of all carriers.
But as we know from our experience in the Middle-East, that actually worked counter-effectively, because governments can have ambitions, too.
Audacious Adaptations
Airlines need to be healthy to invest in modernization. Modernization includes the ongoing efforts to become more efficient and sustainable. It’s in their own interest and has been the trend since the 1970s.
Like the undercurrents leading to Antarctica, they can be safeguarded if all sectors are encouraged to invest in novel technologies and tackle production and consumption in more sustainable ways. Stripping companies from their ability to maintain their capital allocation plans or to contribute to positive change will lead to harmful undercurrents.
And that will become even more noisy as people are very concerned with change, especially change that is hard for their species to cope with. Mother nature always corrects itself, so that itself should not be the biggest worry. Can people adapt?
Wishing you all a wonderful day, and greetings from rainy Montréal.
Ricardo
Montreal, Tuesday, 18 April 2023
Feel free to contact me for questions, comments, or a chat:
ricardo(at)pomonaadvisors(dot)com
my general email has changed to: info(at)ricardopilon(dot)com