Eat Fries for Green Skies

… advises Dorothea von Boxberg, CEO of Lufthansa Cargo. This was her plea at Lufthansa Cargo's Sustainability Conference on 14JUL22 in Frankfurt, under the motto: “Fry and Fly.” An easy-to-understand slogan to promote Sustainable Aviation Fuel (SAF) and step out of traditional kerosene burn. The charming fact is that SAF is a product obtained from recycled materials such as frying oil or other organic residues. It is scarce and expensive, but urgently needed by the aviation industry so that it can leave the fossil age behind.

For Lufthansa Cargo, the path is mapped out: By 2030, the freight carrier aims to blow 50% less CO₂ into the atmosphere compared to 2019, with aircraft remaining the main emitter, but including ground operations, as well. From 2050 onwards, the airline wants to be fossil free, joining the IATA bandwagon to make flying net zero. The roadmap is good, but not ambitious enough, CEO, Dorothea von Boxberg objected at her airline’s sustainability event. “We want to set ourselves more ambitious targets.” Based on scientific calculations, CO₂ emissions are continuously reduced with the help of fleet renewal and optimization, improved operational efficiency, and the use of sustainable aviation fuels. The official validation of these targets is imminent. For freighters, there will be special sub-targets, she announced.

SAF price will drop
Although the goal is clear, the way to achieve substantial reductions of greenhouse gas emissions is complicated. That is where the French Fries and cooking oil come into play again. Currently, demand exceeds supply, making SAF comparatively expensive. However, economies of scale will drive costs down, predicted Sabine Manderer at the Lufthansa Cargo event. Being a member of the executive board of Deutsche Bundesbank (German Federal Bank), she has insider information when it comes to financial issues.

Naysayers will have to wait at the end of the line
Carriers willing to shift from kerosene to SAF will have a competitive advantage mid-term if they take the adequate steps now, she reasoned. Since, due to steadily increasing CO₂ charges levied by the EU and other regulators, SAF naysayers will face a cascade of costs that might drive some of them out of business, particularly hesitant forwarding agents. They are better off by joining the bandwagon now to secure sufficient SAF supply for their shipments in times when the distribution battles get tougher, recommended Ms. Manderer. This can happen even today: “Investors have become extremely sensitive to business strategies. If you don’t have a scheme for CO₂ neutrality in place, you risk being excluded from the financial markets.” At the end of the day, “the first movers will have a competitive advantage,” she exclaimed. Marcel Fujike, SVP Products & Services Global Air Logistics at Kuehne+Nagel added to this: “Whoever is waiting for the last minute, will face an unpleasant reality!”

No time to wait
Furthermore, Ms. Manderer addressed a wakeup call to the responsible politicians: "Don’t shy away from taking hard decisions such as high carbon prices to lower greenhouse gas emissions. This must be done faster and more wide-ranging. It might be painful, but the alternative is horrifying!"
While she and Mr. Fujike were saying this, large woodlands in Portugal, Spain and the south of France were being devastated by fire, and northern Italy has been suffering from an extreme drought for months. Not to mention the Sahel Zone in Africa that has partially become inhabitable due to the absence of precipitation.

A new attitude is paramount
In his keynote, Environmentalist, Marc Buckley, Advocate and Advisor to the United Nations, advocated a new role model: from EGO to ECO. Traditionally, we place ourselves at the top of the pyramid of life development. Pure hubris, incidentally favored by the Bible, which tells people: subdue the earth. Instead, in Buckley’s ECO scheme, mankind is an integral part of the ecosystem, as are animals and plants. His plea: “we must be more respectful of nature and resources such as the sustainable use and the protection of water. And we need to think in systems and complexities, quitting the linear approach and embarking on a sustainable circular economy.”
Ashwin Bhat, CCO of Lufthansa Cargo, reminded the 80+ attendees and the many following the event online that all steps in climate protection “we can only take because of the support of customers such as DB Schenker, Kuehne+Nagel, and others.” The executive pointed out another aspect of an active environmental policy: the effect on the staff. “Employees only want to work for a company that takes sustainability seriously,” stated Mr. Bhat.

Efficient global CO₂ tax scheme
Yet, how can distortions of competition be avoided between EU airlines, which have to spend considerable funds on CO₂ reductions and compensation measures because of Corsia and the taxonomy, and those that serve destinations in the EU but burn comparatively cheaper kerosene when operating outside the bloc. This distortion could be prevented in air freight by levying a CO₂ tax on shipments based on their entire journey from A to Z, no matter who transports them and whether they transit at Dubai, Istanbul, or elsewhere, advocated Jan Pechstein, Senior Director Corporate Emissions Management & Sustainable Aviation Fuels, Lufthansa Cargo.

Subsidies are poison for fair competition
However, even within the SAF club, there are differences. For example, Lufthansa Cargo CEO, Dorothea von Boxberg pointed out that some countries subsidize SAF, such as the Netherlands or the UK. This also leads to price differences, hurting airlines whose SAF price tag is not politically subsidized, such as Lufthansa Cargo in its home market.   
The fact that this financial disparity is an important factor was made clear by Asok Kumar, Head of Air Freight at DB Schenker. So far, for example, only about 30% of the fuel costs for Lufthansa Cargo's weekly SAF flight between Frankfurt and Shanghai, which is financed by DB Schenker and operated since last fall, have been covered by other companies that willingly shoulder some of the additional expenses. Yet, despite this costly air service, there are already plans in Mr. Kumar's drawer for a second SAF flight jointly operated with Lufthansa Cargo: This will connect Germany and the U.S.
Two side notes from the executive were also interesting: First, Schenker will be completely CO2 neutral as early as 2040. Second: Mr. Kumar sees a clear tendency towards reshoring or near shoring industrial production by European enterprises as a result of the many global crises coupled with political and economic uncertainty and the ongoing bottlenecks in the transcontinental supply chains.

Lufthansa is back in the black
In a financial statement, the Lufthansa Group announced its return to profitability in Q2, 2022. Revenues more than doubled, amounting to 8.5 billion euros (versus 3.2 billion euros, year-on-year). The Group's Adjusted EBIT was between 350 and 400 million euros (previous year: -827 million euros). The Lufthansa Group benefited from a continuously strong performance at Lufthansa Cargo. Lufthansa Technik achieved a similarly high result to the first quarter. The result of the Passenger Airlines improved mainly due to a strong rise in yields and a significant increase in loads. Thanks to the earnings, net debt is expected to decrease by 8.3. billion euros, a similar reduction achieved in Q1, 2022.

Heiner Siegmund

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