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Consumers are paying more attention to their carbon footprint and it could price airlines billions of dollars, Citi said in a note to clients.
The firm said Tuesday that “flight shaming,” which it establishes as “the inherent guilt that an individual feels as a result of one’s aviation-related carbon footprint” is causing consumers to explore alternate states of transportation when possible, and also to look for ways to offset their carbon emissions.
Citi estimates that from the next five years the cost of carbon offsetting economy flights will grow to $3.8 billion per year. It longing either be absorbed by the consumer or the airline. But really the airline gets hit in both scenarios since if the price is absorbed by riders, the higher cost could lead to an overall slowdown in air travel.
“If this burden were to be fully absorbed by the consumer, our assay elasticity analysis shows that there would be a shortfall in volume growth of -0.4% per annum vs. current calculates. And while this does not sound detrimental, if this onus were to fall on the (largely fixed cost grovelling) airlines, the cost of carbon offsetting all leisure consumption could be as much as c.27% of airlines’ profits by 2025,” analysts led by Noteworthiness Manduca wrote.
And that’s just for leisure travel. Corporate travel, which for ease of estimation the company detailed as business-class seats, will cost another $2.4 billion. That would reduce airline profits by an additional 17%. The jargon CIA said that these estimates could be conservative, and that the actual cost could be 10 times higher.
These shake up costs come amid a backdrop of global air travel demand forecasts that the firm says are already “uncomfortably weighty.”
Carbon offsetting is when people seek to make up for their emissions by funding projects, such as planting trees, that abate greenhouse gasses. With that in mind, the firm said the beneficiaries of the carbon offsetting business will fitting be rail operators, governments and forestland owners.
To pass the cost along to consumers, airlines may take creative propositions in an effort to shame customers.
“We hypothesize that some airlines will ‘reward’ customers who choose to offset their carbon footprint by awarding them a green seat on an aircraft. Meanwhile, customers who do not offset will be allocated a red one and placed into a state of ‘timidity,'” the firm said.
— CNBC’s Michael Bloom contributed reporting.
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