The aviation sector suffers due to two factors.
The first factor is of a structural nature, i.e. the longer duration of the coronavirus pandemic and the reduced travel activities.
The second factor is of an environmental nature, i.e. government regulation requiring the aviation industry to reduce CO2 emissions.
1. Overall market environment for biofuels in the aviation industry
DEMAND FOR AIR TRAVEL: The economic outlook for aviation has deteriorated considerably since the beginning of the pandemic. Nevertheless, there are signs that the situation will improve overall. This applies in particular to business travel and continental tourism. Both areas are strongly affected by the pandemic.
FINANCIAL IMPACT: Although the number of passengers to and from international destinations will increase, this does not mean that international travel will reach the level seen before the coronavirus pandemic. It may take years for the aviation industry to fully recover. In fact, many airlines are in the process of applying for government support due to the financial impact of the coronavirus pandemic.
2. Cost-cutting measures are now unavoidable. What does this mean for fuel consumption?
REDUCING THE ENERGY COSTS OF COMMERCIAL AIRCRAFT: This naturally gives rise to the suspicion that the airlines are taking cost-cutting measures. As a rule, this includes reducing expenditure on energy sources. After all, energy costs are a significant cost factor in the financial end result of airlines.
PRICE SENSITIVITY OF BIOFUEL BUYERS: The fact is that oil prices have fallen sharply as a result of the corona pandemic. This is good news for the airline business. Aviation fuel is much cheaper than a year ago. So in terms of price alone, there are fewer incentives to switch to biofuels. And the incentive structure plays a major role. Interestingly, there is a direct inverse relationship between the price of oil and investment in biofuels. This means that even if biofuel prices were competitive with conventional kerosene through subsidies and measures, the infrastructure for the use of biofuels would still have to be build.
3. What does this mean for biofuels?
CO2 EMISSION STANDARDS: At this point another problem arises, namely the regulation of CO2 emissions by the EU states. The coronavirus pandemic remains an essential part of the overall problem. But another fact is that airlines are looking for ways to reduce charges for high CO2 emissions of kerosene.
FUTURE OF BIOFUEL CONSUMPTION: What should companies in this particular scenario do now? One possibility is to increase the biofuel consumption of short-haul flights. The problem is that biofuels are usually more expensive. Assuming that government measures are stepped up, biofuels could become more attractive in the short and medium term.
SUSTAINABLE AVIATION FUEL AS A STRATEGIC INVESTMENT BY AIRLINES: In recent years, we have seen that major airlines have shown interest in SAF (Sustainable Aviation Fuel). The interest has increased significantly since the beginning of the coronavirus pandemic. Amazon Air wants to increase the fuel consumption of SAF (Sustainable Aviation Fuel). Lufthansa, Air France & KLM, Norwegian Airlines and British Airways also want to increase their fuel consumption. Given such great interest, we will see an increase in investments.
LEADING COUNTRIES IN THE PRODUCTION OF SUSTAINABLE AVIATION FUEL: The leading SAF manufacturers are currently the United States and the member states of the European Union. The United Kingdom is becoming increasingly important as one of the leading producers of sustainable aviation fuel. In the United States and the United Kingdom, major oil companies and waste-to-fuel companies are trying to fully commercialize sustainable aviation fuel.
4. Are biofuels better for the environment than kerosene?
POLLUTION: In terms of fuel properties, biofuels are less polluting. They generally contain fewer toxins and burn very cleanly. In the case of sustainable aviation fuel, we see a decrease in NOx emissions and especially in sulfur levels.
5. General assessment of the potential of biofuels for the aviation industry
OUTLOOK ON THE CONSUMPTION OF BIOFUELS IN THE AIRLINE BUSINESS: Biofuels will be increasingly used in the medium term. This is especially true for short-haul flights. In the long term, however, the use of biofuels will be extended to medium-haul and long-haul flights. In the short term, the use of biofuels will be severely restricted. Over the next 10 years, fuel manufacturers will work to commercialize biofuels on an industrial scale.
EU LEGISLATION: The second reason is that biofuels are still very expensive and their production requires subsidies. The new EU legislation is likely to extend the subsidies, which would close the gap between conventional kerosene and SAF (Sustainable Aviation Fuel).
PUBLIC PRESSURE: In the short term, most of the pressure will come from airline investors. In this particular case, their interests often coincide with those of the regulatory authorities.