ECONOMICS FOR BUSINESS

Economics for Business



Economics for Business

Question 1

The death of Sir Freddie Laker last week reminded the world's air travellers of the high cost of flying before he took on, and helped to break, the transatlantic oligopoly enjoyed by the big airlines. The established carriers, their dominance threatened by the rock-bottom fares offered by Sir Freddie's airline, colluded to slash prices and did their bit to bring down the interloper. His carrier went bust but he subsequently sued his rivals for predatory pricing, and won. So it is perhaps fitting that on Tuesday February 14th, just days after Mr Laker died, competition authorities launched investigations into possible price collusion by a number of large airlines. ... After delays in order to further refine the data, the European Commission has finally decided on the aviation emissions base that will be used in calculating the number of aviation allowances to be made available to eligible aircraft operators under the Aviation EU Emissions Trading Scheme (EU ETS), which starts next January. The decision on historical aviation emissions, as the EC terms the baseline, of 219,476,343 tonnes of CO2 represents the average of the estimated annual emissions for the years 2004, 2005 and 2006 of all flights that would have been covered by the EU ETS. The Commission said it would publish its benchmark decision on how many free allowances operators will receive by the end of this coming September, along with formal details of the emissions cap and the percentages of allowances to be auctioned, given for free and allocated to the special reserve. It also dismissed reviewing the impact of the Icelandic volcano on the free share allocation process.

 

The baseline emissions figure is in line with industry predictions. “It is within the range of 215 +/- 5 million tonnes of CO2 expected by many and which I have personally been using on various airlines' carbon scenarios,” said Andrew Pozniak, Project Director & Sustainability Advisor of consultants Green Aviation Solutions. “This value was raised in the press as an estimate back in 2009, so despite all this delay the result is only a 2% difference from that estimated. At least we now have certainty and can move forwards.”

 According to VerifAvia CEO Julien Dufour, there is no surprise in the figure. “I don't think this will have any implication to anybody, other than provide an official figure for people who had never seen any estimate before,” he said. “But anyway, what matters most is the tonne-kilometre (TK) benchmark, which is extremely difficult to estimate. Without the TK benchmark, the baseline has little value.”

 The baseline was calculated from data compiled by Europe's air navigation agency Eurocontrol and actual fuel consumption information provided by around 30 aircraft operators of different types and sizes. According to the Commission, the reason for the delay in publishing the figure was in order to spend more time in increasing the accuracy of the data and to implement a methodology to assess the fuel consumption of onboard auxiliary power units (APUs) used by aircraft on the ...