Revenue sharing by airports, airlines can help them become eco-friendlier: IIM Lucknow, Liverpool study
While government taxes can help the environment, coordinated agreements between airports and airlines have a bigger, more positive impact, Jhakhar said.The results of this study affirm that by helping airlines through positive reciprocity, the airport can effectively achieve a dual objective of achieving higher greening level as well as higher profitability, as they have interdependent businesses with complementary services, he added.Airports generate revenue from two sources aeronautical activities and commercial activities.
Revenue sharing by airports and airlines can help them become eco-friendlier and give the aviation sector a sustainable boost of growth, a new study by Indian Institute of Management (IIM), Lucknow and University of Liverpool has found.
Led by IIM Lucknow, the study sheds light on how airlines and airports can collaboratively achieve sustainable growth through various agreements. Moreover, the government can also step in, acting as an overall leader - enabling a further greening of this sector by imposing taxes, the study has suggested.
The study has been published in the European Journal of Operational Research and Transportation Research.
''Airlines in India have been working on improving fuel efficiency to reduce greenhouse gas emissions. This involves adopting more fuel-efficient aircraft, optimising flight routes, and implementing operational practices that minimise fuel consumption, reducing taxi times, and implementing procedures to minimise unnecessary fuel burn during delays in landing permissions,'' Suresh K Jakhar, Associate Professor, IIM Lucknow, told PTI.
Since October 2021, the global aviation industry has pledged to achieve net-zero carbon emissions by 2050. This aligns with the Paris Agreement's objective of limiting global warming.
''With the urgency to decarbonise the aviation sector gaining momentum, the study addresses the crucial role that collaboration between airlines and airports plays in advancing sustainability. The team used data collected from publicly available secondary sources which include airline and airport schedules and financial and other documents available with airlines,'' Jakhar said.
''We have addressed fundamental questions about how coordinated agreements between airlines and airports can bring better results for the economy, the environment, and society. We have also shown the effects of environmental and social factors on airport charges, ticket prices, and the demand for air travel,'' he added.
The study highlights the roles of reciprocity, fairness, and passengers' environmental awareness in the coordination of airports and airlines. It presents a detailed framework for achieving triple-bottom-line growth. This framework includes airlines investing in eco-friendly practices, airports taking on corporate social responsibility initiatives, both supplemented by government interventions.
According to the study, in the aviation industry, an airline's performance determines the airport's demand, while the airport needs to facilitate the airline by providing the necessary infrastructure. This inter-dependency has to be well coordinated, failure of which would lead to limited economic growth, environmental protection and social development.
''The team also explores the role of government intervention in promoting sustainable growth of this sector. The research reveals that airlines and airports become eco-friendlier and more efficient through coordinated agreements. ''The study also shows that sharing revenue allows for smoother collaboration between airports and airlines. While government taxes can help the environment, coordinated agreements between airports and airlines have a bigger, more positive impact,'' Jhakhar said.
''The results of this study affirm that by helping airlines through positive reciprocity, the airport can effectively achieve a dual objective of achieving higher greening level as well as higher profitability, as they have interdependent businesses with complementary services,'' he added.
Airports generate revenue from two sources – aeronautical activities and commercial activities. The former is proportional to flight frequency and passenger traffic, while the latter depends only on passenger traffic. Therefore, increasing air traffic has led to a two-fold rise in the airport business, as its revenue has increased from both sources.
''However, despite growing demand, airlines struggle to maintain their profit margins with rising input costs and market competition. The ever-increasing global warming concerns that mandated policymakers to introduce additional charges, such as emission taxes, which have forced airlines to increase investments in efficient and green technologies to reduce carbon emissions.
''These investments have burdened the cost structure of the airlines, affecting their margins thereof. In the case of the Munich-Lufthansa agreement, the airline is able to undertake steps to reduce emission because of the positive reciprocity shown by the Munich airport. ''Similarly, in Norway, the relationship between Oslo Airport and its signatory airline has helped increase use of biofuels in aviation, and thereby reduce emission levels. Such agreements are expected in India too as more and more private airports are built,'' he added.
Jhakhar said that since 2006, Tampa International Airport in Florida shares 20 per cent of its net revenue with airlines and these funds help the airline to use its funds to make greening investments.
At Dallas International Airport in the US, revenue that exceeds the airport's operating cost is shared among signatory airlines. The airport keeps only a fixed revenue to cover its costs, he said.
''Taxation by the government does help improve the greening level; however, the more effective mechanism is the coordinating agreements between the airports and airlines. We also find that the airline profit decreases with higher taxation and higher greening investment costs,'' he said.
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)