Singapore Airlines should disclose impact of sustainable fuel adoption

ALL Singapore Airlines (SIA) and Scoot flights out of Changi Airport will use a blend of refined jet fuel and sustainable aviation fuel in a 1-year trial beginning in the third quarter this year.

Sustainable aviation fuel refers to non-conventional (fossil-derived) fuel. The physical and chemical characteristics of the fuel are almost identical to those of conventional jet fuel, and therefore these 2 types of fuel can be safely mixed, according to the International Air Transport Association.

The blended fuel also can use the same supply infrastructure and does not require aircraft or engines to be modified.

Singapore's national carrier will use a mix of conventional jet fuel and sustainable fuel made from used cooking oil and waste animal fats. The change is expected to result in a 2,500-tonne reduction of carbon dioxide emissions over the duration of the pilot.

SIA said the use of sustainable fuels is a key lever to achieve its goal of net-zero carbon emissions by 2050 - a pledge by the global aviation industry. The company is also tapping other levers, including operational efficiency and a fuel-efficient fleet.

The adoption of sustainable fuels is a necessary move, not just by SIA but by airlines globally.

Before the pandemic led to the grounding of much of the global aircraft fleet, the sector accounted for about 2.4 per cent of global carbon emissions.

Investors increasingly will not tolerate management and boards that do not make an effort to reduce their carbon footprints.

There are, nevertheless, downsides to green awareness.

While sustainable fuels can cut emissions by up to 80 per cent compared with fossil jet fuel on a life-cycle basis, they are at least twice and could be as much as 8 times more expensive.

Fuel is already the single-largest operating expense for most airlines, accounting for 20-30 per cent of total costs.

Investors may naturally be concerned that costs will rise on the back of higher use of sustainable fuels.

A higher cost base at this time, when the industry has yet to recover from the devastating impact of the pandemic, could be hard to stomach.

Strong commitment

This column is not arguing that SIA should halt or roll back its commitment to net-zero.

Rather, given the increasing emphasis on environmental, sustainability and governance factors by institutional investors, SIA should quicken the deployment of such sustainable fuels so that production can be scaled up and costs brought down.

Indeed, that is one of its objectives by partnering with the Civil Aviation Authority of Singapore and state investor Temasek to raise the take-up of sustainable aviation fuels in the Republic.

The national airline demonstrated its strong commitment to the acceleration of the development, production, and consumption of sustainable aviation fuel when it signed a declaration alongside planemaker Airbus, engine manufacturer Rolls-Royce and aviation technology player Safran at the Singapore Airshow.

At the same time, SIA should prep investors for the cost of its adoption.

Air France started to charge a biofuel fee for air tickets from January, to offset the cost of using sustainable aviation fuel.

A new law in France requires airlines refuelling in the country to use at least 1 per cent sustainable fuel in their fuel mix.

As the world deepens its efforts to reduce emissions, other countries might soon impose a similar requirement or levy a carbon tax.

SIA could help investors by disclosing in its financial statements how the deployment of sustainable fuel would affect its bottom line, whether some of the costs could be passed on to passengers, and whether or not it benefits from any subsidies in adopting the fuel.