WEBVTT - Aviation Demand: Come Fly With Me, and Everyone Else 0:00:00.160 --> 0:00:03.440 Hi, Mark, Hey Dina. So today on the podcast we 0:00:03.480 --> 0:00:06.760 interview our colleague David Doherty, who is a oil demand 0:00:06.760 --> 0:00:09.559 analyst here at b NF, and we are talking about 0:00:09.560 --> 0:00:12.960 a note he wrote called jet fuel Turbulence Ahead for 0:00:13.039 --> 0:00:16.239 Demand Growth. And I can't help but fixate on the 0:00:16.239 --> 0:00:19.079 word turbulence. Mark, have you ever been in bad turbulence 0:00:19.079 --> 0:00:22.080 in a nerve plane before? Sure? But just once? Really 0:00:22.200 --> 0:00:24.880 may be nervous. I was coming in from Guatemala into 0:00:24.920 --> 0:00:27.680 Newark in New Jersey, and it was in a rainstorm, 0:00:27.760 --> 0:00:29.720 lightning storm, and it was just bouncing all around, and 0:00:29.720 --> 0:00:32.839 I broke into a cold sweat. Just once, just once? Really? Yeah, 0:00:32.880 --> 0:00:35.040 how about you? Well, apparently once is all it takes. 0:00:35.080 --> 0:00:38.760 So I had some really bad turbulence once, which was 0:00:38.840 --> 0:00:41.440 one of those where the flight attendants took their seats 0:00:41.479 --> 0:00:44.440 and people's bums were coming out of their seats and 0:00:44.479 --> 0:00:47.000 everybody was sitting there praying. The woman next to me 0:00:47.159 --> 0:00:49.760 kept tears in her eyes, asking to see her children again, 0:00:50.200 --> 0:00:53.760 and um. It ended up causing some pretty serious flight 0:00:53.800 --> 0:00:57.440 anxiety for me, and I ended up going to a class. 0:00:57.520 --> 0:01:01.200 I tried to book a hypnotherapist, but unfortunately I was 0:01:01.280 --> 0:01:04.959 unable to get in with the hypnotherapist. Because I was 0:01:05.000 --> 0:01:08.240 flying so often for work, I was unable to get 0:01:08.240 --> 0:01:11.200 our to get our schedules to match up, which actually 0:01:11.560 --> 0:01:14.640 I think it speaks a lot of volume over the 0:01:14.680 --> 0:01:18.039 demand growth. Here we're still flying despite all this, still flying, 0:01:18.080 --> 0:01:20.480 so I was miserable on every flight, but I refused, 0:01:20.600 --> 0:01:24.920 deep down my stubbornness over road the level of anxiety 0:01:24.959 --> 0:01:28.080 I had about flying because I refused to let it 0:01:28.160 --> 0:01:30.840 limit my life. It's pretty common for people not to 0:01:30.880 --> 0:01:33.920 like flying in turbulence, but we do it anyway. And 0:01:34.000 --> 0:01:37.320 so when we say turbulence ahead for demand growth, it's 0:01:37.319 --> 0:01:39.800 actually the demand part of you and me and everybody 0:01:39.800 --> 0:01:41.880 we know wanting to fly. That's not the main issue. 0:01:42.400 --> 0:01:44.840 It's all the other stuff that goes into ramping up 0:01:44.840 --> 0:01:48.200 this industry. So let's jump in today with David Doherty 0:01:48.240 --> 0:01:50.920 and hear what he has to say about airline demand 0:01:51.040 --> 0:01:55.160 going in the future. As a reminder, Bienny Have does 0:01:55.240 --> 0:01:57.840 not provide investment or strategy advice, and you can hear 0:01:57.920 --> 0:02:01.040 the fulldest claimer at the end of the show. Hi David, 0:02:01.080 --> 0:02:03.720 thanks for joining us today. Thanks for having me. You 0:02:03.840 --> 0:02:06.000 might have noticed in the news that there have been 0:02:06.080 --> 0:02:09.760 a recent increase in what's being termed as flight shaming, 0:02:09.919 --> 0:02:12.400 where people are making other people feel guilty for taking 0:02:12.440 --> 0:02:14.880 flights because of their carbon footprint. And that might lead 0:02:14.919 --> 0:02:18.760 you to believe that maybe the overall amount of flight 0:02:18.840 --> 0:02:22.320 that's happening on commercial aircraft is decreasing. But David, you're 0:02:22.360 --> 0:02:25.280 an oil analyst here at be Enough and you have 0:02:25.320 --> 0:02:27.440 a view that's a little bit contrary to that. So 0:02:27.600 --> 0:02:29.160 let us know what you think is actually going to 0:02:29.240 --> 0:02:32.440 be happening with airline demand going forward. Yeah, I mean, 0:02:32.919 --> 0:02:35.120 just by looking at the data, it tells a totally 0:02:35.120 --> 0:02:37.960 opposite story of that. And the interesting part is it's 0:02:37.960 --> 0:02:40.000 a great story for us if we're looking at something 0:02:40.040 --> 0:02:43.560 from our London office or in Europe. But for a 0:02:43.560 --> 0:02:46.320 lot of people flights new they want to go on holiday, 0:02:46.639 --> 0:02:49.720 and are we going to deny them that? We expect 0:02:49.760 --> 0:02:52.080 them most of this also expect that man for flying 0:02:52.200 --> 0:02:55.120 is going to continue to grow. Where's this demand coming from? 0:02:55.160 --> 0:02:59.240 Mostly China and Asia Pacific, and that's from a small base, 0:02:59.360 --> 0:03:01.440 but that was pretty much where the growth is coming from. 0:03:01.639 --> 0:03:05.720 What's interesting has developed Europe also growing. As we changed 0:03:05.760 --> 0:03:08.800 the way Europe is structured, we expanded the EU ten 0:03:08.880 --> 0:03:11.000 years ago, right, So you can now travel to other 0:03:11.040 --> 0:03:14.240 parts of Europe without visas or easier access. And the 0:03:14.280 --> 0:03:17.160 low cost carrier came around and they fly a lot 0:03:17.240 --> 0:03:19.280 and they're super cheap, and that opens up to a 0:03:19.280 --> 0:03:22.720 whole new market people who couldn't afford to fly before 0:03:23.040 --> 0:03:25.519 they can fly net What time horizon are we talking about? 0:03:25.919 --> 0:03:28.799 Choose housands onwards you see a spike up. The only 0:03:28.800 --> 0:03:30.640 place in the world really where you're kind of seeing 0:03:30.680 --> 0:03:34.440 flat demand or steady ish demand is the US, and 0:03:34.480 --> 0:03:36.960 you don't really have the low cost carrier there. You do, 0:03:37.040 --> 0:03:38.640 and you kind of do, but you don't have your 0:03:38.960 --> 0:03:40.960 I mean I moved here, what's six seven years ago, 0:03:40.960 --> 0:03:43.120 and I didn't. We didn't have Ryanair or easy Jet 0:03:43.280 --> 0:03:45.760 or anything like that in the US when I was there. Oh, 0:03:45.800 --> 0:03:50.760 I think we do on the west coast Southwest? Okay, Yeah, 0:03:52.120 --> 0:03:55.520 the biggest domestic airline I guess is that Southwest. Yeah, 0:03:55.680 --> 0:03:57.800 there's a few. It's a different, got a long time, 0:03:59.760 --> 0:04:03.680 it's different. So the European stories a lot of connecting 0:04:03.720 --> 0:04:06.360 the new East to what was western Europe. Right, So 0:04:06.400 --> 0:04:09.000 you've got this expanded wealth in Europe which didn't exist before. 0:04:09.440 --> 0:04:12.840 The US hasn't expanded its wealth to the same extent 0:04:13.280 --> 0:04:15.360 because you don't have brand new markets coming into one 0:04:15.440 --> 0:04:17.360 large market, right, So you're kind of moving the goalpost 0:04:17.400 --> 0:04:20.039 a little bit. In terms of fuel consumption as well, 0:04:20.160 --> 0:04:22.880 the system in the US gets quite efficient, so you've 0:04:22.880 --> 0:04:26.919 got fairly flat oil consumption jet oil consumption, whereas in 0:04:26.960 --> 0:04:30.240 Europe Jeffield demand is growing and growing. It's slowing down now, 0:04:30.279 --> 0:04:32.960 but it's still growing a pack. It's going through the roof. 0:04:33.440 --> 0:04:36.280 You've got lots of new low cost carriers coming in. 0:04:36.680 --> 0:04:40.520 Traditional carriers traveling longer distances. You know, you can connect 0:04:40.520 --> 0:04:43.520 now in China if you're going to Singapore or to Australia. 0:04:43.600 --> 0:04:46.640 Previously that would never happen. So yeah, the whole system 0:04:46.720 --> 0:04:49.480 is changing and the demand profile as a result is changing. 0:04:49.920 --> 0:04:52.640 So flight schaming, whether or not exists, might not actually 0:04:52.640 --> 0:04:55.480 be decreasing demand as much as we might think. It's 0:04:55.520 --> 0:04:57.320 a bit like when I want to eat some candy 0:04:57.320 --> 0:04:59.000 and I don't want my kids to see I'm going 0:04:59.080 --> 0:05:01.240 to go around the corner. Are kind of stand in 0:05:01.320 --> 0:05:03.200 the closet so they don't see me getting the candy. 0:05:03.240 --> 0:05:05.960 But the reality is everybody wants it. You're saying, this 0:05:06.040 --> 0:05:09.200 is growing in Asia. Is there not a lot of 0:05:09.240 --> 0:05:11.800 infrastructure that needs to be added in order to make 0:05:11.800 --> 0:05:14.800 that take place? And what does that look like for 0:05:14.839 --> 0:05:18.120 that market? I mean in terms of fuel supply or 0:05:18.320 --> 0:05:21.520 airports or anything else that you might need and have 0:05:21.760 --> 0:05:26.200 a massively growing industry. Yeah, there's a lot of pipes 0:05:26.200 --> 0:05:28.480 that need to be put together for this to work. Essentially, 0:05:29.000 --> 0:05:32.240 So the biggest growth centers in terms of countries that 0:05:32.240 --> 0:05:34.159 are expected to sort of lead the market in the 0:05:34.200 --> 0:05:38.479 future of China, the US, interesting, it and India. Now, 0:05:38.520 --> 0:05:41.000 India and China are really interesting when you think about it, 0:05:41.320 --> 0:05:44.680 um they're underserved massively. So in the UK and the 0:05:44.800 --> 0:05:47.200 US we travel on average about two times per year 0:05:47.240 --> 0:05:50.120 each right. In Germany, which has a really good rail network, 0:05:50.160 --> 0:05:52.320 it's about once per year. But if you look at 0:05:52.320 --> 0:05:54.680 India and China, you're looking at zero point to zero 0:05:54.720 --> 0:05:57.520 point four trips per year per person, right, So it's 0:05:57.560 --> 0:06:01.000 tiny and it's massively undersaturated. What they don't have is 0:06:01.040 --> 0:06:04.520 the network we have in Europe and in the US 0:06:05.040 --> 0:06:08.760 of airports and connection points and ways to get off 0:06:08.760 --> 0:06:11.359 the ground. Right, you need that runway. So for example, 0:06:11.400 --> 0:06:13.320 in India, it's got a ton of runways that are 0:06:13.360 --> 0:06:16.479 just laying idle. So the government of they have a 0:06:16.520 --> 0:06:20.240 regional connectivity scheme in order to get people flying in 0:06:20.320 --> 0:06:24.080 mobile so they're bringing back runways that were previously essentially derelict. 0:06:24.200 --> 0:06:27.600 Right They're also trying to build new runways, so the 0:06:27.640 --> 0:06:31.080 capacity they have at some of their biggest airports is expanding, 0:06:31.680 --> 0:06:33.760 and they're building new airports. So they want to double 0:06:33.800 --> 0:06:38.320 the amount of airports in India. It's pretty ambitious. India 0:06:38.360 --> 0:06:41.040 hasn't got a great record of building these massive projects 0:06:41.040 --> 0:06:43.320 out on time. But nonetheless, even if that's five ten 0:06:43.360 --> 0:06:46.479 years delayed, doubling the airport numbers is pretty chunky. And 0:06:46.560 --> 0:06:48.880 right now it's somewhere around one. I think it's like 0:06:48.920 --> 0:06:52.279 in and around one in India, yeah, and in and 0:06:52.320 --> 0:06:54.960 around two hundred in China, and they want to increase 0:06:55.000 --> 0:06:59.479 there's to four five. So again doubling over fifteen year 0:06:59.520 --> 0:07:01.520 time period. It now in China, say they want to 0:07:01.520 --> 0:07:03.360 do it, they do it. So it's a slightly different 0:07:03.560 --> 0:07:05.839 way they're gonna they're gonna build out that capacity. And 0:07:05.880 --> 0:07:08.719 actually in China already we're seeing brand new, big, mega 0:07:08.839 --> 0:07:11.840 runways and big mega airports being built, so we're building 0:07:11.840 --> 0:07:14.480 out all these airports. Talked to us about airplanes. Once 0:07:14.480 --> 0:07:16.320 you build all the airports, you actually need airplanes to 0:07:16.320 --> 0:07:20.120 fill them, So who's winning there. Yeah, it's an interesting 0:07:20.160 --> 0:07:22.480 time for the airline sector. What we're seeing is a 0:07:23.240 --> 0:07:26.280 shift in the business model of airplane manufacturers. So we 0:07:26.360 --> 0:07:28.680 used to have really big airplanes and you put everybody 0:07:28.720 --> 0:07:30.400 on it, like the A three a D from Airbus 0:07:30.560 --> 0:07:34.120 right for big engines, a lot of people, which is 0:07:34.120 --> 0:07:36.920 actually quite efficient on a pair passenger mile basis, but 0:07:37.000 --> 0:07:40.360 expensive and it's hard to fill them. The key for 0:07:40.400 --> 0:07:43.120 the airline industry is getting as many people into every 0:07:43.160 --> 0:07:46.480 aircraft so as possible, and the range is pretty chunky, right, 0:07:46.520 --> 0:07:49.640 So on average about two of all seats globally are filled, 0:07:50.120 --> 0:07:54.040 but that varies. So you've got some traditional airlines like 0:07:54.120 --> 0:07:56.920 Air China or BA or American airlines who are in 0:07:56.920 --> 0:08:01.040 and around two. Others on the low end, like Emirates 0:08:01.080 --> 0:08:03.800 are in around seventy seven seventy eight percent, and then 0:08:03.800 --> 0:08:07.720 you've got like Europeans Rhiner, so they're really filling these 0:08:08.080 --> 0:08:10.840 and essentially what you're doing is meeting that demand with 0:08:10.920 --> 0:08:14.200 the same airplane. So it's much much more efficient. And 0:08:14.280 --> 0:08:17.800 airplanes are much more efficient than they were twenty years ago, 0:08:18.160 --> 0:08:20.680 but they have about a twenty five year lifespan. But 0:08:20.800 --> 0:08:24.400 every new generation airplane is about more efficient in the 0:08:24.440 --> 0:08:26.920 previous right, So if we're building this out and you're 0:08:26.920 --> 0:08:29.000 filling them up, you can meet a lot of this 0:08:29.160 --> 0:08:33.560 new demand. And airplanes are happy, you know, airlines are happy. 0:08:34.000 --> 0:08:36.360 The environment's a little bit happier. I guess we're all 0:08:36.360 --> 0:08:40.480 still traveling. But with that is more demand for oil. Right, 0:08:40.600 --> 0:08:43.720 So despite a more efficient airplane, I saw you put 0:08:43.760 --> 0:08:47.880 in forecasting in the note that forecasted roughly between forty 0:08:48.679 --> 0:08:52.240 increase in oil demand for aviation fuels at right. Yeah, 0:08:52.320 --> 0:08:57.000 that's correct. Yeah, it's a hard, hard industry to decarbonize. 0:08:57.280 --> 0:08:59.480 You know, shipping is hard to de carbonized. Trucks are 0:08:59.480 --> 0:09:01.880 hard to dec urbanized. But this is next level. Not 0:09:01.960 --> 0:09:03.760 only is it hard to you know, switch to a 0:09:03.760 --> 0:09:07.920 bio fuel, but the aviation industry is incredibly safety conscious. 0:09:08.080 --> 0:09:10.920 But it's difficult to get a different grade fuel into 0:09:10.960 --> 0:09:13.360 the airplane and ensure that it's safe to take off. 0:09:14.000 --> 0:09:17.280 So we are seeing some small things like biojet, which 0:09:17.320 --> 0:09:20.640 at the moment is very expensive and technologies from the 0:09:20.679 --> 0:09:23.560 likes of Airbus where they want to hybridize existing jet 0:09:24.520 --> 0:09:28.040 jet engines and essentially maybe run auxiliary power off an 0:09:28.040 --> 0:09:31.000 electric motor or aid the systems in some way with 0:09:31.080 --> 0:09:34.199 electric motors or batteries, so that makes it more efficient, 0:09:34.240 --> 0:09:37.960 but ultimately it's a long way away. So we're looking 0:09:38.000 --> 0:09:42.360 at forty Airbus have targeted their hybrid planes to take off, 0:09:42.679 --> 0:09:46.319 so batteries, pure, pure batteries are you know, even further 0:09:46.400 --> 0:09:49.000 away than that. So yeah, it does mean that there's 0:09:49.040 --> 0:09:51.640 more oil in the world because there is no alternative, 0:09:52.440 --> 0:09:55.280 and oil and gas companies are responded by investing right. 0:09:55.320 --> 0:09:58.480 They want to produce petrochemicals and jet fuel. They are 0:09:58.480 --> 0:10:00.600 the two things that are pretty safe to grow over 0:10:00.600 --> 0:10:04.199 the next twenty years, and it saves them from worrying 0:10:04.200 --> 0:10:06.360 about a stranded acid. If you want to produce a 0:10:06.360 --> 0:10:08.960 bunch of gasoline, now you've got to worry if evs 0:10:09.000 --> 0:10:10.960 are going to take your market away. You're less worried 0:10:10.960 --> 0:10:12.320 if there's going to be an airplane and the sky 0:10:12.360 --> 0:10:15.040 with a battery. Slightly different angle, but tell me a 0:10:15.080 --> 0:10:17.760 little bit more about the bio fuels part, because you 0:10:17.800 --> 0:10:21.000 can have some mix in there, and it is it 0:10:21.080 --> 0:10:25.120 is efficient, What are the economics of it? It's um, 0:10:25.160 --> 0:10:29.720 it's expensive, is the answer. And biofuels are not one thing. 0:10:29.720 --> 0:10:32.520 You've got totally different types of biofuels and different generations, 0:10:33.120 --> 0:10:35.200 and they are now being sort of painned as the 0:10:35.200 --> 0:10:38.040 answer to everything. It's hard to do carbonized trucks and ships, 0:10:38.080 --> 0:10:40.400 like I said, but bio fuels are earmarked for that. 0:10:40.480 --> 0:10:44.840 They're also earmarked for fift of fuels that are on 0:10:45.320 --> 0:10:48.000 the roads in the US right that competes to There's 0:10:48.000 --> 0:10:50.600 only so much you can really generate. If you have 0:10:50.679 --> 0:10:53.640 like a natural source to make bio fuels, like say Brazil, 0:10:54.040 --> 0:10:57.160 it makes sense absolutely to turn that into of your 0:10:57.240 --> 0:11:00.440 road fuel. Otherwise you're competing with every but use for 0:11:00.480 --> 0:11:03.160 all of this new biofuel which we've yet which you know, 0:11:03.240 --> 0:11:05.559 we haven't seen, and that's why the prices are high. 0:11:05.720 --> 0:11:08.400 The supply is not there, and it's also not it's 0:11:08.920 --> 0:11:12.959 not as well proven, I guess as jet jet fuel um, 0:11:13.000 --> 0:11:15.559 and there's less of it available, but airlines are turning 0:11:15.600 --> 0:11:17.920 to it. It's almost a I don't want to say 0:11:17.920 --> 0:11:20.120 a marketing campaign in certain ways, but it definitely does 0:11:20.160 --> 0:11:22.520 well for green credentials of airlines if they're running off 0:11:22.559 --> 0:11:25.600 of biojet. So we saw it, for instance at Davos, 0:11:25.679 --> 0:11:28.040 or we've seen some of the corporate flights being fueled 0:11:28.040 --> 0:11:30.560 by biojet. That's great, but they've all flown in on 0:11:30.640 --> 0:11:33.400 private jets. Right, it's not quite the solution that you're 0:11:33.440 --> 0:11:36.640 kind of thinking. So we've all been at the airport 0:11:36.760 --> 0:11:38.800 or maybe an advance gotten the email saying that our 0:11:38.840 --> 0:11:41.600 flight has been canceled, and in some circumstances that flight 0:11:41.600 --> 0:11:45.360 gets canceled because the flight isn't full. One would then 0:11:45.440 --> 0:11:50.480 assume that, at least to some degree, that airlines and 0:11:51.080 --> 0:11:53.839 CEO two emissions might be in some way a line 0:11:53.880 --> 0:11:57.640 because they want to be as efficient as possible because 0:11:57.640 --> 0:11:59.400 that's where their margins come from. And this is a 0:11:59.480 --> 0:12:01.600 pretty petitive space to make money. And is it not 0:12:01.760 --> 0:12:05.440 or is it a robust space? Margins are thin. We 0:12:05.520 --> 0:12:09.520 see airlines go bus quite regularly. I mean we're in Europe. 0:12:09.760 --> 0:12:13.160 There's five six examples in the last decade decade and 0:12:13.240 --> 0:12:15.720 a half, right, So yeah, absolutely, it's in the interest 0:12:15.760 --> 0:12:18.600 of the airline not to have big exposure to oil 0:12:18.600 --> 0:12:22.840 prices essentially, and somewhere between of their margin is down 0:12:22.840 --> 0:12:25.240 to the oil price or the jet fuel price in 0:12:25.240 --> 0:12:27.200 the case of airlines, right, so they want to shift 0:12:27.240 --> 0:12:29.600 away from that. The answer so far has been more 0:12:29.640 --> 0:12:33.880 efficient airplanes or lighter airplanes, or ones that can operate 0:12:33.880 --> 0:12:36.960 in a much more efficient way. So not flying through 0:12:37.000 --> 0:12:40.640 two other cities or through one other city instead flying directly. 0:12:40.960 --> 0:12:42.800 You use less fuel because you've only got to take 0:12:42.840 --> 0:12:44.960 off ones and you've only got a land once, and 0:12:45.000 --> 0:12:47.400 it's much more efficient. A jet is much more efficient 0:12:47.480 --> 0:12:50.480 and cruising altitude then when it's coming down and circling 0:12:50.480 --> 0:12:53.040 an airport waiting for a landing spot, or when it's 0:12:53.080 --> 0:12:56.200 delayed um and trying to get off the ground right 0:12:56.320 --> 0:12:58.760 taking off with all that fuel on board. So yeah, 0:12:58.960 --> 0:13:01.600 there's a lot of ways they could save fuel, operate 0:13:01.640 --> 0:13:04.440 efficiently and have the most efficient engine and fill the 0:13:04.440 --> 0:13:06.880 airplane the highest load factor is the best way to 0:13:06.920 --> 0:13:09.960 do it. Does this have a net benefit for CEO 0:13:09.960 --> 0:13:11.800 two emissions? And then what's the flip side of that? 0:13:11.880 --> 0:13:15.800 If yeah, I mean if you look at the distance 0:13:15.920 --> 0:13:19.959 versus fuel efficiency profile of some flights, it's horrendous. So 0:13:20.200 --> 0:13:24.240 if you fly Washington, d C. To New York, roughly 0:13:24.240 --> 0:13:27.000 ten of the fuel is burned before you even take 0:13:27.000 --> 0:13:29.760 off the ground. So just moving around the A C 0:13:30.080 --> 0:13:32.360 on your you know, getting your safety briefing, the lights 0:13:32.360 --> 0:13:34.640 have to run off of something. You're in a queue, 0:13:34.640 --> 0:13:39.079 your six in line to take off. That's crazy. And 0:13:39.120 --> 0:13:42.400 between that taking off and the landing fuel profile, a 0:13:42.440 --> 0:13:45.800 flight that short can have of its fuel just from 0:13:45.800 --> 0:13:48.040 coming down, not the cruising part of the flight. So 0:13:48.400 --> 0:13:51.120 when you make these things much more efficient, particularly things 0:13:51.120 --> 0:13:53.880 like airplane operations at an airport, you can you can 0:13:53.880 --> 0:13:57.840 cut that number down pretty quickly, and things like digital sensors, 0:13:57.880 --> 0:14:00.880 digitalization can really help this. So we've seen a few 0:14:00.880 --> 0:14:04.200 early indicators that there's low hanging fruit to be had. Right, 0:14:04.240 --> 0:14:06.080 you can you can really make the whole system much 0:14:06.080 --> 0:14:08.520 more efficient and save cash. Right, you're saving cash, you're 0:14:08.520 --> 0:14:11.800 also saving CEO two emissions. It seems that all roads 0:14:11.880 --> 0:14:15.720 lead to the airlines themselves in terms of the attention 0:14:15.720 --> 0:14:18.080 that maybe you know we're talking about now and the 0:14:18.200 --> 0:14:20.560 end consumer. But really the innovation has got to be 0:14:20.640 --> 0:14:24.200 somewhere else, Right, they don't manufacture the airplanes, and they 0:14:24.200 --> 0:14:27.640 don't make the fuels. Where is most of the innovation 0:14:27.760 --> 0:14:31.400 coming from? Aside from the biofuels and electric planes that 0:14:31.440 --> 0:14:35.760 you've already addressed. Where is the other innovation. Yeah, it 0:14:35.800 --> 0:14:39.640 can come from all different angles. Air traffic controllers, for example, 0:14:39.680 --> 0:14:41.640 they can do a much better job if you delay 0:14:41.680 --> 0:14:43.920 a flight and tell them in advance. They can be 0:14:43.960 --> 0:14:47.040 delayed and fly slower at a height when it's much 0:14:47.080 --> 0:14:49.880 more efficient instead of circling around Heathrow Airport. We've all 0:14:49.920 --> 0:14:53.320 been there. You can also have airports that know better 0:14:53.520 --> 0:14:56.480 how to direct their traffic. So we saw study in 0:14:56.600 --> 0:14:59.760 China say, if you can use AI to hit your 0:14:59.800 --> 0:15:02.120 talk because you take off time, so when you hit 0:15:02.160 --> 0:15:04.280 back from the airport and go towards the runway, you 0:15:04.320 --> 0:15:07.960 can save on your fuel bill. I mean fuel bill 0:15:08.040 --> 0:15:12.359 translates into fuel consumption translates into carbon. The airline's happy, 0:15:12.760 --> 0:15:16.120 carbon emissions are happy. The person is not delayed, right, 0:15:16.120 --> 0:15:18.000 you're not sitting on that airplane again. So there's a 0:15:18.000 --> 0:15:19.880 lot of things. It's going to come from all different angles, 0:15:20.400 --> 0:15:23.000 and policy has to play a role. It's a little 0:15:23.000 --> 0:15:25.280 bit more dull, but they're trying to do what the 0:15:25.320 --> 0:15:27.400 shipping industry has done in terms of the I m O. 0:15:27.960 --> 0:15:32.400 It's just not quite having the same execution I guess 0:15:32.560 --> 0:15:34.480 is a fair way to say it without being too critical. 0:15:34.600 --> 0:15:36.680 It's a really weak policy we're seeing in course you're 0:15:36.720 --> 0:15:39.920 coming out who governs it, and it's the United Nations 0:15:39.960 --> 0:15:41.720 essentially the I c A. Oh, it's a it's a 0:15:41.720 --> 0:15:43.840 body of the U n Can you explain what Coursia 0:15:43.920 --> 0:15:46.760 is to us? Yeah, So essentially, the goal of course 0:15:46.800 --> 0:15:50.920 here is that by growth and emissions to will be 0:15:50.960 --> 0:15:53.320 net zero pretty much. And to do that there's a 0:15:53.320 --> 0:15:57.680 few different mechanisms. So you can either offset your carbon emission. 0:15:58.160 --> 0:15:59.840 If you offset your carbon emission, you got to buy 0:15:59.880 --> 0:16:02.480 a credit. Essentially they haven't yet defined what that credit is. 0:16:03.200 --> 0:16:05.600 You can use a Corsio eligible fuel, which is like 0:16:05.640 --> 0:16:09.680 a biofuel or and this is the big or a 0:16:09.760 --> 0:16:12.200 jet fuel at his temper sound cleaner than a benchmark 0:16:12.280 --> 0:16:15.160 jet fuel that they've currently recommended. So if you're a 0:16:15.200 --> 0:16:18.920 clean oil refinery and you get your oil in a 0:16:19.000 --> 0:16:21.840 less carbon intensive way, let's say Saudi Arabian oil which 0:16:21.880 --> 0:16:25.120 is not super carbon intensive, that can be registered as 0:16:25.120 --> 0:16:27.240 of course the eligible fuel and you can use it. 0:16:27.520 --> 0:16:30.520 So there's a lot of potential there for oil jet 0:16:30.520 --> 0:16:33.880 fuel to be used, and some biofuels and then this 0:16:34.000 --> 0:16:36.000 sort of carbon officer that we don't know the price 0:16:36.040 --> 0:16:38.760 of yet, so there's a lot of moving parts. It's 0:16:38.800 --> 0:16:42.640 really limited though, because it's only international flights. It's optional 0:16:42.680 --> 0:16:45.280 pretty much before the end of this decade, and some 0:16:45.320 --> 0:16:48.280 countries have just said no, we're not taking part, crucially India, 0:16:48.480 --> 0:16:51.480 which again third biggest market in terms of growth that's expected. 0:16:51.760 --> 0:16:54.880 Russia have said no, Philippines have said no. You're getting 0:16:54.960 --> 0:16:57.480 quickly into pretty chunky terms. Less than half of all 0:16:57.520 --> 0:17:00.400 the fuel consumed today would be covered under CORSEA. Is 0:17:00.400 --> 0:17:04.080 this something where countries will provide the stick to you know, 0:17:04.119 --> 0:17:06.200 to this to this market, or is something where companies 0:17:06.240 --> 0:17:08.560 will pick up the slack and decide to take this 0:17:08.640 --> 0:17:10.800 on themselves. I know we've heard of Jet Blue having 0:17:10.800 --> 0:17:14.840 a goal for net zero. By it's both sides, I think, 0:17:14.960 --> 0:17:16.720 right for airlines they don't want to pay the bill 0:17:17.280 --> 0:17:19.160 um for countries they have to be seen to moving 0:17:19.200 --> 0:17:23.200 towards this Paris agreement. So we've seen UM Europe for example, 0:17:23.680 --> 0:17:26.159 float the idea of including the airline industry in the 0:17:26.200 --> 0:17:28.560 EU E t S system, so that would be quite 0:17:28.560 --> 0:17:31.080 interesting to see how it works. But also watching that 0:17:31.200 --> 0:17:34.280 or the Chinese, so they have earmarked aviation to fall 0:17:34.400 --> 0:17:37.919 under the emissions trading scheme out there as well. So 0:17:38.200 --> 0:17:41.119 these will essentially have a much bigger impact on the 0:17:41.119 --> 0:17:43.920 emissions profile, particularly EU E t S because they say 0:17:43.960 --> 0:17:46.480 you need to lower emissions, not net zero and keep 0:17:46.480 --> 0:17:48.960 a flat you need to every year lower it. And 0:17:48.960 --> 0:17:52.240 then in the U S they're looking at applying levies 0:17:52.560 --> 0:17:56.479 or equivalent programs. It's sort of TBD to regulate it there. Now, 0:17:56.520 --> 0:17:59.480 if China, Europe and the U S acted even on 0:17:59.520 --> 0:18:01.800 their own, to estic flights, you're talking much much bigger 0:18:01.880 --> 0:18:05.800 numbers and it becomes a thing as opposed to international 0:18:05.800 --> 0:18:07.480 flights if you want to take part in our scheme. 0:18:07.880 --> 0:18:09.800 So what do you see is the one thing having 0:18:09.800 --> 0:18:11.960 the biggest impact in the next decade. There's a few 0:18:11.960 --> 0:18:14.119 secret weapons out there that could really take away from 0:18:14.160 --> 0:18:17.440 jet field demand or travel demand in the next ten years. 0:18:17.760 --> 0:18:19.800 High speed rail, I think is the big one. So 0:18:19.880 --> 0:18:23.200 China built out this gigantic project infrastructure project over the 0:18:23.280 --> 0:18:26.000 last ten years and they're continuing to do so um 0:18:26.040 --> 0:18:28.680 and that could have a big impact, particularly on domestic flights, 0:18:29.160 --> 0:18:31.520 because you can you can change the taxes and that 0:18:31.560 --> 0:18:33.560 you can encourage people to travel there, and we've seen 0:18:33.600 --> 0:18:36.280 that to a certain extent just recently in Germany. But 0:18:36.400 --> 0:18:38.120 we saw a study from the I a while ago 0:18:38.200 --> 0:18:43.160 saying that between nine and two thousand the Eurostar took 0:18:43.200 --> 0:18:46.640 about fifty of the passengermand out of that flight path. 0:18:46.920 --> 0:18:50.720 So if that happens, you're talking about real numbers. But TBD, 0:18:50.800 --> 0:18:52.880 if that actually makes an impact, I think it will. 0:18:53.119 --> 0:18:55.880 I think that's the most important thing in the short term. 0:18:56.119 --> 0:18:58.520 That plus policy, because technology is just a little bit 0:18:58.520 --> 0:19:00.320 too far away right now. It's too bad. I'm just 0:19:00.359 --> 0:19:03.840 looking forward to the hyperloop and the suborbital rockets text 0:19:03.880 --> 0:19:08.919 elon right. Cool. So this was the first in a 0:19:09.040 --> 0:19:11.959 series right on aviation from benf what's next in this 0:19:12.040 --> 0:19:14.119 line of research? Yeah, it is the first in a 0:19:14.200 --> 0:19:16.359 series for us, and it's an exciting new new area 0:19:16.440 --> 0:19:18.600 for us to research. The next few things that we're 0:19:18.600 --> 0:19:22.280 going to take a look at our biojet fuel specifically 0:19:22.520 --> 0:19:25.160 because it's kind of the solution for everything at the moment. 0:19:25.200 --> 0:19:27.080 We want to question is it actually the solution and 0:19:27.240 --> 0:19:29.320 what cost is It's just you know, what kind of solution, 0:19:29.359 --> 0:19:32.280 what cost? And then we're going to look at the 0:19:32.280 --> 0:19:35.400 EU e t S scheme for aviation, what does it mean? 0:19:35.800 --> 0:19:38.880 And then that lets us see is that mechanism one 0:19:38.920 --> 0:19:41.440 that might work elsewhere? And that would be quite interesting, 0:19:41.440 --> 0:19:43.679 I think, because again we're seeing the Chinese looking at 0:19:43.680 --> 0:19:46.600 including aviation and their carbon market and if they do that, 0:19:46.800 --> 0:19:49.280 you're talking big numbers. Again. China can do things overnight 0:19:49.320 --> 0:19:52.440 that we can't quite do in Europe the same speed. David, 0:19:52.480 --> 0:19:54.320 thank you for joining us. Yeah, thanks for having me. Guys. 0:19:56.320 --> 0:19:58.600 Bloomberg an e F is a service provided by Bloomberg 0:19:58.600 --> 0:20:01.639 Finance LP and its affiliates. This recording does not constitute, 0:20:01.720 --> 0:20:05.240 nor it should it be construed as investment advice, investment recommendations, 0:20:05.400 --> 0:20:08.240 or a recommendation as to an investment or other strategy. 0:20:08.280 --> 0:20:11.200