New study by IIM Lucknow and University of Liverpool explores revenue sharing models for sustainable aviation

Revenue sharing can boost sustainable aviation, a study by IIM Lucknow and University of Liverpool reveals. The study also advises taxes to promote eco-friendliness. The study appears in two journals.

Sep 18, 2023 - 12:46
Sep 19, 2023 - 07:21
New study by IIM Lucknow and University of Liverpool explores revenue sharing models for sustainable aviation
Photo Courtesy Unsplash | @ishantanuagrawal

Revenue sharing can boost sustainable aviation, a study by IIM Lucknow and University of Liverpool reveals. The study also advises taxes to promote eco-friendliness. The study appears in two journals.

A new study by the Indian Institute of Management (IIM), Lucknow and the University of Liverpool has revealed that the aviation sector can become more sustainable by adopting revenue sharing models between airports and airlines. The study, led by IIM Lucknow, explores how different types of agreements between airports and airlines can foster eco-friendly practices and support the sector's growth in a sustainable manner. The study also highlights the role of the government as a facilitator and regulator, who can encourage green aviation by imposing taxes and incentives.

According to Suresh K Jakhar, Associate Professor, IIM Lucknow, Indian airlines have been striving to enhance their fuel efficiency and lower their greenhouse gas emissions. They have adopted various measures, such as using more fuel-efficient aircraft, planning optimal flight routes, and following operational practices that reduce fuel consumption, taxi times, and unnecessary fuel burn during landing delays.

The global aviation industry has committed to achieving net-zero carbon emissions by 2050 since October 2021. This is in line with the Paris Agreement's goal of limiting global warming.

Jakhar said that the study highlights the importance of collaboration between airlines and airports for advancing sustainability. The team used data from publicly available secondary sources, such as airline and airport schedules and financial and other documents from airlines.

"Our study answers key questions about how coordinated agreements between airlines and airports can benefit the economy, the environment, and society. We also demonstrate the impact of environmental and social factors on airport charges, ticket prices, and the demand for air travel," he added.

The paper discusses how airports and airlines can work together to achieve sustainable growth that benefits the economy, the environment, and the society. It proposes a comprehensive framework that involves airlines adopting green practices, airports engaging in social responsibility programs, and governments providing policy support.

The paper argues that the aviation industry is characterized by a mutual dependence between airports and airlines. The airport's demand depends on the airline's performance, while the airline relies on the airport's infrastructure. Therefore, a good coordination between them is essential to ensure economic development, environmental conservation, and social welfare.

The research examines how government policies can support the environmental and economic performance of the aviation sector. The authors find that coordinated agreements between airlines and airports lead to more eco-friendly and efficient operations.

"Coordinated agreements enable airports and airlines to share revenue and collaborate more smoothly. This has a larger and more positive impact on the environment than government taxes," Jhakhar explained.

"He also said that airports can benefit from helping airlines through positive reciprocity. This way, they can achieve both higher greening level and higher profitability, since they have interdependent and complementary businesses," he added.

Aeronautical activities and commercial activities are the two main sources of income for airports. The former is related to the number of flights and passengers, while the latter is based on the number of passengers only. As a result, the airport business has benefited from the increase in air traffic, as it has boosted its income from both sources.

"However, airlines face many challenges to keep their profit margins high, as they have to deal with higher costs and more competition. They also have to deal with the environmental impact of their operations, as they are subject to additional fees, such as emission taxes, that require them to invest more in efficient and green technologies to reduce their carbon footprint.

"These investments have increased the cost structure of the airlines, affecting their profitability. The Munich-Lufthansa agreement is an example of how an airline can reduce its emission by collaborating with the airport. Likewise, in Norway, the cooperation between Oslo Airport and its signatory airline has enabled the use of biofuels in aviation, and thus lowered the emission levels. Similar agreements are expected in India as well, as more private airports are being developed," he concluded.

Jhakhar explained that Tampa International Airport in Florida has a revenue-sharing agreement with airlines since 2006, which allows them to allocate 20 percent of their net income to the carriers. This incentive encourages the airlines to invest in greening initiatives.

He also mentioned that Dallas International Airport in the US has a similar arrangement, where the excess revenue after covering the airport's expenses is distributed among the airlines that have signed the agreement. The airport only retains a fixed amount of revenue to meet its costs, he added.

He concluded that government taxation can have a positive impact on the greening level, but the coordination between airports and airlines is more effective. He also noted that the airline profit is negatively affected by higher taxes and higher costs of greening investments.

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