Aviation is currently estimated to contribute less than 3% of the annual amount of human-induced carbon in the atmosphere. In some ways, this seems like a relatively modest number, but two factors have the potential to raise the proportion.
Firstly, growing numbers of people in Africa, Asia, and South America are expected to embrace air travel over the next few years. Secondly, other industries are developing ways to reduce their carbon impact drastically and quickly. Rising numbers of air travellers combined with steps being taken in other industries could increase aviation’s proportional direct carbon contribution over the next few years.
What this means in short is that the aviation industry needs to move quickly and respond effectively to growing demand and changing expectations, before scrutiny from the public develops into pressure from regulators.
There is a third factor beyond demand and regulation that needs to be taken into account though: all scientifically credible evidence points to environmental change as a consequence of global climate change and accelerated atmospheric warming. This means that not only does aviation need to respond to pressure and regulation, it also needs to evolve to keep delivering services efficiently and cost effectively in order to be consistent with Paris Climate Agreement Goals.
This article will focus on the airport sector specifically, examining some of the changes that are already taking place, the steps that need to be taken to accommodate them and the potential role the insurance and risk management sector can play.
It is worth pointing out that in the World Economic Forum’s Global Risk Report 2023, six of the 10 risks that respondents expected to impact their ability to do business over the next decade were directly related to the environment.
Equally, according to one recent study the risk for airports is both significant and real. The impact of a 2-degree Celsius (36-degree Fahrenheit) increase in mean global temperature would be likely to put more than 100 airports below sea-level. It would also mean that more than 1,000 of the world’s current airports find themselves within 10 meters (just over 30 foot) of sea-level. The report suggests that airports would need to invest in the region of $57 billion over the next 80 years to keep risk at its current levels. Financial implications such as this make the potential for climate change a very real challenge for both the aviation and the insurance sectors.
The impact of a changing climate will vary according to location, but even non-coastal regions are unlikely to escape repercussions. Weather risk, for example, has both acute, short-term impacts (episodic events) and chronic longer-term consequences (persistent changes) for airports.
From the acute perspective, for example, changes in temperature are causing short-term delays to flights at either end of the extreme, with airports suffering reduced and slowed operations as a result of extreme wind, snow, ice and hail, dust and melting runways, even in traditionally temperate regions.
The chronic challenges are less obvious, but no less expensive in the longer-term. Deforestation, desertification, and changing wind patterns are likely to increase levels of dust in the air, which changes the atmospheric parameters that aircraft are designed to work within. For example, dust erodes fan and compressor blades and damages the thermal barrier coatings in engines which reduces their working life, makes them more prone to breakdown, and increases the risk of them needing unscheduled repair.
Equally, as temperature rises, air density increases, reducing lift and making it harder to get aircraft off the ground. There are two simple ways around this, however both approaches have cost implications for airlines and airports:
The cost of maintaining and repairing aircraft and aviation infrastructure outside of the current maintenance schedules is likely to rise as a result, and the more that the climate changes, the greater the potential cost implications.
One of the most important factors in setting the price of insurance is the steps that clients take to reduce and mitigate risk, whether it’s acute or chronic, short- or long-term. As a result, insurers are increasingly looking favourably at insurance programmes that are taking future environmental impacts into account, reasoning that it is better to pay now to mitigate than pay later for the most costly and disruptive consequences of inaction.
While part of this is a response to social pressure from some governments and societies, particularly in Europe but also across the world, fundamentally there are also practical implications: the changing environment looks likely to be leading to an increase in extreme weather events, which cause damage to people and assets and these in turn lead to insurance claims.
Insurance usually works on the principle that it is cheaper and more efficient to reduce risk rather than go through the process of paying claims, which is why future environmental scenarios are on the insurance sector’s radar.
As part of WTW’s commitment to enhancing risk management in the airport sector, we have been working with the University of Cambridge’s Centre for Risk Studies and have jointly developed the Airport Risk Index (ARI), which is designed to help owners and operators build operational resilience against the growing number of risks they face.
In its present configuration, the ARI compares 110 of the world’s busiest airports (by passenger volume) against 19 of the sector’s most prominent threats, measuring the probability and impact of any interruption in operations. Eight of the 19 prominent threats are environmental.
The ARI combines historical and predictive analysis to give airports the ability to interrogate their assumptions on today’s risks. Challenging the risk assumptions about the current risk environment is essential before considering future timescales to then test short-, medium- and long-term strategies on. In short, if organisations understand the risks they face today, they are more likely to be able to adapt to them as they change and plan for the potential of them becoming more acute.
From the perspective of the aviation insurance sector, having a level of potential environmental impact awareness is one of several factors that could lead to a marginally easier transition through the insurance markets as they work towards their new equilibrium.
We have reached a point where the threat climate change presents to airports can be measured on an individual basis against several possible scenarios. In our role as insurance broker, we recommend airport clients, and those across the aviation sector generally, take steps to manage and mitigate their exposure to changing climate risks. In the end it is always more efficient, and generally significantly cheaper, to fix an issue before it becomes a problem.