Why aviation sector needs sustainable aviation fuels, World Economic Forum explains – Analyst upbeat on Indian airlines

The aviation sector remains one of the biggest drivers of the international economy and is seen stressed mainly by multiple global triggers including fuel costs. While the aviation is a big contributor to climate change, Sustainable Aviation Fuel (SAF) can dramatically contribute to decreasing carbon footprint, the World Economic Forum (WEF) said, explaining the advantages of SAF.

According to WEF’s blog, “We already have the answer in Sustainable Aviation Fuel (SAF), which is the only option for long haul flights to decarbonise. Long haul flights are responsible for 70% of global aviation emissions, hence we urgently need to scale up production and drive down costs.”

Despite being critical, SAF is a proven technology, which was used as far back during World War II to fly fighters when oil was scarce, the WEF blog said, adding that so far, it is an under-utilised tool that can unlock aviation’s goal of net zero emissions by 2050.

Earlier in October 2022, the governments from around the world reached a landmark agreement at ICAO, an UN governing body for aviation, on net zero international aviation by 2050. This now needs to be converted into national policy actions with the encouragement of global airlines and airports.

With respect to Indian aviation market, the analysts at JM Financial said that the lower ATF (Air Turbine Fuel) prices during October-December period should likely result in improved margins, partially offset by Rupee depreciation.

Competitive intensity in the Aviation sector is likely to increase with Tata Sons decision to merge Air India and Vistara, the analysts noted, adding that this will likely create a stronger airline that will be better positioned to compete in the international and domestic market.

However, JM Financial believes the aviation sector is well placed given tailwinds of high domestic air passenger traffic and lower crude environment and upgrade Indian aviation market leader IndiGo from SELL to HOLD expecting the sector to fare much better given the festive season, sharper demand comeback and relatively weaker crude environment.