The road to sustainable aviation: Wizz Air to take big steps

An increasing number of corporations are beginning to accept that investors have new expectations, ones that go beyond profit maximisation. Growing demand for socially responsible investments creates not only new opportunities, but also challenges even for the largest enterprises. Investors also expect corporates to amend their long-term strategies by incorporating ESG criteria, and report on this activity transparently. The Budapest Stock Exchange (BSE) conceived an ESG Guide to urge into action issuers that have not yet committed themselves but already started to consider making sustainability reports. It is most likely the drive to please investors that drove several large enterprises years ago to make an account of their sustainability achievements and data in their financial reports.

So, where does Wizz Air stand now in terms of its sustainability objectives?

Marion Geoffroy said it had always been important for Wizz Air to strive for a sustainable operation.

“Our operation is sustainable because of our corporate profile and our business model itself; and the technology we use plays a great part in this. We operate one of the youngest fleets in the world. The average age of our aircraft is close to five years, while the average in Europe is way above 10 years. A younger fleet means efficiency, fuel savings, a lot of other advantages like lower noise emissions. In itself Wizz Air’s sustainability journey on the environmental pillar started the moment we received our first aircraft. We keep purchasing (leasing) new aircraft and after 10 to 12 years we hand them back to the lessors, and the circle starts again with newer and more efficient aircraft.

In accordance with the three pillars of ESG, sustainability has environmental and social aspects, bit as a large company we also need to care about the society, the economy, and we have the right governance in place within the company to ensure that we can deliver those benefits to the broader society and to a more important variety of stakeholders.

Interest for ESG-themed funds increased substantially in 2020. What was its impact on Wizz Air and how could it impact investor decisions in the future?

“Investors want us to provide them with information on sustainability. They usually have fund managers and corporate governance people and the latter usually contact us to have a specific conversation about ESG. It’s extremely healthy because they challenge us, they ask us for information they want, and they also ask us for vision and strategy. This helps us understand what is important for them, and we take their comments and recommendations into consideration when we build our strategy. We have specific projects in place to ‘develop’ our people as well, and investors ask a lot of detailed questions, e.g. how many training days we provide to our employees or what do we do to increase the number of women pilots.”

People, environment, economy

We have built our sustainability strategy around three pillars: environment, people and economy.

People is everyone, not only the employees but also the customers, other stakeholders, agencies who give ESG evaluations, everyone that directly or indirectly affect the company’s operation and the other way around.

Structurally, we are delivering the ‘S’ of ESG thanks to our profile. Wizz Air was established in 2004 when Central and Eastern Europe opened to new markets. Wizz Air today is the most European airline that was created thanks to the European Union and to provide air connectivity in the bloc and from the EU to third countries.

“In terms of what we do for people […] we connect people. We connect people with their families and job opportunities within and outside of Europe through affordable ticket prices. We participate in the economic development of the region and the mobility of people. We create jobs directly through recruiting people locally when we open a new base or when we take a new aircraft. And we create jobs indirectly – even more than directly – thanks to the increasing number of passengers who consume at the airports, pay for services in the leisure industry, buy local products, and use local transportation.”

Geoffroy said sustainability is now at the heart of the investor mindset, so it is not by chance that they address this matter from various aspects within the group. They try to meet the corporate governance criteria of ESG by tackling this issue on various levels. Members of the Board are in decision-making positions as regards sustainability strategies. There’s also a sustainability committee in the group that has full oversight of the sustainability strategies and initiatives that the company implements. Wizz Air also operates a sustainability department that is in charge of co-ordinating the processes.

This is particularly important for airlines that are criticised for their contribution to global CO2 emissions. And this is why everyone in the company should understand this challenge because we’ll be facing this for a while; it’s not going to change from one day to the other. Yet, this is one of the industries that invested the most in new technologies, e.g. fuel saving technology, sustainable aviation fuels, and there are a lot of ongoing projects aimed at reducing emission.

Sustainability reports

In order to be successful in the long run corporations need to incorporate the principle of sustainability into their business strategies, they need to measure and report their emission, energy and water consumption and waste management results, along with plans to improve them. This is what Non-Financial Reporting (also known as Sustainability Reporting) was created for, which paint a picture of a company’s ESG impacts.

Up until 2020, Wizz Air disclosed its sustainability report in its annual reports in a sustainability section. As of 2021 we are going to implement TCFD reporting although it is not mandatory (it will be from next year), as we believe it creates great transparency and investors also expect us to do so and it will be well-received by them because they’ll be able to do some comparisons.

The Task Force on Climate-Related Financial Disclosures (TCFD) is an organization that was established in December of 2015 with the goal of developing a set of voluntary climate-related financial risk disclosures which can be adopted by companies so that those companies can inform investors and other members of the public about the risks they face related to climate change. It includes a description of the direct and indirect impacts of climate-related risks on the company’s operation, and how and at what rate the company plans to achieve its 2050 climate targets.

Marion Geoffroy said “this type of standardised disclosure is important because it was a jungle, everyone was reporting their own way without harmonised metrics. We don’t believe we’re going to disclose it as a standalone report. We believe that sustainability-related disclosures are highly connected to the rest of the information contained in the annual report. And we want investors to be able to read also this easily. If you release it separately, at some point you’ll need to cross-check it with the annual report and the financial elements it is connected to.”

Will you prepare your sustainability reports with the assistance of an external consultant?

“Yes, we do. As this is the first time we are going to use a TCDF framework, we have thought it best to involve an external consultant. This is how we can guarantee that the report comprises all the information that are required by and useful for our investors,” she said.

As regards the main challenges when it comes to compiling such a report, Geoffroy said it is definitely the fact that

there are many frameworks, agencies and labels. She is certain that in five years there will be better standards and a greater degree of harmonisation.

Due to the multitude of frameworks, you cannot be certain you’ll please all the investors and stakeholders by opting for one of these.

Today, it’s difficult to navigate, because one investor is used to this framework, another to that framework, so I’m looking forward to having a more standardised system, and that is what we are headed.

When asked how she sees the standardisation process, Geoffroy replied that one general framework might be the solution, but “I’m also interested in a framework that also takes into consideration the sector you are in. There are huge differences, for example, between an airline and a company in the food industry or in the energy sector.

The optimal solution, the smartest way may be an umbrella framework which would present a ‘skeleton’ of what information need to be disclosed, with sub-frameworks that take into consideration the specifics of the given sector.

When asked if Wizz Air finds it difficult to gather certain types of data for this kind of reporting, Geoffroy replied that they generally have no such problem.

“We operate in an extremely regulated industry, and we are also a listed company, so this is not an issue, we have the data. What we need to decide is how to make the best use of these data. Too much data can also be a problem, but getting the data poses no difficulties for us.

Sustainability reports are read most frequently by investors and proxy agencies, followed by ESG rating agencies and financial institutions because they also rate us, she said. These reports are becoming increasingly read also by customers because the broader group of stakeholders are getting increasingly interested in ESG matters, as they want to understand what is behind the service they use. And last but not least, governments are also interested because they need to be educated by certain players of the private sector and also because they also put in place regulations around sustainability. Governments are not really working their strategies around ESG, and they need to have a better understanding of the industries that have the highest emissions.

When asked if Wizz Air is also working to improve its ESG rating, Geoffroy replied that it definitely is.

You are basically rated by default, without being consulted before. It’s good because you cannot influence the outcome in advance, but it’s also bad because occasionally the information picked by the agencies is partial and they do not necessarily have a comprehensive understanding of the data that they collect. Engaging with companies would be a much healthier process.

It can happen that you get a good rating by one agency and a bad one by another, while neither of them consulted with you, and they come up with completely different conclusions. What we do to avoid such situations is that we try as much as possible to engage with those agencies. It’s not just lobbying and influencing, it’s also about explaining certain matters.

The moment there’s a more standardised disclosure, the agencies can rate companies while comparing apple to apple.

We’ve been working for two years with the European Aviation Safety Agency and with most European airlines on establishing a ‘label’ for the airlines. Through this initiative we want to ensure that the customers, but also investors and governments, can compare airlines in terms of emissions and environmental aspects. I do believe this is the right way forward. It has to be simple and really connected to the service or the product.

I think we need an industry-specific label or you can call it index or framework if you will that can compare different airlines.

Medium-term and long-term objectives

Asked about medium-term and long-term goals in terms of the ‘next big steps’ regarding the environment and technology, Geoffroy said there are several projects on the table.

We work on different initiatives, either internally or with partners such as Airbus or Pratt & Whitney, as well as parts and equipment manufacturers. Everyone is looking to improve efficiency. It starts with aircraft manufacturers and continues with engine manufacturers, as engines are instrumental if you want to save fuel costs and emission.

One of the key areas that everyone is committed to look into is sustainable aviation fuel. The European Commission has also announced this is one of the pillars it really wants to support in terms of innovation and development.

Technological development needs to be real and not just ‘greenwashing’.

We need to look into that structurally with the manufacturers and fuel providers, and ensure that there’s a strong push by the regulators.

There also needs to be financial push to ensure there’s innovation.

This is the most tangible project today, but we’ll not necessarily see results within two years; maybe on a five-year horizon. Airbus is working a hydrogen aircraft which is extremely promising, it is really changing the game, but the result is more likely be seen around 2035.

This crisis has opened everyone’s eyes that we need to improve as an industry. Innovation was not sufficient because fuel was too cheap. Oil is still cheap, but it’s clear this is not the answer that the world wants today, it wants improvement. And that will come through different types of oils, fuels and technologies.

Technology is key, and ours will be really advanced compared to other players, and it will be a large contributor to lower emissions. Also, sustainable aviation fuel is going to become reality at some point. It’s also important to look at fleet renewal, because aircraft using latest technology reduces emissions by 20% compared to previous generation ones.

The industry is clearly committed, but at the end of the day it all comes down to who will be able to contribute to lower emissions. Those that have the financial ability to invest into new technology. If you’re financially stable and sustainable you can afford new technology. If you’re not, your fleet will get older and your environmental footprint will not improve, quite the contrary.

Cover photo: Wizz Air