ISSUES FOR
RESPONSIBLE
INVESTORS
AIRLINES IN ASIA
MAY 2010
Richard Welford Author
Researchers:
Richard Welford
Helen Roeth
Sharan Bal
EXECUTIVE SUMMARY
This report provides an overview of environmental, social and governance (ESG)
issues surrounding the airline industry in Asia. The issues that we highlight are
those we view as the most material to companies and which pose the biggest
threats to the operations of the companies, their brands, reputation and profitability.
Responsible airlines will be monitoring, measuring and reporting on the impacts
and risks that these issues pose to themselves and their investors.
Responsible Research is an independent provider of sectoral and thematic Asian environment, social
and governance (ESG) research, targeted at global institutional investors. Many of these fund managers
and asset owners now find that traditional investment banking reports, financial models and public
information sources can no longer be relied on to cover all risks to earnings and deliver superior
returns. Companies who do not monitor and report on this ‘non-financial’ performance not only risk
financial penalties for non-compliance with stricter regulatory environments but are also denied access
to substantial pools of global capital which are managed according to sustainable principles.
Our approach is based on analysis of material ESG factors, which change according to sector and
market. We provide our clients with local market knowledge of important regulatory landscapes in
Asia, along with a fresh perspective on local operational and sectoral issues. We offer an annual
subscription model for our monthly sectoral or thematic reports and give our clients access to the
underlying data. Reports can also be commissioned (by investors or foundations) and kept for internal
use or be offered for general distribution, as part of a general effort to promote ESG integration into
the Asian investment process. Our analysts conduct seminars and webinars to discuss findings, often
with contributions from experts, companies and policy-makers.
Responsible Research was founded in 2008 by our Board who have been instrumental in promoting
Corporate Social Responsibility (CSR) and SRI practices in Asia for over 10 years and have significant
experience in the region’s emerging investment markets. This team of five works in collaboration with
our full time Asian-based responsible investment analysts and the Responsible Research Alliance, a
group of consultants with subject matter expertise. Together they provide a valuable balance of market
and ESG knowledge, academic rigour, process management, data management, customer relationship
management and senior level contacts.
Many of our clients are signatories to the UN backed Principles of Responsible Investment (PRI), an
investor initiative. As signatories they commit to incorporate ESG issues into their investment analysis
and to support the development of ESG tools, metrics and methodologies. As a signatory to the PRI
we voluntarily contribute time and resources to the Emerging Markets Disclosure Project and other
collaborative initiatives. Responsible Research is also a strong supporter of independence in research,
without which conflict and bias can deliver investment risk. The company is one of the founding
members of the Asian Association of Independent Research Providers and also of the Asian Water
Project.
Recent trends such as the growth of low cost airlines and the potential environmental
challenges associated with this development are discussed. Key regulations,
legislation and incentives in the region are identified and analysed in terms of how
they affect the operation and business of the airline industry.
The company scoring reveals that many airlines in the region have systems in place to
deal with business issues related to the environment, labour, corporate governance
and economic performance. Disclosure on social issues, human rights and product
responsibility tends to be weak, as does reporting on key sector specific issues not
covered in reporting guidelines such as the Global Reporting Initiative. These key
issues include the European Emissions Trading Scheme, biofuels, decommissioning
of planes, landing techniques, land use (e.g. at airports), discrimination due to age,
gender, physical appearance, and fair operating practices.
Cathay Pacific emerges as the leading company in the region when it comes to
disclosure on ESG issues. The company demonstrates impressive reporting and
communications strategies in the majority of indicator areas covered in this
analysis. Korean Air and Asiana Airlines (also Korean) come in second and third
place respectively.
The aviation industry in Asia is undergoing fundamental changes driven by market
liberalisation, changing business models and stronger competition by low cost
carriers, and in some parts of the region slowly diminishing political intervention
into the management of national or quasi state owned airlines. Airlines are also
going to be significantly impacted by climate change and other environmental risks.
There is a need for them to engage on these issues if they are to maintain the trust
of stakeholders and avoid more damaging regulations.
Employment practices are highly variable across airlines in the region. Accusations
of gender bias and recruitment of staff on the basis of personal characteristics
rather than ability to do the job abound. Recruitment and retention in a marketplace
where a new ‘battle for talent’ is emerging and where, in some places, birth rates
are decreasing is going to be a key determinant of profitability.
Safety and security remains a huge issue for the industry. Ensuring the safety of
passengers and their well-being during flight is an area of concern. There are also
major concerns relating to the way that companies are governed and the extent to
which companies operate in a truly competitive environment.
About the Author
Richard Welford is a Director of
Responsible Research. He has
spent six years working with
the airline sector in Asia and
has acted as a sustainability
consultant to Cathay Pacific and
China Southern Airlines, both
mentioned in this report. He is
also Chairman of CSR Asia and a
Director of ERP Environment.
The issues identified in this report are discussed in parallel with an analysis of the
disclosure by the airlines on ESG related issues. We undertake a scoring analysis
and ranking of the region’s 24 listed companies in the sector on the basis of their
Sustainability and CSR reports and other disclosure.
Disclosure on the economic impacts of aviation and on the governance of companies
is relatively strong in the region. Most companies provide significant information on
their economic contributions and their governance structures. Labour issues and
environmental indicators are less well disclosed even though this report highlights
that these areas are very much linked to some of the key risks for companies and
their investors in this industry.
For more information, please contact Responsible Research:
Email: info@responsibleresearch.com
Tel: +65 9386 6664
www.responsibleresearch.com
© Responsible Research 2010 | Issues for Responsible Investors | 2
Investors will already acknowledge that the airline industry is challenged by
relatively low profitability and is highly susceptible to economic disturbances. But
there is now a growing recognition that the brands and reputations associated with
many of the players in the region are likely to be inextricably linked to many of the
issues highlighted in this report. Those that are transparent and can respond to the
issues via their differing disclosure vehicles are set to gain a competitive advantage
through their non-financial performance.
CONTENTS
AIRLINES IN ASIA
PLEASE CLICK TO ACCESS SECTIONS
5
INTRODUCTION
Airline sustainability analysis
Company Performance Key developments in the region
15
ENVIRONMENTAL ISSUES
25
SOCIAL ISSUES
Climate change and carbon emissions
Biofuels
Air quality
Noise
Aircraft recycling
Customer satisfaction
Employment issues
Diversity, gender discrimination and the perpetuation of stereotypes
Supply chains
Trafficking and combating child sex tourism
Engagement with the social media
Safety
Security
35
GOVERNANCE ISSUES
Competition policy
Consumer issues and fair marketing
Remuneration of Boards
Political involvement and government relations
Bribery and corruption
41
CONCLUSION
49
REFERENCES
ISSUES FOR
RESPONSIBLE
INVESTORS
INTRODUCTION
Introduction
The outlook for the airline industry after the global recession is positive: global
air travel demand is expected to double over the next 15 years, led by faster
growth in the Asia Pacific region, which is set to become the world’s largest
aviation market.1 The air transport sector in Asia Pacific supports more than
three million jobs and contributes US$ 170 billion to GDP. Over the next two
decades, it is projected, that these figures will rise to almost 20 million jobs,
contributing more than USD 1 trillion to GDP.2
The driving forces of much of this growth are a boom in low-cost travel and a
growing web of open-skies agreements which are expected to power long-term
growth for Asian airlines.
The growth potential in the region is immense, in particular in China and India
whose populations are only served by 0.3 and 0.1 available seats per person per
year (as compared to three aircraft seats per year for each of the 300 million
people in the U.S.). If Asians start travelling as much as U.S. travellers the global
air transport industry is estimated to triple in size.3
Intra-Asian flights are experiencing significant growth. In 2009, the number
of intra-Asian passengers rose to 647 million and International Air Transport
Association (IATA) estimates that it will take only two more years before intraAsian flows surpass North America when measured by revenue passenger
kilometres, a key measure combining passenger numbers and average flight
length.4
Airline sustainability
analysis
Scoring methodology
In this report 24 listed airlines in the region are analysed against a total of 104 ESG
indicators covering corporate governance, environmental, human rights, labour,
social, product responsibility, and economic issues. The complete list of airlines
under analysis is provided in Table 1 below.
Indicators were drawn together from the Global Reporting Initiative’s (GRI)
reporting framework and supplemented with additional indicators of particular
relevance to the airline industry. An overview of all indicators can be found in
Appendix 1 and summary statistics can be found in Annex 2 and 3.
Sector specific issues we considered in the benchmarking exercise included fleet
modernisation, development of biofuel use, disclosure on climate change impacts,
policies on dismantling planes, landing techniques, noise pollution abatement
policies, supply chain code of conduct, participation in the European Emissions
Trading Scheme, off-setting options available to passengers and, importantly,
route optimization and air traffic management systems.
Table 1:
List of airlines
benchmarked
Industry experts, however, caution that to reach its full potential the Asia
Pacific market needs to boost efforts in tackling key challenges related to the
environment, security, governance and market liberalisation.5 In China, the
domestic market is dominated by three state-controlled carriers and low-cost
carriers have yet to appear. In India, the situation is quite the opposite, with a
deregulated domestic aviation market where a large number of private carriers
fight over market share.6
Yet, consumers, investors and other stakeholders are increasingly aware of the
social and environmental impacts that airlines have. Whilst they can contribute
to growth and economic development, stakeholders question the discriminatory
hiring practices and implicit human rights abuses of some airlines. Others point
to the huge impacts that airlines can have on climate change and air pollution,
particularly with regards age of fleet and route optimisation. The debate is still
ongoing within the industry as to the environmental benefits of newer, larger
aircraft, such as the A380, as much depends on the sectors they are flown on
and load factors. Investors need to recognise that airlines are in the forefront of
debates over greenhouse gas emissions and are increasingly subject to tough
regulatory and market based measures adding to their costs. Whilst newer fleets
are generally going to lead to lower emissions of GHGs, the choice of plane and
the routes where it is used are also key determinants of climate change impact.
Airlines are themselves huge purchasers of goods and services and they need to
ensure that they demonstrate ethical supply chains.
Many of the national airlines in Asia are inextricably linked to government
through share ownership, subsidies and other market distortions. Governance of
companies in the sector is highly variable. The industry is not a highly profitable
one and carriers are highly susceptible to fuel price hikes and economic and
social disturbances which reduce the demand for flying.
Within Asia, we find well known global brands associated with airlines such as
Cathay Pacific, Singapore Airlines and Qantas. Yet, those brands and others
are highly influenced by some of the most material social, environmental and
governance issues facing the industry as a whole. There is, therefore, a need to
be aware of the issues and monitor performance against those issues. This is the
aim of this report.
© Responsible Research 2010 | Issues for Responsible Investors | 6
Airlines are scored based on publicly available information provided on corporate
websites, the latest available sustainability/CSR reports and annual reports. The
following scoring system was applied.
The maximum score possible overall is
2
comprehensive coverage of the issue
therefore 208. Only Cathay Pacific scored
1
some mention of the issue
above 50% and Korean Air scored 49%.
Few other companies even came close to
0
no mention of the issue
achieving an overall score of 50%. We view
a score of 50% as very good since it indicates at least some disclosure relating to
most of the indicators in this analysis. A score of 50% is certainly a target for other
companies in the industry to aim for. Nevertheless, even with the best scoring
airlines, there is still significant room for improvement.
Company
performance
The analysis of the 24 listed airlines in the region shows that the majority
of airlines have systems in place to deal with business issues related to the
environment, labour, corporate governance and economic issues. Disclosure
on other social issues, human rights, and product responsibility is, however,
weak. It seems that these are areas which companies largely considered as not
relevant to their operations and, therefore, shareholder valuations. We believe
they are mistaken.
While some of these issues can be considered as emerging issues, reporting on
which would differentiate leaders from the masses (e.g. supply chain codes of
conduct or corporate positions on aviation biofuels), other neglected issues are
crucial issues for airlines in the region to consider (e.g. discrimination due to
age and physical appearance or competition and fair operating practices). Of
particular note, the only companies with some disclosure on discrimination due
to age and physical appearance are Cathay Pacific and Korean Air.
With regards to their disclosure on the issues that we highlight, airlines can be
grouped into four categories:
Among the six listed airlines in China, only China Southern Airlines reports
comprehensively on CSR issues. However, as with most other scored airlines,
the company performs poorly with regard to disclosure on issues related to
human rights, social responsibility, and product responsibility. It performs well
with regard to reporting on environmental, labour and corporate governance
issues but lacks disclosure on sector-specific issues.
1.
The leaders: Airlines with sophisticated sustainability reporting that provide information on most of the indicators. In this regard, Cathay Pacific and Korean Air are clear leaders in the region. Cathay Pacific, in particular, reports on indicators where most of the listed airlines performed poorly, such as product responsibility and human rights.
2.
The followers: Airlines with comprehensive and clear disclosure on a majority of the indicators, but who do not report to the extent of Cathay Pacific and Korean Air. Among these are Asiana Airlines, Qantas, China Southern Airlines, Malaysia Airlines, Thai Airways, and Singapore Airlines.
3.
The timid: Airlines with reasonable reporting on issues they consider as most relevant to their business operations but which lack disclosure on more challenging issues outlined in this report. These airlines include Air New Zealand, All Nippon Airways, Japan Airlines, Philippine Airlines, Air China, China Airlines, China Eastern, Jet Airways, Hainan Airlines, and Eva Airways. Virgin Blue and AirAsia, both LCCs appear in this sector.
4.
The laggards: Airlines with an overall poor ESG reporting and disclosure performance include Shandong and Shanghai Airlines, Kingfisher Airlines and Tiger Airways (also an LCC).
Interestingly, most airlines performed better with regard to reporting on GRI
indicators compared to disclosure on the additional sector specific issues that
we included in the scoring related to environment, labour, social and economic
issues for airlines. It seems that the majority of listed airlines in the region are
focussing their CSR reporting, and by extension their sustainability strategy, on
general issues while omitting GRI indicators not deemed relevant to the industry.
They are also not reporting on some key industry ESG risk issues not included
in the GRI guidelines. Key issues for the industry not covered by GRI and rarely
reported on by listed companies include:
-
The impact of the European Union Emissions Trading Scheme
-
Biofuels: their impact and use
-
Dismantling planes at end of life
-
Landing techniques to reduce environmental impacts
-
Land use
-
Supply chain codes of conduct and supplier assessments
-
Discrimination due to age and physical appearance
-
Community investment strategies (particularly in developing countries)
-
Fair operating practices
© Responsible Research 2010 | Issues for Responsible Investors | 8
Listed airlines in mainland China (except for China Southern Airlines) and India
constitute the bottom of the scoring chart in all areas.
Both of Korea’s Airlines perform well in the scoring being the two of the top three
leading airlines in the region when it comes to CSR reporting. Interestingly,
Asiana Airlines falls far behind in terms of corporate governance disclosure.
Arch-rivals and premium airlines Cathay Pacific and Singapore Airlines are a long
way apart in our assessment of ESG indicators. Singapore Airlines fails to grasp
the importance of disclosure on ESG issues and has certainly not responded to
the challenge of sustainable development in the way that Cathay Pacific has.
There is now a clear gap between Cathay Pacific and Singapore Airlines – a gap
that we argue provides Cathay Pacific with a significant competitive advantage
over its rival.
Even more surprisingly, however, is the fact that Singapore Airlines also lags
behind neighbours at Malaysia Airlines and Thai Airways. Although Singapore
Airlines demonstrates some strength in engaging with environmental issues, its
very poor scores on social issues detract significantly from its overall performance.
In the overall scoring the two LCCs Virgin Blue and Air Asia are among the
average performers while LCC Tiger Airways is among the laggards. Virgin Blue
and Air Asia perform particularly poorly in their disclosure on aspects of social
responsibility. Air Asia receives high scores for it’s reporting on labour issues and
Virgin Blue scores high on governance issues.
Industry and company performance by indicator area
Annex 2 and 3 provide summaries of overall scores and scores by indicator
area. Our analysis is deliberately biased towards environmental indicators,
reflecting the environmental bias in the GRI approach. We have added a number
of additional indicators because most of the ESG issues likely to deliver financial
risk to the industry are environmental in nature.
With an overall score of only 18% we can see that most companies in the region
need to disclose more on their environmental impacts. Korean Air (51%) scores
highest on environmental issues followed by Cathay Pacific (48%) and Asiana
Airlines (45%). It is notable that Singapore Airlines (39%) comes fourth in this
indicator area, although only eighth overall. This reflects, again, the bias in
reporting towards environmental issues and away from broader social issues.
It is of no surprise that reporting on human rights issues is generally poor across
the industry. There is a clear reluctance to engage with human rights issues in
Asia as a whole. Cathay Pacific is a clear leader with a score of 39% followed by
Korean Air (28%). But the majority of companies analysed were not awarded a
single point in this indicator area. The average score across all companies was a
miserable 4%.
In the area of disclosure on labour issues, scores were also spread widely with the
leader, Korean Air, scoring 56% but with three companies scoring zero. Cathay
Pacific scored 47% followed by Asiana Airlines (44%). Interestingly, disclosure
on labour issues across the whole industry (19%) was slightly higher than that
in the environmental area. As discussed later in this report that may reflect the
fact that labour issues, labour disputes and employment practices have become
important issues recently.
Social indicators, as defined by the GRI, comprise a number of issues surrounding
community impacts and corruption, political involvement and aspects of social
responsibility that exclude labour and human rights issues. Overall, the score
in this indicator area is relatively low at 14%. The leading company in this
area according to our analysis is All Nippon Airways, surprising because it only
manages to come in 11th place overall. Coming in second are Cathay Pacific,
Korean Air and Qantas, all scoring 30%.
The area of product responsibility is one where many in the industry might not
initially see as central since airlines are essentially service providers. Nevertheless,
the indicators do include important aspects such as consumer satisfaction (a
key determinant of profitability), complaints handling and life cycle analysis of
equipment (such as the aircraft, for example). Cathay Pacific, with an impressive
score of 56%, is a clear leader in this area.
Airlines are relatively good at disclosing economic information and this perhaps
reflects their history (in most, but not all cases) of having the government as
controlling shareholders, as well as a desire to justify attractive tariff and fiscal
status as a result of their important role in economic development, trade and
employment generation. The overall score in this indicator area is relatively high
at 26%. The leading position is tied between Cathay Pacific and Korean Air, both
scoring 63%. They are followed by Malaysia Airlines at 50%.
Finally, governance disclosure is good at most companies in our analysis. The
overall percentage score for this indicator area is 39% with Cathay Pacific scoring
very highly at 93%. Swire Pacific, the largest shareholder of Cathay Pacific,
is well known for its rigorous corporate government and internal systems and
policies. Cathay Pacific is followed by Qantas (79%) and Korean Air (64%).
© Responsible Research 2010 | Issues for Responsible Investors | 10
Figure 1: Scoring results
Key developments
in the region
Market liberalisation
The Asian market, considered one of the fastest growing, remains strongly
regulated at present. The bilateral aviation deals between Asian nations are still
among the most restrictive in the world. The Asian airline industry does not
enjoy the same deregulation that started in the U.S. and spread to Europe in
the 1990s, culminating in a transatlantic open-skies pact. Asia-Pacific states trail
the liberalisation moves elsewhere in the world and the region needs to increase
activities in this area if it is to meet its target of deregulating market access by
2015.7
National ownership and control requirements prevent airlines from fully accessing
international capital markets, resulting in a highly fragmented industry. Cross
border mergers and acquisitions activity, commonly seen in other sectors, simply
cannot take place. Whilst progressive liberalisation has at least allowed the
industry to expand to meet growing demand, the shape of the industry reflects
these distortions, and may also account for other structural weaknesses which
underlie the chronically poor profitability of the airline industry. It seems clear
that further liberalisation is needed to address these fundamental challenges and
pave the way for the successful evolution of the industry.8
Market liberalisation is the major growth engine for the region’s airline industry.
China and the Association of Southeast Asian Nations (ASEAN) have a combined
population of 1.8 billion. Opening of new routes between secondary destinations,
especially in China, India and Southeast Asia, will lead to a major influx of new
passengers. Talks on further opening up of aviation markets between China and
ASEAN, as well as within ASEAN, are expected to conclude this year.9
The phased introduction of the ASEAN ‘Open Skies Agreement’ covering 10
countries in Southeast Asia from 2008 has prompted major Asian markets
(including Japan, China and India) to consider similar initiatives. The Open Skies
Agreement was signed in December 2009 between the United States and Japan
and is expected to go into force in the middle of 2010.10
Within ASEAN, the 10 member countries are reviewing a deal allowing for
maximum competition by 2015 as part of a regional free market. The agreement
will allow regional air carriers to make unlimited flights to all 10 ASEAN member
states and promises to boost intra-regional tourism, trade and investment among
member countries - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam.11
Other unlisted airlines in the region (including Vietnam Airlines, Garuda, Cebu
Pacific and others are also likely to benefit by the expansion of routes and travel
A number of these are likely to expand and seek listings in the future.
Whether greater openness will lead to additional aviation market entrants is still
unclear, given the flagging fortunes of many of the existing airlines. A recent
report from the Sydney-based Centre for Asia Pacific Aviation predicts future
industry reorganisation among smaller players, many of which it predicts will be
forced to merge or close as competition heats up.12
We expect there to be further industry consolidation amongst all parts of the
industry in the medium term and a continuation of highly mixed economic
performance globally in the LCC segment of the industry. Brand name companies
that can associate themselves with good levels of safety and security, good
environmental performance and high levels of customer satisfaction are likely
to be able to differentiate themselves and charge premium prices. In a highly
competitive marketplace, we see differentiation strategies as just as important as
cost controls. It is clear that ESG issues are one source of competitive advantage
therefore.
© Responsible Research 2010 | Issues for Responsible Investors | 12
CASE STUDY: Garuda struggles to get listed
Indonesia’s state enterprises ministry recently invited Capital Group to invest in
flag carrier Garuda Indonesia in advance of an IPO. The company pulled back
from an IPO in 2008. The government is hoping to raise around US$400m from a
privatisation and listing exercise. Proceeds are earmarked for fleet modernisation,
debt refinancing and expansion of operations. Garuda Indonesia plans an IPO in
the third quarter 2010. Management has said it would like to buy 23 Boeing 737800s and one Airbus A330-200. Garuda was taken off the European Union’s list
of banned airlines in 2009 after it improved safety procedures, and competes
with a host of local and international budget carriers on domestic routes across
Indonesia.
Source: Reuters, Thu Apr 15, 2010
Competing with low-cost airlines
The rapid development of low-cost carriers (LCCs) has stimulated massive
change in the airline industry. The proliferation of LCCs, also known as budget
or no-frills airlines, has been so rapid that worldwide four out of every five
airline markets (i.e. the areas served by a pair of airports) now feature a budget
carrier. In addition all aspects of the business model continue to change at an
ever increasing rate. The low-cost phenomenon is possible due to innovative
use of economic, marketing, geographic and management models.13 By flying
new routes, offering improved frequency on existing routes and through new
aggressive forms of pricing and marketing, LCCs have reacted swiftly to changing
consumer preferences and trends.
In 2009 we saw premium carriers struggling to survive the impact of the financial
crisis - Japan Airlines (JAL) filed for bankruptcy and others, such as Singapore
Airlines and Thai Airlines, incurred record losses. Garuda Indonesia was forced
to defer its plans to list on the stock exchange due to its financial performance.
By contrast, airlines pursuing the low-cost approach in this region have largely
endured and (to some extent) prospered using the global economic crisis as a
golden opportunity to gain market share and consolidate their positions vis-a-vis
the premium airlines. LCCs such as Tiger Airways made record profits, realised
their expansion plans and a stock market listing.14
According to the Centre for Asia Pacific Aviation, overall global capacity growth
between 2001 and 2009 was entirely attributable to LCCs. LCCs accounted for
15.7% of Asia’s aviation market in 2009 (from a merely 1.1% in 2001 and 14%
in 2008), or just under one in every six seats sold in the region. Those market
gains, analysts say, have come at the direct expense of the region’s premium
airlines.15
Some of the thriving low-cost airlines are now going so far as to attempt to lure
higher-paying business travellers away from their premium peers and to break
into premium fliers’ once-exclusive domain of long-haul travel, including flights
from Asia to Europe at unprecedented low fares. In 2009, Malaysia’s AirAsia
introduced long-haul routes from the region to London for a fraction of what
premium airlines charge.16 Hong Kong LCC Oasis started flying the Hong KongLondon route (but soon filed for bankruptcy) and Singapore’s Tiger Airways has a
busy Singapore-Perth service.17 The one-way cost of this 4000km flight including
tax and fees is a mere US$150, a third of the Singapore Airlines flight cost.18
LCCs operate on a different set of economic and financial parameters compared
to premium airlines, many of which are burdened with rigid fixed-cost structures
and high debts. LCCs offer a no-frills service and seek to keep their expenditure
down by seeking the lowest airport handling fees. Tiger Airways, for example, has
eliminated on-board meals and most ticketing counters. If a booking is made by
phone a US$10 fee is levied.19 LCCs have also found creative ways to raise non-
ticket-related income by unbundling products and services that allow passengers
to pick and pay for what they want, such as charging for up-front seats, priority
boarding and flight insurance. LCCs have traditionally flown routes of four or
fewer hours, enabling them to use the same flight crew for return flights on the
same day. That has allowed LCCs to hire fewer staff and avoid the significant
expense of overnight accommodation for crew members.20
To combat competition within their established market a few legacy airlines in
the region have created subsidiary ‘carriers-within-carriers’ with lower unit costs
than the parent companies. Examples of budget offshoots include Korean Air’s
premium short-haul carrier Jin Air and Qantas low cost subsidiary Jetstar, which
has recently expanded to Vietnam.
The emergence of low cost airlines and the new business model is having a
tremendous impact on the tourism and travel industry in Asia as well as on
travellers’ behaviour. New travel destinations have emerged, airport passenger
traffic has increased, more people now travel more often, while others that could
never previously travel can afford a long distance holiday. This is creating critical
implications in the tourism industry and has a potentially huge impact on the
environment.
While some declare that “cut-price air travel is costing the Earth” due to increased
traffic (on the ground around airports and in the air) and increased emissions21
others argue that budget flights have a comparatively lower carbon footprint per
passenger. Budget airlines, it is argued, fit more seats into their planes, have a
higher occupancy rate, operate newer, more fuel-efficient airplanes, providing
low-frill services with less waste and operate from less congested secondary
airports thus driving costs and the carbon footprint down.22 While there has been
no consensus agreement on quantifying the reduced environmental impact of
LCCs, a few budget airlines are taking a pro-active approach and have started
reporting on their environmental performance.
AirAsia’s annual report includes two pages dedicated to disclosure on how
the airline’s low-cost business model has been adjusted to minimise negative
environmental impacts. Although many of the measures are cost-motivated,
based on AirAsia’s business model, the modern fleet, efficient use of the aircraft
by maximising seats, keeping the aircraft light by minimising the weight of food
and beverage, and the simple airport infrastructure all contribute to reducing
greenhouse gas emissions.
As far as we know, no other airline has gone to the extent of All Nippon Airways
recently and suggested that passangers go to the toilet before boarding in a bid
to reduce carbon emissions. Management claimed that empty bladders mean
lighter passengers, a lighter aircraft and lower fuel use. ANA hoped the weight
saved will lead to a five-tonne reduction in carbon emissions over the course
of 30 days. It was intended as a one month experiment on 42 flights, the trial
may be extended if it is well-received by passengers and if results are positive.
Based on an average human bladder capacity of 15oz, if 150 passengers relieved
themselves on board an aircraft, this would amount to 63.7kg of waste and
associated weight.23
We expect the LCC segment of the market to continue to grow substantially.
However, there is renewed concern over the potential profitability of the LCCs
in the light of increasing fuel costs. LCCs need to demonstrate that they are
engaged in the debate surrounding environmental, social and governance issues
or they run the risk of being labelled “low cost and uninterested”. LCCs must
avoid the common accusation thet they are low cost precisely because they are
less responsible.
The existence of LCCs is likely to continue to put pressure on the economy class
of the mainstream airlines. We expect the fastest growth, however, to be on new
routes between many of the ‘second-tier’ cities in Asia.
© Responsible Research 2010 | Issues for Responsible Investors | 14
ISSUES FOR
RESPONSIBLE
INVESTORS
ENVIRONMENTAL ISSUES
Climate change &
carbon emissions
Airlines are in the spotlight. It is undeniable that they have received attention
from regulators, policy-makers and politicians disproportionate to their impact
on climate change. Nevertheless, climate change impacts of flying have become
a major issue for airlines and those companies that fail to engage with the issue
are likely to be seen as not responsible. For investors, it is important to recognise
that current and proposed regulations and market-based instruments, current
and planned, are going to add significantly to the costs of operations.
According to IATA, disagreement remains over aviation’s contribution to climate
change. While there is a good understanding of the contribution of CO2 and
nitrogen oxides (NOx) emissions and water vapour to climate change, little is
known about the effect of contrails, cirrus cloud formation and the methanereducing capabilities of NOx.24 At present, it is estimated that aviation’s climate
change impact is about 3% of the total contribution by human activities and it is
expected to grow to 5% by 2050.25
IATA has drawn up an industry vision to build a zero emission commercial aircraft
within the next 50 years (starting 2007) and achieve carbon neutral growth
by 2020 based on a four pillar strategy which looks at technology investment,
effective operations, efficient infrastructure and economic measures. With a key
target in achieving this vision being driving fuel use down and cutting emissions
in half by 2050 compared to 2005, IATA calls upon airlines to improve fuel
efficiency by 25% by 2020.26
IATA and the International Civil Aviation Association (ICAO) advocate a global
sectoral approach to be taken by governments to drive down aviation’s emissions
based on market-based and voluntary measures, and suggest an open emissions
trading system for international aviation.27
So far there have been few major climate change
related regulatory or policy actions in the Asian
region but action taken by governments elsewhere in
the world are having an effect. The European Union
has introduced legislation to include aviation in their
Emissions Trading Scheme (EU ETS) which will require
all airlines flying in and out of Europe to monitor
their emissions and to acquire permits to cover
the emissions they produce.28 Iceland, Norway and
Liechtenstein will include aviation in their emissions
trading scheme from 2010.29 Such initiatives will be
costly for airlines flying into Europe.
kilometre is a function of the ‘technology age’ of the fleet. The design age is the
number of years ago of first market introduction of the specific aircraft design.
However, it is also important to recognise that the type of aircraft flown on
different routes will affect performance. Large aircraft designed for long-haul
flights will be relatively less efficient on short-haul routes because of the larger
fuel burn of large aircraft upon take-off. In recent years, newer long-haul planes
are routinely used on short-haul routes in order to avoid aircraft standing idle
which complicates the issue.
Improving efficiencies by increasing seat density is another contentious issue.
Suggestions have been made of ‘vertical’ seating, with Spring Airlines, the
Chinese low-cost carrier apparently holding initial talks with Airbus to add
standing-seats on its A320s to increase by 40% the number of passengers it can
carry on shorthaul flights. A company called Design Q envisages a solution that
entails a row of inward facing seats on each side of the aircraft plus two back-toback rows down the middle resulting in a configuration whereby passengers are
facing each other, in a somewhat military formation. Potential passenger health
and safety issues are obvious concerns here.
Passenger awareness of the sector’s contribution to greenhouse gas emissions
is not only driven by the media or vocal NGOs in the region, but also by airlines
themselves finding new ways to communicate on this issue to their customers.
Thai Airways International’s in-flight menu, for example, now features carbon
footprint information on its Thai Signature Dishes served on board. Its Chicken
Mussaman Curry with steamed Thai Hom Mali Rice apparently has 13.6 kg CO2e
per 250g serving and its Green Curry with steamed Thai Hom Mali Rice weighs
in at 13.9 kg CO2e. Cynics could say, however, that the airline would possibly be
a more responsible corporate citizen by simply not printing menus and putting
the info on the inflight entertainment system instead. However, through this
‘carbon labelling’ a least the airline is demonstrating its commitment to reducing
its climate change contribution to knowledgeable passengers and introducing the
issue to passengers which may be unaware of it.31
An indicator of increased pressure and interest in the region to act on climate
change is evidenced by the recent addition of Japan and Singapore air navigation
service providers (ANSPs) to the Asia and South Pacific Initiative to Reduce
Emissions (ASPIRE). The initiative was established to develop and showcase best
practices to maximise operational efficiencies and emission reductions within the
Pacific region.32
National emissions trading schemes are planned
in Australia, New Zealand, and Japan30 but other
governments in the region seem to be far from
putting in place equivalent regulatory measures.
Nevertheless, IATA and major airlines in the region
are calling for a global sectoral approach to aviation’s
emissions and pressure on airlines to measure and
reduce their contribution to global climate change
is growing. With passenger awareness in the region
increasing, airlines failing to engage with climate
change issues face reputational risks.
Average Age of Fleet in Asia
Source: Airfleets.net
The main parameter determining the impact of a
flight on climate change is the amount of fuel burnt
and emissions of carbon dioxide associated with
that. Average fleet fuel consumption per passengerkilometre is a fair proxy for the environmental
efficiency of an airline. This factor depends on the age
of the fleet (See chart, attached showing the lower
age of fleet of the low cost carriers and Singapore Airlines, in particular) and on average seat density of
the aircraft. The energy consumption per passenger-
© Responsible Research 2010 | Issues for Responsible Investors | 16
Source: Design Q, 2009
With Asia Pacific being one of the most vulnerable regions in the world to climate
change impacts, adaptation to climate change is also becoming an important
issue for the airline industry. Water, an already stressed resource in the region,
will be significantly affected by climate change and companies will increasingly
have to show how they monitor and reduce their water consumption. The Carbon
Disclosure Project (CDP), known for its global climate change reporting system,
has, in 2010, launched CDP Water Disclosure. This new programme seeks to help
institutional investors better understand the financial risks that water-related
issues pose to their investment portfolios and follows a similar format to CDP.
Annual information requests will be sent out on behalf of institutional investors
to large, publicly quoted companies asking them to disclose on water impacts
of their business.33 The region’s major airlines will definitely be among these
companies.
But airlines will also have to increasingly adapt to freak weather, which could
cause major problems with business continuity and associated revenue streams.
Typhoon and cyclone activity is set to increase in the region with predictions of
more frequent and more severe weather events. Disruptions to flights caused
by freak weather are set to increase. More sophisticated business continuity
planning is going to be required. Low lying airports (such as the Hong Kong
International Airport, reclaimed from the sea) may also be affected by rising sea
levels and associated sea surges.
Climate change is also going to encourage some stakeholders to consider
alternatives to flying. Sophisticated video-conferencing now being offered by IT
and telecommunications companies already provides an alternative to business
meetings, although the impact of this on business travel may have been overstated.
Research performed by Wainhouse Research in 2005 provides the following chart
on potential savings. They suggested that a firm with 10 offices and 10 travelling
employees could save up to US$110,000 in the first year of investing US$85,000
in equipment with 40% of meetings being converted to videoconferences. There
would be a breakeven in 9 months and an ROI over 200%. The soft benefits are
also better employee morale and health, quicker decision-making and higher
productivity. Companies can achieve even greater savings when they run their
videoconferences through IP rather than ISDN networks.
Converting Air Travel to Video Conferencing
As we saw in April, 2010 freak weather associated with naturally occurring or
man-made events can have a devastating impact on the airline industry. Clouds
of volcanic ash coming from an Icelandic volcano closed many European airports
for several days and left passengers stranded for even longer across the globe.
The financial impacts ran into many million of dollars for many airlines and
illustrates what is likely to become even more frequent in the future as we see
increased cyclomic activity in the region.
CASE STUDY: POTENTIAL ECONOMIC LOSS FROM NATURAL DISASTERS
The International Air Transport Association says disruptions to European air
travel from the volcanic ash cloud have cost the industry at least US$1.7 billion.
The disruption exposed weaknesses in logistics and distribution systems and laid
bare those companies without adequate contingency plans. The situation could,
indeed lead to new investment in rail networks which may have a positive economic
and environmental benefit. In terms of trying to quantify financial impacts, the World
Travel and Tourism Council believes that travel and tourism, including transport,
hotels and related investment, comprise about 4 % of West European GDP.
Schroder’s estimated it would take as little as 10 days of inactivity in the aviation
industry to trigger a 0.1% decline in GDP in the UK where airlines accounts for
around 0.53%. Chatham House estimated it would only cut Euro GDP by 1-2%.34
Pressure on airlines to mitigate their own impacts on climate change are set
to increase. We believe that the responses that airlines make to the growing
demands from stakeholders will have a significant impact on their reputations and
brands. Leading companies, such as Cathay Pacific, have already differentiated
themselves from competitors through a sophisticated climate change strategy.
But pressure for airlines to engage on climate change adaptation is also going
to increase. This is going to require them to work collaboratively and with other
associated businesses (e.g. the airports) to adapt to the inevitabilities of climate
change over the next decades. There are real financial risks associated with
companies that do not acknowledge the full potential impacts of climate change
in the future.
© Responsible Research 2010 | Issues for Responsible Investors | 18
Source: The Business Case for Video Conferencing, Wainhouse Research, 2005
A bigger threat comes from the growth of high speed train links that connect
cities, which can often match flight times when taking into account time taken
to travel to airports, to check-in and to go through the new enhanced security
screens in place today.
There is little doubt that the impacts of climate change are going to have a
significant impact on the industry. In the short-term we should expect to see
mitigation measures being put in place (which are, in any case, often cost saving)
and a significant increase in the reporting and disclosure of related issues by
most airlines. In the short to medium-term airlines will have to be engaged
with climate change adaptation strategies and business continuity planning.
This will require them to demonstrate the development of real and meaningful
partnerships with businesses, governments and civil society actors to deal with
adaptation issues. In the longer term we face much uncertainty and the worst
effects of climate change could severely damage this industry’s ability to be
profitable.
Biofuels
With climate change being a key issue for the aviation industry, airlines in the
region have joined the quest for alternative fuels. Biofuels have the potential to
reduce aviation’s carbon footprint by up to 80%.35 They have been confirmed as
a viable option36 and certification is expected in 2011.37
Whilst the use of biofuels offers many opportunities for business and can provide
some mitigation for smoothing future traditional fuel price volatility, its use
remains controversial amongst environmentalists worried about impacts on
biodiversity, emissions from burning, food production and water usage. Airlines
using biofuels in the future will have to ensure that they are sustainable and do
not solve one problem by creating another.
IATA, which has set a target for its member airlines to be using 10% alternative
fuels by 2017,38 is focussing efforts on so-called sustainable biofuel from second
or new generation biomass such as algae, jatropha and camelina, which are
thought to have a reduced impact on food crops and freshwater usage. According
to IATA, tests demonstrate that the use of sustainable biofuels as “drop-in” fuels
is technically sound and that no major adaptation of aircraft is required.39 The
Association points out that “biofuels can be blended with existing jet fuel in
increasing quantities as they become available.”40
Tremendous business opportunities are being seen in developing sustainable
biofuels. According to Giovanni Bisignani, IATA’s Director General and Chief
Executive, “aviation biofuel is a US$100 billion plus business opportunity”.41 With
the worldwide aviation industry consuming some 1.5 to 1.7 billion barrels of
Jet A-1 annually, analysis suggests that a viable market for biofuels can be
maintained when as little as 1% of world jet fuel supply is substituted by biofuel.42
A few airlines have already tested biofuels, among them Qantas, Air New Zealand
and Japan Airlines.43 Virgin boss, Richard Branson, has pledged to commit all
profits from his travel firms, such as airline Virgin Atlantic and Virgin Trains, over
the next 10 years for investment in new renewable energy technologies.44 While
biofuel test flights have shown promising results the economics are complex, and
a number of commercial challenges will need to be overcome before biofuels can
be truly competitive with conventional jetfuel.45
CASE STUDY: Japan Airlines Camelina Biofuel Flight, January 2009
Camelina sativa: a plant which needs little water or nitrogen
to flourish and that can be grown on marginal agricultural
lands thus not competing with food crops. It may be used
as a rotation crop for wheat, to increase the health of the
soil.46
Japan Airlines became the fourth airline to test biofuels in
flight and the first to successfully demonstrate camelina as
a potential biofuel feedstock. The airline conducted a onehour 747-300 flight test using a B50 blend of camelina,
jatropha and algae based biofuel in the number 3 engine.
Pilots reported that the biofuel was more fuel efficient than
traditional jet-A fuel (kerosene) and indicated that biofuels
may not only be a carbon-neutral option, but a more fuel
efficient one. Pratt & Whitney, whose engines were used
in the test, confirmed that the biofuel met performance
criteria established for commercial aviation jet fuel. Boeing
Japan said that the company is hopeful of flying revenue
passenger flights within 3-5 years using biofuels.47
© Responsible Research 2010 | Issues for Responsible Investors | 20
The expected growth in air travel in the region is likely to lead to significant
increases in air pollution emissions including those from associated ground travel
to, from and around airports.
Aircraft emissions produce air contaminants such as nitrogen oxides (NOx),
hydrocarbons (HC) and fine particulate matter (PM), which in turn can contribute
to broader environmental issues related to ground level ozone, acid rain, climate
change, and present potential risks relating to public health. As aircrafts travel
great distances at a variety of altitudes, they generate emissions that have the
potential to impact air quality in the local, regional and global environments.48
Aviation’s contribution to local air pollution, however, is comparatively small.
According to the Hong Kong SAR Government’s air emissions inventory 2007,
for example, aviation contributed 5.5% of nitrogen oxide (NOx), 3% of carbon
monoxide (CO) and less than 1% of other air pollutants to local levels of air
emissions.49
Worldwide national air quality regulations are still evolving and gradually
becoming more stringent as industrial activities and transportation systems
expand and the impact of local air quality on human health is better understood.
In the region, air quality regulations and emissions guidelines vary by country,
with Japan, New Zealand and Australia having more strict guidelines.50 In many
parts of Asia there has been a rather low level of government commitment to
air quality monitoring, air quality management and policy implementation and
enforcement. To date there has been no regional harmonisation of emission
standards which could better tackle challenges related to trans-boundary
emissions and global climate change.51
In recognition of growing pressures due to local air quality and climate effects,
coupled with the predicted continued growth in air traffic, aviation stakeholders
have set out their goals and vision for the future of aircraft emissions in the
medium and long term. NOx, unburned hydrocarbons, carbon monoxide and
smoke are subject to international standards set by ICAO who regularly tighten
engine emission standards for each new generation of aircraft. The organisation
also promotes the use of operational measures as a means of limiting or reducing
the impact of aircraft engine emissions and has published guidance material.52
Target efficiency gains will also lead to a further reduction in pollutants such as
NOx and carbon monoxide.
Airports have a significant part to play in cleaning up the industry. It is considered
essential to effectively manage emissions from: terminals, maintenance and
heating facilities; airport ground service equipments (GSE); and various ground
transport travelling around, to and from airports.53 In Europe, older aircraft with
high NOx ratings are being charged higher landing fees than cleaner aircraft.54 In
addition, some airports are working with the aircraft and engine manufacturers
to deliver reductions in emissions and noise impacts on local communities.
Another emerging issue relates to onboard air quality and air circulation. This
issue has received much attention in the UK after aircrew who suffered from
aerotoxic syndrome have made their cases and concerns public.55 Symptoms
apparently include fatigue, blurred vision, vertigo, seizures, headaches and
dizziness. On most aircraft warm, compressed air is delivered to passengers
from ‘bleed air’ delivered from the engines mixed 50/50 with re-circulated
cabin air. Various engine lubricants may end up as organophosphate ‘fumes’ in
the cabin air that are thought to affect the health of frequent passengers. The
Boeing 787 Dreamliner seems to be the aircraft industry’s answer to this issue as
electrical compressors supply cabin air, thus reducing the risk of contamination
from engine oil. Responsible airlines could also install fume detectors and use a
low fume engine lubricant, such as that produced by the French company NYCO.
This company does not use the organophosphate anti-wear additive, Tri-cresylphosphate, (TCP) that is present at 2-3% in most other engine oils. Tests are
still being undertaken to see if their type of engine lubricant really does result in
reduced neurotoxicity.56
NOISE
In 2008 a panel of experts across the aviation industry recommended voluntary
standards for onboard air circulation, lower ozone exposure, new monitoring for
contaminated air from oil or hydraulic fluid leaks, and limits on pesticides used
on planes. However, these issues have not gained much attention in the region
and worldwide most aviation regulators and airlines have yet to act.57
Airline companies need to measure their impacts on air pollution, which must
include all the services linked to their operations (ground transportation, impacts
of airports etc.). They need to be reporting on their impacts and setting clear
reduction targets for the future. It is likely that the costs of air pollution are
going to be significant in many jurisdictions in the future and in some countries
(most notably European ones) we are likely to see older, more polluting aircraft
banned.
Standards and policy positions regarding aircraft noise have long existed and the
issue of aircraft noise has been a driving issue in the location and operational
parameters of airports and in the design of newer generation aircraft.58
On average, aircrafts are already 50% quieter today than they were ten years
ago, according to Boeing and Airbus. It is estimated that the noise footprint of
each new generation of aircraft is at least 15% lower than that of the aircraft it
replaces. ICAO estimates that between 1998 and 2004, the number of people
exposed to aircraft noise around the world was reduced by 35%.59
In 2006, ICAO introduced a new noise certification standard, Chapter 4, that
aimed to ensure new aircraft were at least 10 decibels (or one third) quieter
than those built to the previous Chapter 3 standard. Overall, ICAO advocates
a balanced approach to noise reduction that combines noise reduction at
source; land-use planning and management; operational procedures; and flight
restrictions. When it comes to noise abatement procedures, airlines are faced
with a delicate balancing act as these might counteract efforts to reduce fuel by
shortening routes.
A few airlines in the region, including Cathay Pacific and Singapore Airlines have
started investing in quieter aircraft that meet the latest noise standards. Airlines
failing to make necessary investments in new generation aircraft face substantial
financial risks with airports such as in New York, London, Frankfurt, Amsterdam
and Brussels having stringent airport noise requirements in place and which
regularly fine airlines for noise standard infringements. There is a powerful
incentive to continue tackling this issue, as concerns over noise pollution can and do - affect the viability of airport expansion plans.
© Responsible Research 2010 | Issues for Responsible Investors | 22
Aircraft
recycling
More than 3,500 aircraft will reach their end-of-life between 2008 and 2025 at a
rate of around 200 per year. Disposal of scrap aircraft is a major concern as only
a few are being used for ground training purposes while the majority are often
literally left to rot. However with retired airlines providing a source of aluminium,
the price of which has increased dramatically until the Global Financial Crisis in
2008, aircraft recycling is growing rapidly.60
Aluminimum Price per Metric Ton
Source: http://www.mongabay.com/images/commodities/charts/aluminium.html
It is estimated that over 95% of a plane can be recycled, whether that be for
spare parts or, indeed, melted down for other uses. In fact, manufacturers of
aircraft such as Airbus and Boeing are now designing aircraft not just with a safe
and long life in mind, but how compatible they will be to recycling once they have
reached the end of their useful service life (normally 20-30 years).61
The Aircraft Fleet Recycling Association has developed a set of standards for the
dismantling and recycling of aircraft. The Association seeks to instigate good
practice and drive up environmental standards through its audit and accreditation
process.62 This has allowed more companies, such as aircraft manufacturer
Bombardier, to move into the aircraft recycling business, which was so far limited
to specialist companies.63
To date, two Asian airlines are reporting on aircraft recycling. The lack of
reporting on this issue indicates that aircraft scrapping has not become common
practice yet. This is surprising as it provides added revenue and contributes to
a company’s image as a responsible aircraft operator. Those that are reporting,
are doing so in a minimal way, without evidence of the progress of their efforts
or the benefits to the business and the environment. All Nippon Airways (ANA)
includes recycling of aircraft engine parts and aluminium scraps from repairs
into metal materials as part of their recycling initiatives. Asiana Airlines includes
a statement about promoting the recycling of resources including aircraft parts.
In the future we expect companies to report more on full life-cycle environmental
impacts including end of life impacts. With recycling and reuse of valuable
resources in mind, leading companies will begin to think not only about ‘cradle
to grave’ impacts but also ‘cradle to cradle’ impacts and the use of waste as
valuable inputs into new products.
© Responsible Research 2010 | Issues for Responsible Investors | 24
ISSUES FOR
RESPONSIBLE
INVESTORS
SOCIAL ISSUES
Customer
satisfaction
Customer loyalty and customer satisfaction are a critical part of a healthy airline
business. On established airlines in the region as much as 50% of sales are from
repeat customers on frequent flier schemes. Responsibility towards customers
is nothing short of critical and if airlines lose the trust of their customers the
financial consequences can be disastrous.
During the economic crisis many Asian airlines have cut routes, shed staff and
scrapped aircraft orders. Customer service and maintaining customer satisfaction,
however, has been an area where Asian airlines have generally avoided cutting
costs and, even amidst the economic turmoil, they have introduced further services
and technologies to ensure their passengers enjoy their travelling experience.
For example, Korean Airlines is spending US$200 million to equip its aircraft with
high-end seats and upgraded in-flight entertainment systems in all cabins and
has introduced organic free-range chicken and beef to its menu. Cathay Pacific
and Singapore Airlines have both launched world-class entertainment options on
its long-haul flights.
Qantas cancelled orders for several new aircrafts in June 2009 as a result of
the financial crisis which has made funding less accessible. It has, however,
introduced a programme designed to halve check-in times on domestic flights by
allowing members of its frequent flier program to check in with a membership
card fitted with a special chip.64 All Nippon Airways is adapting to Japan’s aging
consumer base and has made investments to ensure the satisfaction of its elderly
and disabled customers. Special assistance desks have been established so these
customers can enjoy their travel in the same basic way as others.65
It is also important for airlines to ensure mechanisms are in place to collect
customer feedback and consider their comments in future developments. All
Nippon Airways stands out as an example of best practice for its 12 page spread in
its CSR report dedicated to transparency regarding its management of customer
opinions and results of its latest customer feedback survey. The report highlights
a few specific complaints and suggestions raised by customers and provides a
company response alongside them.66
With the growing concern over security and required compliance to international
and national regulators, airlines are increasingly losing control over many
customer experiences involving aviation, in particular issues that impede the
smooth and predictable movement of air travellers. In addition, premium airlines
have to increasingly compete with LCCs for domestic as well as long-hauls flights.
Against this background, premium airlines have sought to expand customer
services in order to differentiate themselves from their no-frills competitors.
Increasingly, we expect perceptions of customer satisfaction not only to be
linked to tangibles such as in-flight entertainment, meals and the customeremployee interface, but also linked to perceptions of social and environmental
responsibility. LCC models and premium-carrier models are likely to differ in this
respect, but increased customer satisfaction will be vital if premium prices and
profitability are to be maintained in the industry.
Employment issues
In 2008, some 32 million jobs were linked to civil aviation globally. Employment
in airlines, airports, air navigation services, and aerospace industries (5.5 million
jobs) plus indirect and induced multiplier effects account for 15 million jobs. A
range of industries related to trade and tourism supports some additional 17
million jobs. Civil aviation’s extended global economic impact is estimated to be
around US$3.5 trillion and 8% of global GDP.67
Yet, many countries are experiencing shortages of suitable technical staff and
aviation is witnessing migration of professional staff between states and regions,
detrimental to some while beneficial to others. This is particularly a problem
in Asia as the youth in the region see careers in other sectors as holding more
promise.68
Among the Asian airlines, many offer training courses at aviation schools in
order to create job opportunities for those considering the aviation industry.
Dragonair (a Cathay Pacific subsidiary) has an Aviation Certificate Programme
which aims to inspire a new generation of aviators in Hong Kong by providing
young cadets from the Hong Kong Air Cadet Corps with first-hand knowledge of
operations of an international airline. The programme includes mentorship with
pilots, training sessions, and tours, in conjunction with a range of the airlines’
business partners.69
Companies who are considering ways to create new job opportunities or extend
employment to those who may experience barriers to access are the ones that
will help develop the industry while also benefiting the communities in which they
have a business presence. Philippine Airlines, for example, provides workshops
that are available to the general public, to aid them in their chances of successful
recruitment. “The making of a Flight Attendant Workshop” is available several
times a year and open for anyone to attend.70
Qantas aims to ensure a fair representation of indigenous employees in their
provision of jobs to parallel their presence in Australian society. The company
developed its Reconciliation Action Plan, a multifaceted approach to ensuring the
inclusion of aboriginal and Torres Strait Islanders people in their company and
aims to have 450 indigenous employees by December 2011 through ensuring
their employment into mainstream roles across a range of business segments.
The airline supports indigenous university students through cadetships and
indigenous school students through school-based traineeships. Qantas has
also formed a key strategic partnership with IBM to attract more Indigenous
Australians into the IT industry, as well as offering school based traineeships and
cadetships for university students.71
The so-called ‘battle for talent’ is a recurring theme particularly in locations
such as Hong Kong and Taiwan where birth rates have been falling dramatically.
Successful airlines are likely to be the ones who are able to recruit and retain the
best talent, particularly in customer facing roles. Recruitment, in particular, is
likely to be easier amongst companies that are able to pay good salaries and offer
rewards (financial and non-financial) linked to performance. The entry of the Y
Generation into the employment market is making recruitment more difficult
because of an emerging demand for interesting experiences over traditional
career structures. To some extent this might benefit parts of the airline sector
in Asia, where travel and destination experience already attracts a young and
sophisticated cabin and flight crew. Premium airlines are likely to find it easier
to find such staff than LCCs where the model of swift turnaround of planes on
shorter routes offers fewer opportunities to stay in out-ports.
There has, however, been downward pressure on wages and other benefits in
the industry. We have also witnessed rapid growth of hourly paid workers rather
than salaried staff and recruitment by carriers located in high cost bases has
often been targeted towards hiring staff residing in lower cost countries. We see
a future where because of the growth of the industry and increasing alternative
employment opportunities, the hiring of well qualified, suitable staff is going
to be increasingly difficult. Good employment practices are going to be vital to
recruitment and retention of top talent. Those unable to hire and keep good staff
are likely to see a downturn in their profitability.
© Responsible Research 2010 | Issues for Responsible Investors | 26
Diversity, gender discrimination and the
perpetuation of stereotypes
Diversity, Discrimination
& Stereotypes
Chinese Airline hostesses practice their deep curtsey72
The industry is already a relatively diverse one with many airlines
wanting to recruit a wide range of nationalities in order to provide a
range of language skills to meet customer needs. Yet diversity often does
not extend beyond national origin and crews are often also recruited
on the basis of physical appearance and age. Yet recruitment from
a narrow segment of society runs the risk of companies not actually
recruiting the best staff and losing out on an important part of company
competitiveness.
Korean Airlines
Advert 2008 –
How low can
you go?
Discrimination on the basis of personal characteristics is not only a human rights
abuse but also extends to concerns over the smooth and efficient operations of any
company. Companies need to ensure that they are not engaging in any activity
that might be seen as constituting a human rights abuse or being complicit in such
an abuse.
Air Asia puts out a fresh, modern image
Gender discrimination and the perpetuation of stereotypes is so high that it seems
common practice in the region’s aviation industry. Examples are various and
include:
- Korean Air’s advertisement of flight services in 2008 featuring female flight
attendants on their knees bowing down to serve guests and its practice of
excluding men when advertising for cabin crew74
- Philippine Airlines’ making stricter age requirements for female cabin crew
and requiring them to be single75
- Malaysian Airlines’ unfair policies for female flight attendants who fall
pregnant and require maternity leave76
- Singapore Airline’s marketing of the ‘Singapore Girl’ as traditionally
subservient to males.77
While many of the listed companies report on the composition of their
workforce, only a few make a statement on discrimination due to age and
physical appearance. These include Cathay Pacific and Korean Air. Asiana
Airlines is particularly transparent about its workplace policies and the
subsequent training for employees to familiarise themselves with them and
handle potential problems at work, such as sexual harassment. Cathay Pacific
is the only airline reporting on the number of incidents of discrimination and
actions taken.
Best practice examples in the region include Korean Air providing employee
training on diversity and sexual harassment and Qantas promoting equal
opportunity employment for women and indigenous peoples.
The business case for having a diverse workforce is extremely strong and includes
the ability to recruit and retain the top talent. There is also significant evidence
to suggest that diversity leads to a more innovative and productive workforce as
well. We would expect responsible companies in this industry to end discriminatory
work practices and embrace diversity in all its forms in the future.
The airline industry is not associated with the ubiquitous ‘sweatshop’ issues in the
same way as we might find in outsourced manufacturing. Nevertheless, airlines
do buy enormous quantities of goods and services ranging from the aircraft, fuel,
uniforms for staff, food, toys and meal trays. Responsible companies will have in
place risk assessments to determine where supply chain issues might impact their
brands and reputation and should be guided by codes of conduct that stipulate
minimum standards for their suppliers.
The undoubted leader in this area of social responsibility is Cathay Pacific. The
airline has a sophisticated code of conduct to which all suppliers are bound. All
existing and potential suppliers must complete an innovative on-line assessment
tool. The company has carried out risk assessments to highlight particular concerns
and targets its assessments at those high-risk supply chains. It stresses the need
to work in partnership with its suppliers in addressing social responsibility issues.
Plans are in place to extend the coverage of supply chain issues to include more
environmental aspects in line with growing stakeholder concerns around this area.
© Responsible Research 2010 | Issues for Responsible Investors | 28
Supply chains
We expect more airlines to establish codes of conduct for their suppliers and
carry out assessments to ensure that brands and reputation cannot be damaged
by accusations of supply chain labour abuses, complicity in human rights abuses,
health and safety violations and environmental degradation. Procurement
departments should have in place policies and procedures for sourcing goods
and services in more ethical and sustainable ways. Airlines should demonstrate
that they have responsible supply chain practices and that unfair exploitation of
people or the environment is not a source of price competitiveness as we see in
other industries.
Sustainable procurement and the use of products that have positive social and
environmental characteristics is an important part of supply chain related product
responsibility. Companies can do more to steer their purchasing decisions to
encourage more sustainable consumption by passengers. The use of recycled
materials, Fair Trade products and organic food are all important considerations
for airlines wanting to differentiate themselves through their sustainable
development practices.
Trafficking & combating
child sex tourism
Engagement with the
social media
One issue that may often be linked to both supply chain and consumer issues
involves trafficking and sex tourism. The trafficking and exploitation of children
for sexual purposes is heavily prevalent in Asia and in particular in: Sri Lanka,
the Philippines, Thailand, Taiwan, and Cambodia. Globally, it is a multibillion
dollar industry that is said to affect as many as two million children. The extreme
illegality and underground nature of the crime means statistics are less accurate.
Nevertheless, it has been estimated that children make up 40% of sex workers
in Thailand, and that in Cambodia about one third of all sex workers are under
the age of 18. The numbers are alarming, and probably understated, but indicate
that a lack of coordinated regional efforts towards eradication have allowed the
industry to continue and thrive.78
Today Twitter, Facebook, Flickr, YouTube and blogs, offer largely unexplored
new advertising and promotion platforms to promote products, target the online
and younger community, and develop brand loyalty. Word of mouth advertising
is the largest influencer in travel making decisions, and social media platforms
can greatly facilitate this.86
The airline industry is inextricably involved in the facilitation of this problem,
as a channel that offenders use to gain access to children from all over the
world. At the same time as part of the tourism industry it is also well placed
to help protect children. The Human Trafficking Organization implicates the
airlines by suggesting that some are lax in scrutinising passengers, a situation
which can contribute to the problem as traffickers then select these airlines to
smuggle children. It is important for airlines to take a stance in acknowledging
this problem, and they can help by raising awareness and potential deterrence.79
Despite the prevalence of this crime in Asia, most counter-trafficking efforts
have been first introduced in Europe. In February 2010, the Indian chapter of the
Pacific Asia Travel Association (PATA) has implemented guidelines for the Indian
tourism industry which require airlines to include information about the illegality
of child abuse in their promotional brochures and other publicity materials. Airline
employees will be trained to monitor paedophiles and will block the accessing of
Internet pornography on their premises.80
“End Child Prostitution, Child Pornography and Trafficking of Children for
Sexual Purposes” (ECPAT) is an international organisation aimed to end child
prostitution, child pornography and trafficking of children for sexual purposes and
has developed an initiative which aims to engage the private sector. The Code
of Conduct for the Protection of Children from Sexual Exploitation in Travel and
Tourism81 is funded by UNICEF and supported by the World Trade Organization.
The only scored company to sign the code is Japan Airlines, with three of its
tourism specific subsidiaries as signatories.82
ECPAT, in conjunction with Air France, has developed an awareness building
in-flight video for airlines.83 None of the listed Asian airlines have shown this to
passengers to our knowledge. Air France allocates a portion of in-flight toy sales
to fund its Child Sex Tourism awareness programs. KLM does not run the video
but it made a statement concerning child sex tourism to travellers, encouraging
them to report any suspicious behaviour.84
As an example of best practice within the region, Qantas has demonstrated
its support with the Australian Federal Police’s commitment to combating the
crime of child trafficking by displaying full page advertisements in their in-flight
magazines to raise awareness.85
© Responsible Research 2010 | Issues for Responsible Investors | 30
In Asia Pacific an increasing number of airlines are using social media to engage
with different customer segments - Air New Zealand, Cathay Pacific, Jetstar,
Philippine Airlines, Qantas, Thai Airways, Tiger Airways, and Virgin Blue all have
Twitter accounts. Taking the example of Tiger Airways, their twitter account
not only reminds followers of special deals and seasonal sales, but also asks
for opinions, on various topics, such as, “celebrity endorsements for LCCs” and
“desirable destinations.” These are examples of how these airlines are using the
accounts to simplify the customer feedback mechanism, modify their product
and service offering and to retain customer loyalty.
YouTube is another social media phenomenon, which taps into the youth market
much more effectively than TV advertising. Air New Zealand has benefited greatly
from their YouTube advertising campaign of July 2009, which cleverly highlighted
their commitment to transparency regarding the airline’s all-inclusive domestic
fares and received nearly 10 million hits.87
Blogging is an avenue that some airlines are pursuing to capture target markets.
Malaysia Airlines stands out in this regard for its employee created blog. This
multi-lingual blog is accessible by the public. Titled “Living Malaysian Hospitality”
and powered by employees, posted categories include “so said the customer”
and “giving back to the community.” The customer feedback section allows
passengers to submit praise as well as complaints and to receive prompt response
from the airline’s employees. The community section describes the volunteer
activities of Malaysia Airlines staff - in a much more personalised and detailed
way than CSR Reports are able to.88
It is becoming increasingly important for airlines to keep track of the social
media and utilise these avenues to engage with their stakeholders. Social media
provides passengers with a more immediate and broad audience to express their
frustrations and airlines need to be able to manage this negativity.
However, there are downsides to such social networking, considering the public
nature and significant online presence of these formats. Virgin Atlantic and British
Airways have both faced problems in the past with flight attendants posting
negative comments about passengers on Facebook. This highlights a need for
internal awareness and communication on the management of social media.
Singapore Airlines has released guidelines on employee blogging and internet
usage. Employees are forbidden to write about work or provide any pictures in
the public social media sphere.89
There is little doubt that the power of the social media has the power to enhance
brands. But there is also a significant threat to the reputations of companies
embroiled in online attacks from customers, employees and others. There is a
need for an industry, which is very much the attention of many stakeholders,
to engage with the social media and monitor and manage online content. We
expect more engagement with a range of stakeholders through the social media
in the future.
Safety
While, globally, 2009 was one of the safest years in aviation history90 the accident
rate in the Asia-Pacific worsened to 0.86 (aircraft written off per million flights)
compared to 0.58 in 2008, with three major accidents involving carriers from the
region.91 Safety, therefore, remains the number one priority of IATA’s Asia Pacific
regional priorities for 2010 and of the Association of Asia Pacific Airlines (AAPA).92
AAPA raises some significant concerns on the issue, stating “within the region
there is still an apparent disparity in the levels of regulatory oversight in some
countries and conversely varying levels of compliance by some operators –
existing and new entrants”.93
Within the region, South Korea was ranked highest for aviation safety oversight by
ICAO following its recent Universal Safety Oversight Audit Programme (USOAP)
audit, where it demonstrated 99% compliance, a noteworthy achievement. At
the other end of the spectrum, the EU list of carriers subject to an operational
ban, which was up-dated in November 2009, now includes carriers from four
Asia Pacific countries, namely Cambodia, Indonesia, the Democratic People’s
Republic of Korea and the Philippines.94
All Nippon Airways reports comprehensively on its Safety Management System
which covers the following key aspects: ANA Group safety principles, safety
management regulations, risk management, reporting programme, education
and training, internal safety auditing programme and external audits. The airline
seeks to continually make safety improvements via the four stages of the cycle—
Plan, Do, Check and Act.95
Food safety is a particular area on which an increasing number of airlines are
reporting, including Cathay Pacific, Korean Air and All Nippon Airways. This seems
to be driven by the motivation to increase customer service and to respond to
the increasing number of health-conscious passengers.
Safety issues remain one of the most material
risks for airlines and, therefore, a major
concern for investors. One major accident or
incident that can be linked to negligence on the
part of an airline can cause shareholder value
to be destroyed as possible litigation costs
rise. In the eyes of many customers there are
still some doubts around the safety of LCCs
where older aircraft, serviced less frequently
and flown by less experienced pilots are in use.
Premium airlines are increasingly using safety
records as a source of competitive advantage.
Chart of Airline Accidents
Source: Airfleets.net and
company websites
© Responsible Research 2010 | Issues for Responsible Investors | 32
CASE STUDY: INDONESIAN SAFETY RECORD 12 crashes in the past two
years, seven of them with fatalities.
Twenty people were injured this year when a Boeing 737 operated by Merpati
Nusantara Airlines, a small domestic Indonesian carrier, overran a runway in
heavy rain at Manokawi Airport in Indonesia’s Papua Province. The aircraft’s
body was split open in the crash.The aircraft was carrying 103 passengers and
six crew members.
Since 1971 Merpati has suffered 36 serious safety incidents in which 297 people
have died, according to the Aviation Safety Network. Among its more recent fatal
accidents, was a crash in August 2009 that resulted in 15 fatalities, one in 2001
in which three died, two in 1997 that
killed 18 and one in 1995 that resulted
in 14 deaths. The airline has had 21 fatal
accidents in 39 years, an average of one
every 22 months.
The
European
Union
banned
all
Indonesian-registered
aircraft
from
flying over its airspace in June 2007,
acting on a report from the International
Civil Aviation Organisation (ICAO) which
criticised the country’s safety standards.
The EU ban followed a number of air
crashes, including an Adam Air jet fell
into the sea off Sulawesi on January 1,
2007, killing all 102 on board. A Garuda
jet crashed in Yogyakarta in March the
same year, with 21 dead. Garuda was
taken off the EU banned list in July
2009.96
Security
The 2009 Christmas Day bombing attempt on a trans-Atlantic Northwest Airlines
flight97 has highlighted airline security once again and fired discussions on how
to best improve security for international aviation. The discussion centres around
acts of sabotage, unlawful seizure of aircrafts and terrorist attacks as well as on
health crises and communicable disease pandemics.
Currently challenged by a multitude of individual national regulations and protocols,
airlines and airports are calling for a harmonisation of security requirements on a
global scale98 and, also, to weigh the related costs to productivity and customer
satisfaction against the benefits to society.99
Following the attempted terrorist attack in the United States on December 25,
2009, the U.S. Transportation Security Administration issued a new directive,
developed in consultation with law enforcement officials and domestic and
international partners, which mandates that every individual flying into the U.S.
from anywhere in the world who holds a passport issued by or is travelling from
or through nations that are state sponsors of terrorism or other countries ‘of
interest’ undergo enhanced screening.100
According to IATA, airlines in the region pay almost US$6 billion a year towards
security. It calls for improved government-industry cooperation on security in the
region and stresses that security should be mainly a government responsibility.
In 2005 AirAsia led the field when it introduced FlightVu Cockpit Door Surveillance
Systems (CDSS) for seven Boeing B737-300 aircraft, which enables the flight
crew to view the area outside the flight deck door and to visually identify anyone
requesting entry and take appropriate action should an incident arise.101 Many
other airlines have now followed suit ensuring that flight decks are not easily
accessible.
With the collection, analysis and exchange of passenger information, the use of
biometrics and passenger vetting playing a crucial role in improving security,
information security and the protection of passenger data are becoming key issues
for the industry. Airlines need to get appropriate systems in place to ensure that
the collection of personal data is limited to information that is either essential or
provided with the consent of the individual passenger. All Nippon Airways has
developed a system for raising employee awareness, and controlling and using
information properly by revising rules concerning overall information security
in 2008. This initiative followed a review of rules and guidelines concerning the
handling of personal information of customers.102
In an industry where security has always been a priority, we nevertheless expect
further breaches of security as almost inevitable. Although Asian airlines have
historically not been the centre of terrorist and other attacks on their operations,
we cannot necessarily expect this to continue. The growth in ethnic, religious and
political conflicts in the region adds to risks in this industry. Airlines need to have
in place proper and regular risk assessments that can highlight possible threats
to their operations.
© Responsible Research 2010 | Issues for Responsible Investors | 34
ISSUES FOR
RESPONSIBLE
INVESTORS
GOVERNANCE ISSUES
Competition policy
Market liberalisation and competition have changed the economic environment
of air transport in the region. While the North American and European aviation
industry is witnessing protectionist measures and government subsidies as
companies fight for survival, the Asian aviation sector is moving more towards
greater liberalisation with the ASEAN Open Skies agreement in place. Antitrust
and unfair competition laws have been passed under the belief that the economy
functions best when monopoly, pricing limitations, predatory practices and
merger control are governed to permit activities that hinder healthy growth.
The Association of Asia Pacific Airlines (AAPA) tracks issues related to anticompetitive behaviour in the aviation industry and advises its member airlines
on recent developments. It provides information about US Department of Travel
legislation, as a way to prepare airlines for the upcoming legislation trends in the
region.
Singapore and Thailand have signed liberalisation agreements, with Singapore
especially tapping into the foreign market. In 2004, Singapore, Brunei and
Thailand concluded a multilateral agreement providing for unlimited direct
passenger flights between any destinations in the three countries.
In order for successful liberalisation to be achieved, throughout the process,
specific attention will be paid to market competition issues. This is especially
the case for code shares between airlines competing directly on routes. In
2003 when Japan Airlines International merged with Japan Air Systems, taking
the number of domestic airlines down to only two, measures were enacted to
ensure competition could still thrive fairly between the two and that they would
not prevent other airlines from entering the market. In fact, Japan Airlines
International and All Nippon Airways cooperated in order to compete with the
bullet train on their domestic routes between Osaka and Tokyo. Measures were
enacted to ensure that customers would still be receiving affordable airfares.
For example, they agreed that normal airfares would be reduced by 10% and
that the airfare would not be raised in at least three years unless the business
environment changed drastically.103
Competition policy and liberalisation of the skies is supposedly designed so that
passengers will benefit from lower fares and better services. In the long term,
airlines gain as their costs tend to fall as well as revenues declining due to lower
fares. Airlines that can improve their productivity to match a more competitive
environment will survive, while those who cannot will struggle. The Cambodian,
Laos, Myanmar, Vietnamese (CLMV) airlines are already open to international air
services and thus exposed to competition from more established regional airlines,
such as Singapore Airlines, Malaysia Airlines and Thai Airways. Nevertheless,
they have a significant opportunity for growth and expansion through increased
tourism and trade revenues in their countries.
Out of all the ASEAN members, only Singapore has adopted an open-sky policy
for international routes. Others in the region have adopted bilateral or multilateral
air service agreements. Previously, ASEAN members had been conservative in
their treatment of domestic and intra-regional aviation policy despite being very
liberal in allowing freedoms with international routes and carriers. LCCs have
recently taken advantage of the liberalisation in intra-regional routes that was
rooted in passenger complaints over high prices for domestic routes and rising
demand of regional tourism. Indonesia has rejected appeals for liberalisation
and made moves to protect its many small private airlines by disallowing nonIndonesian LCCs to land in any of its cities.
© Responsible Research 2010 | Issues for Responsible Investors | 36
Consumer issues &
fair marketing
Liberalisation of aviation markets in ASEAN and the resultant competition may
cause mergers between major airlines or consolidation through code shares as
airlines seek to emerge as dominant players. This will create serious implications
for consumer protection and competition protection. Merged airlines can introduce
predatory practices that are detrimental to smaller players and to consumers
with lower purchasing power. Governments, therefore, play a key role in putting
in place appropriate competition policies when they begin to liberalise the
ownership of airlines under their control.
A major principle of fair marketing is that companies provide to their customers
education and accurate information, using fair, transparent and helpful marketing
and contractual processes.104 This means they must openly disclose total prices
and taxes, terms and conditions of the products or services as well as any
accessories required for use and delivery costs.
In the airline industry, with the introduction of ancillary fees by premium
airlines who are trying to lower costs or by LCC’s who provide low-frills service,
transparent pricing is an issue of great importance. Furthermore, advertising and
marketing associated with low-frills service or promotional deals can often be
misleading and leave potential passengers upset at the final amount of payment
compared to what they were led to believe they would be paying.
In 2008, Malaysia Airlines and AirAsia were criticised by the Malaysian Association
of Tour and Travel Agents (MATTA) for advertising “zero fare” flights. MATTA
said that such advertisements were misleading and should be banned as they
do not provide customers with the full range of prices to expect. Customers
still had to pay airport taxes, fuel surcharges, and other fees for the limited
“zero fare” tickets. While New Zealand, Australia and Europe have outlawed such
advertising practices, and the European Parliament had agreed to a new law to
include such costs and fees in the advertised offer, such legislation has not been
passed in Malaysia.105
We would expect responsible companies to be entirely transparent in respect of
their pricing policies and their communications with respect to pricing and special
offers. We are likely to see tough laws and guidelines coming from competition
authorities and other government agencies covering such behaviour. Prosecutions
are likely to follow.
Remuneration of
Boards
Political involvement &
government relations
Board Remuneration is an aspect of corporate governance reporting that is yet
to develop sufficient transparency in Asia. Many annual reports or corporate
governance reports will state basic fees or salaries that board members receive
for attending meetings or per annum; yet, do not explain how it is linked to the
performance of the company or, more particularly, if it is affected negatively by
poor company performance. In more established markets such as Australia, there
are corporate governance disclosure requirements for listed companies, however,
an Association of Chartered Certified Accountants (ACCA) report argues this has
not made an impact in slowing the growth of executive pay. Despite legislation
in the 1990s requiring companies to disclose executive salaries, remuneration
committees have not responded adequately.106
It is important for companies to be transparent about how much money they
give to the government, even in the form of supporting public policy positions
or government charities. In the same principle, companies should indicate when
they have received support from the government and in what capacity. This is
of particular importance in Asia where a large number of airlines are semi-state
owned or receive government subsidies (hidden or otherwise).
Regulations on disclosure and transparency differ among the Asian economies.
China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea,
Taiwan, and Thailand all require disclosure on directors’ remuneration. However,
this differs in some countries allowing this disclosure on aggregate rather than for
each individual director. Shareholders cannot obtain minutes of board meetings
in Hong Kong, Malaysia, Singapore or Thailand, making it difficult for them to
understand how the board operates.107
But, in the face of recession some airlines have demonstrated greater transparency
in an attempt to prove responsibility in cost-cutting measures. In mid-2009,
Singapore Airlines announced that it would cut salary of managerial staff from
July, ranging between 10% and 20%, while its board of directors also agreed to
take a cut of 20% as part of efforts to keep the airline profitable.108
We expect to see increased transparency and accountability amongst the most
responsible companies in the region. This requires increased transparency on
the selection and criteria for selection of Board members, remuneration, links
between remuneration and performance, diversity of the Board and decisionmaking processes.
Nearly all national carriers in ASEAN and China are majority owned by the
government on the grounds they should meet national needs, promote national
security and enhance national pride. Against this background, profit oriented
incentives are often less important and pose a significant risk for minority
shareholders.
The Malaysian government, for example, holds shares in Malaysia Airlines that
gives it a right of veto on major decisions. Malaysia Airlines has often limited
freedom to increase domestic fares because the government does not want to
cause inflationary pressure.
Another example is Vietnam Airlines, which was established as a state owned
enterprise in 1986. Despite its transition to a corporation in 1996, members
of management remain political appointees. The corporation has a seven seat
management board whose members are appointed by the Prime Minister.109
In Indonesia, national airlines are important in serving the domestic transportation
needs of a largely populated and hugely dispersed archipelago, ensuring that
all parts of this country remain connected. This includes remote areas where
air routes are uneconomical. This connectedness has important implications for
political stability as well.110
Political involvement with airlines has an impact on the competition policy in
the region. Amid the financial crisis in 2009, Thai Airlines, for example, sought
co-operation from the Comptroller General’s Department to strictly ensure that
all air travel by officials of government agencies, state enterprises and public
organisations was on the flag carrier. This was in response to calls by some
officials for flexibility in the fly-THAI directive so that they can use foreign airlines
for reasons such as lower fares, service preferences or better connections.111
The Chinese aviation industry has been consolidated geopolitically around three
major airlines (Air China, China Eastern Airlines and China Southern Airlines)
with hubs in Beijing, Shanghai and Guangzhou. In the aftermath of the recession
in late 2008, the Chinese government instituted several measures to relieve
the pressure from these airlines, including restrictions on start up carriers.
Such interventionist measures are said to sustain inefficiency in a struggle
to resolve short-term survival and will most certainly not promote long-term
competitiveness.112
After the economic crisis it seems that in some parts of the region political
intervention in the airline industry is about to diminish. In 2006, for example,
Malaysia Airlines, published a “Business Turnaround Plan”, which made the
airline’s weaknesses public, looking even at a possible bankruptcy situation. With
a subsequent promise by the government not to intervene, various measures
to lower costs have been introduced, ascribed to a new generation of more
independent executives. These have included the cutting of unprofitable routes,
reduction in fleet, and increases in employee productivity and aircraft daily usage.
Compensating for a further reduction in its long-haul network (the closure of
New York and Stockholm routes), the airline is planning to expand to Australia,
China, South Asia, the Middle East and ASEAN countries.113
Among the listed companies in the region only Qantas and Malaysia Airlines
report on their contribution to political parties. Malaysia Airlines discloses its
involvement with Project PINTAR as a joint project with Government linked
companies to promote education within the underprivileged youth. The Chairman
also publicly thanks the government as a key stakeholder for its unwavering
support, specifically stating it would benefit from the government’s stimulus plan
which provided a 50% rebate on landing charges.114
© Responsible Research 2010 | Issues for Responsible Investors | 38
Bribery &
corruption
According to Transparency International’s Global Corruption Report 2009 the
level of corruption in the private sector worldwide remains disturbingly high.
Prominent corruption scandals and lack of transparency and accountability were
at the root of the financial crisis.115
With the liberalisation of the aviation market in Asia there is a risk of an explosion
of corrupt practices. Corruption in the private sector has traditionally been severe
and it remains one of the most commonly found forms of poor governance in
places such as China, Vietnam, and Indonesia, amongst others. While there is
evidence of new legislation tackling private sector corruption throughout the
region, from the establishment of new anti-corruption agencies to the provision
of whistleblower protection, there is still a lack of political will to fight corruption
and the effective implementation of laws is still underdeveloped. In South-Korea,
for example, the current government has introduced ‘business-friendly’ policies,
sometimes at the expense of anti-corruption initiatives.116
When it comes to fighting corruption, a typical challenge in the region’s aviation
sector is the complex interrelationship of politics and the private sector with
significant government participation in the aviation sector and considerable
business participation in politics. This means that corruption may take place with
impunity in some countries.
Thai Airways is under scrutiny from its customers and has been accused of
corruption charges associated with its government involvement. In 2009, for
example, the director of Thai Airways International’s Crew General Administration
Department filed a complaint with the National Anti-Corruption Commission
against a selection committee chaired by Finance Ministry permanent secretary
Suparut Kawatkul. This was in response to the committee naming appointees
for the position of Executive Vice President for Operations and Business
Administration, which were found to be connected to some of the committee
members, as a brother-in-law and classmates.117
In Indonesia various fatal accidents raised concern that regulatory neglect,
coupled with bribery, might have undermined passenger safety and led to
Indonesian airlines being banned from European Union airspace in July 2007.
According to reports by testimonies, the institutionalisation of bribery related to
certificates (which included operating permits, pilot license extensions, increasing
pilot ratings and even airplane flightworthiness) discouraged investment in
maintenance and training costs.118
Against the background of weak government initiatives and law enforcement,
we see private sector initiatives and collective action by companies as crucial in
raising corporate integrity and fighting corruption. Stock exchanges in the region
such as Shanghai and Malaysia are increasingly engaging listed companies in
strengthening corporate integrity by developing mandatory corporate governance
standards.
Our analysis shows that business initiatives on corruption are still low in the
region’s aviation sector with only four companies reporting on this issue, namely
the leaders, Asiana Airlines, Cathay Pacific, Korean Air, and Quantas.
Conclusions
The outlook for the airline industry as a whole is largely positive with an inevitable growth in
the number of passengers flying in Asia. We expect to see further liberalisation of the market
coupled with a degree of industry consolidation. The growth of LCCs will be significant in
markets serving second tier cities within the region. Yet, the airline industry is not a hugely
profitable one and continued tough competition coupled with rising costs associated with fuel
and environmental costs means it is likely that profits will remain modest despite growth.
Our analysis of the 24 listed airlines in the region shows a great disparity between companies
recognising their responsibility towards ESG issues and those who seem to be blissfully unaware.
We have demonstrated in this report that there are a growing number of risks associated with
many of these issues and that companies that cannot engage with them or fail to do so will
face both reputational and financial penalties. On the other hand we have pointed to the real
advantages associated with differentiation on social and environmental issues that can lead to
a competitive advantage and increased profitability for some companies.
The leaders in the airlines industry have demonstrated that they can and do take ESG seriously.
Impressive scores by Cathay Pacific, Korean Air and Asiana Airlines provide a benchmark for
others to follow. But a number of companies remain timid and have a long way to go to catch
up on the ESG performance of the best companies in Asia.
Disclosure on the economic impacts of aviation and on the governance of companies is relatively
strong in the region. Most companies provide significant information on their economic
contributions and their governance structures. Labour issues and environmental indicators are
less well disclosed even though this report highlights that these areas are very much linked to
some of the key risks for companies and their investors in this industry.
Perhaps most importantly amongst the issues we have identified are the environmental risks
associated with climate change and air pollution. Although only responsible for 3% of global
greenhouse gas emissions, the sector has been identified by many regulators as an area of
concern. There are undoubtedly going to be increasing costs associated with environmental
damage caused by airlines. But in an increasingly sophisticated market customers and other
stakeholders are increasingly going to judge airlines on their environmental performance.
Profitability is also likely to be hit by the inevitability of rising fuel prices over the medium term
as resources become more depleted and harder to extract. The growth of the airline industry
will also increase demand for fuel and other resources and inevitable price rises.
Social issues remain important as well. The airline industry makes considerable contributions to
the GDP of many countries and employs, directly and indirectly, many thousands of people in
the region. Yet, there are a number of questions raised in this report about the basis on which
staff are hired and possible discrimination and human rights abuses associated with some
employment practices. We have also highlighted the impact that airlines have on secondary
sectors through their purchasing policies and point to the need for supply chain codes of
conduct and sustainable procurement practices.
The industry has always put an emphasis on safety and this has become an important part of
the profile of airlines. Yet there are major concerns in some parts of the industry concerning the
degree of regulatory oversight in place and the potential for bribery and corruption to impacts
on safety and security.
This last point relates to the governance of many of the companies analysed in this report and
their relationships to governments when they are perceived to be a national carrier. Government
ownership, subsidies and political involvement distort competition in the sector.
Investors will already acknowledge that the airline industry is challenged by relatively low
profitability and is highly susceptible to economic disturbances. Yet it is an industry that
continues to grow, particularly in the Asia-Pacific region.
There is now a growing recognition that the brands and reputations associated with many of the
players in the region is likely to be inextricably linked to many of the issues highlighted in this
report. Those that are transparent and can respond to the issues via their differing disclosure
vehicles are set to gain a competitive advantage through their non-financial performance and
that will build loyalty and trust amongst customers and other stakeholders. Those continuing
to lag behind on issues of transparency and accountability will face huge potential risks and are
best avoided by responsible investors.
© Responsible Research 2010 | Issues for Responsible Investors | 40
Appendix 1
Environmental indicators based on GRI
XEN 4
Fleet Modernization
EN1
Materials used by weight or volume
XEN 5
Biofuel
EN2
Percentage of recycled input materials used
XEN 6
Climate change impacts
EN3
Direct energy use
XEN 7
Dismantling planes
EN4
Indirect energy use
XEN 8
Landing techniques
EN5
Energy Use Ratio (efficiency)
XEN 9
Noise pollution
EN6
Energy efficiency initiatives or renewable energy sources
XEN 10
Taking up land (e.g. airports)
EN7
Energy use reduction initiatives
XEN 11
Supply chain code of conduct
EN8
Total water withdrawal by source
EN9
Water sources significantly affected by withdrawal of water
EN10
Percentage and total volume of water recycled and reused.
EN11
Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high
biodiversity value outside protected areas
EN12
Description of significant impacts of activities, products, and services on biodiversity in protected areas
and areas of high biodiversity value outside protected area
EN13
Habitats protected or restored
EN14
Strategies, current actions, and future plans for managing impacts on biodiversity
EN15
Number of IUCN Red List species and national conservation list species with habitats in areas affected by
operations, by level of extinction risk
EN16
Total direct and indirect greenhouse gas emissions by weight
EN17
Other relevant indirect greenhouse gas emissions by weight
EN18
Initiatives to reduce greenhouse gas emissions and reductions achieved
EN19
Emissions of ozone-depleting substances by weight
EN20
NO, SO, and other significant air emissions by type and weight
EN21
Total water discharge by quality and destination
EN22
Total weight of waste by type and disposal method
EN23
Total number and volume of significant spills
EN24
Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the
Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally
EN25
Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly
affected by the reporting organization’s discharges of water and runoff
EN26
Initiatives to mitigate environmental impacts of products and services
EN27
Percentage of products sold and their packaging materials that are reclaimed by category
EN28
Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with
environmental laws and regulations
EN29
Significant environmental impacts of transporting products and other goods and materials used for the
organization’s operations, and transporting members of the workforce
EN30
Total environmental protection expenditures and investments by type
Additional sector specific environmental indicators
XEN 1
European Emissions Trading Scheme
XEN 2
Offsetting option for passengers
XEN 3
Route optimization and air traffic management
© Responsible Research 2010 | Issues for Responsible Investors | 42
Human rights indicators based on GRI
HR1
Percentage and total number of significant investment agreements that include human rights clauses
or that have undergone human rights screening
HR2
Percentage of significant suppliers and contractors that have undergone screening on human rights
and actions taken
HR3
Total hours of employee training on policies and procedures concerning aspects of human rights that
are relevant to operations, including the percentage of employees trained
HR4
Total number of incidents of discrimination and actions taken
HR5
Operations identified in which the right to exercise freedom of association and collective bargaining
may be at significant risk, and actions taken to support these rights
HR6
Operations identified as having significant risk for incidents of child labor, and measures taken to
contribute to the elimination of child labor
HR7
Operations identified as having significant risk for incidents of forced or compulsory labour, and
measure to contribute to the elimination of forced or compulsory labour
HR8
Percentage of security personnel trained in the organization’s policies or procedures concerning
aspects of human rights that are relevant to operations
HR9
Total number of incidents of violations involving rights of indigenous people and actions taken
Labour indicators based on GRI
LA1
Workforce by employment type, employment contract, and region
LA2
Total number and rate of employee turnover by age group, gender, and region
LA3
Benefits provided to full-time employees that are not provided to temporary or part-time
employees, by major operations
LA4
Percentage of employees covered by collective bargaining agreements
LA5
Minimum notice period(s) regarding operational changes, including whether it is specified in
collective agreements
LA6
Additional sector specific social indicators
XSO 1
Public health issues (SARS, swine flu, etc.)
XSO 2
Community investment strategies (particularly in developing countries)
Product Responsibility
PR1
Life cycle stages in which health and safety impacts of products and services are assessed for
improvement, and percentage of significant products and services categories subject to such procedures
Percentage of total workforce represented in formal joint management–worker health and safety
committees that help monitor and advise on occupational health and safety programs
PR2
Total number of incidents of non-compliance with regulations and voluntary codes concerning health and
safety impacts of products and services during their life cycle, by type of outcomes
LA7
Rates of injury, occupational diseases, lost days, and absenteeism, and number of work related
fatalities by region
PR3
Type of product and service information required by procedures, and percentage of significant products
and services subject to such information requirements
LA8
Education, training, counseling, prevention, and risk-control programs to assist associates, their
families, or communities regarding serious diseases
PR4
Total number of incidents of non-compliance with regulations and voluntary codes concerning product
and service information and labeling, by type of outcomes
LA9
Health and safety topics covered in formal agreements with trade unions
PR5
Practices related to customer satisfaction, including results of surveys measuring customer satisfaction
LA10
Average hours of training per year per employee by employee category
LA11
Programs for skills management and lifelong learning
PR6
Programs for adherence to laws, standards, and voluntary codes related to marketing communications,
including advertising, promotion, and sponsorship
LA12
Percentage of employees receiving regular performance and career development reviews
PR7
Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing
communications, including advertising, promotion, and sponsorship by type of outcomes
LA13
Diversity of governance bodies and workforce
LA14
Ratio of basic salary of men to women by employee category
PR8
Total number of substantiated complaints regarding breaches of customer privacy and losses of customer
data
PR9
Monetary value of significant fines for noncompliance with laws and regulations concerning the provision
and use of products and services
Additional sector specific labour indicators
XLA 1
Discrimination due to age and physical appearance
XLA 2
Health and safety (specific issues relating to air travel, DVT, etc)
Social indicators based on GRI
SO1
Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of
operations on communities, including entering, operating, and exiting
SO2
Percentage and total number of business units analyzed for risks related to corruption
SO3
Percentage of employees trained in organization's anti-corruption policies and procedures
SO4
Actions taken in response to incidents of corruption
SO5
Public policy positions and participation in public policy development and lobbying
SO6
Total value of financial and in-kind contributions to political parties, politicians, and related institutions by
country
SO7
Total number of legal actions for anticompetitive behavior, anti-trust, and monopoly practices and their
outcomes
SO8
Monetary value of significant fines and total number of non-monetary sanctions for noncompliance with
laws and regulations
© Responsible Research 2010 | Issues for Responsible Investors | 44
31
38
57
42
63
78
101
6
20
12
22
69
31
43
109
41
38
5
6
55
1
18
20
6
6
2
3
6
1
1
7
2
3
8
0
6
7
9
11
2
2
6
3
9
6
2
0
6
12
4
5
9
1
5
9
15
11
4
6
6
5
14
18
5
2
6
0
0
0
0
0
6
7
4
1
0
1
3
2
2
1
0
0
3
4
0
2
5
0
8
4
2
0
4
0
7
11
6
9
5
4
6
0
5
11
2
0
13
15
10
10
15
7
7
4
7
6
2
5
3
2
6
3
0
1
1
1
0
0
1
0
7
8
5
0
0
3
1
5
6
0
0
4
7
8
2
3
0
2
0
1
0
5
0
0
0
11
Air Asia
15
26
Malaysia Airlines
10
42
25
37
0
Kingfisher Airlines
Korean Air
4
Jet Airways
Asiana Airlines
1
Eva Airways
13
Virgin Blue
8
29
Qantas
China Airlines
17
Air New Zealand
New Zealand
39
Cathay Pacific
19
14
All Nippon Airways
Japan Airlines
2
Hong Kong
Philippine Airlines
Philippines
Average score
Thai Airways International
Thailand
Malaysia
Korea
India
Taiwan
Australia Country
© Responsible Research 2010 | Issues for Responsible Investors | 46
Japan Stakeholder concerns and comments and company response to those disclosed
Tiger Airways
XCG 7
Singapore
Stakeholder engagement strategy in place, objective of engagement stated, stakeholder groups
indentified, and commitment for continuous engagement
Airline
XCG 6
0
Additional sector specific governance indicators
32
Internally developed statements of mission or values, codes of conduct, and principles relevant to
economic, environmental, and social performance and the status of their implementation.
Singapore Airlines
CG 5
Shanghai Airlines
Linkage between compensation for members of the highest governance body, senior managers,
and executives (including departure arrangements), and the organization’s performance (including
social and environmental performance).
3
CG 4
0
For organizations that have a unitary board structure, state the number of members of the highest
governance body that are independent and/or non-executive members.
0
CG 3
0
Indicate whether the Chair of the highest governance body is also an executive officer (and, if so,
their function within the organization’s management and the reasons for this arrangement)
2
CG 2
0
Governance structure of the organization, including committees under the highest governance
body responsible for specific tasks, such as setting strategy or organizational oversight.
Hainan Airlines
CG 1
Shandong Airlines
Corporate Governance and Engagement
4
Responsiveness to consumer concerns
0
XEC 3
4
Fair operating practices
8
XEC 2
12
Industry associations and collaborations (e.g. IATA)
0
XEC 1
0
Additional sector specific economic indicators
3
Understanding and describing significant indirect economic impacts
28
EC9
China Eastern
Infrastructure investments and services provided primarily for public benefit
China Southern Airlines
EC8
Mainland
China
Procedures for local hiring and proportion of senior management hired from the local community at
locations of significant operation
Overall score
EC7
7
Policy, practices, and proportion of spending on locally-based suppliers
7
EC6
1
Range of ratios of standard entry level wage compared to local minimum wage at significant locations of
operation
2
EC5
5
Significant financial assistance received from government
0
EC4
5
Defined benefit plan obligations
Air China
EC3
Indicators (104 indicators in total, maximum score = 208)
LA (16)
SO (10)
PR (9)
EC (12)
GOV (7)
Climate change financial implications, risks and opportunities
HR (9)
EC2
ENV (41)
Direct economic value generated and distributed
27
Economic
EC1
63
Annex 2: Airline
scores (total mark)
Annex 3: Airline scores
(percentages)
0%
0%
19%
9%
3%
30%
0%
50%
10%
22%
28%
56%
11%
28%
0%
25%
38%
63%
25%
29%
4%
79%
50%
93%
50%
29%
7%
33%
21%
52%
18%
20%
2%
Mainland China
Shandong Airlines
Hainan Airlines
China Southern Airlines
China Eastern
Air China
0%
2%
34%
4%
6%
ENV (82)
0%
0%
0%
0%
0%
0%
HR (18)
16%
0%
0%
9%
38%
25%
16%
15%
5%
0%
10%
20%
0%
10%
SO (20)
0%
0%
0%
0%
22%
17%
6%
PR (18)
33%
21%
0%
25%
33%
8%
29%
EC (24)
50%
0%
7%
36%
50%
29%
50%
GOV (14)
26%
3%
0%
9%
30%
10%
13%
15%
0%
57%
6%
11%
0%
17%
21%
39%
11%
17%
Singapore Airlines
0%
0%
Shanghai Airlines
13%
10%
50%
43%
Overall score
2%
6%
0%
0%
16%
4%
LA (32)
23%
47%
30%
16%
0%
17%
Indicators (104 in total) – Percentage score out of maximum 208 points available
Tiger Airways
17%
39%
34%
16%
Virgin Blue
10%
0%
Airline
All Nippon Airways
0%
Country
Japan Airlines
48%
11%
Singapore
Cathay Pacific
35%
21%
Japan Hong Kong
Qantas
Air New Zealand
China Airlines
6%
10%
10%
3%
15%
38%
3%
43%
6%
0%
49%
0%
0%
36%
0%
0%
64%
5%
0%
63%
46%
1%
0%
22%
Jet Airways
0%
33%
Eva Airways
Kingfisher Airlines
30%
25%
30%
56%
43%
44%
50%
28%
22%
11%
25%
51%
28%
45%
6%
Korean Air
32%
Asiana Airlines
Malaysia Airlines
27%
20%
New Zealand
Australia Taiwan
India
Korea
Malaysia
50%
43%
15%
38%
18%
46%
7%
11%
39%
11%
29%
30%
26%
15%
11%
19%
13%
28%
15%
0%
14%
11%
25%
30%
19%
13%
0%
Thai Airways International
4%
Air Asia
12%
Thailand
18%
Philippine Airlines
Average score (percentage)
Philippines
© Responsible Research 2010 | Issues for Responsible Investors | 48
References
1 http://www.aapairlines.org/resource_centre/AAPA_AR2009_Outlook2010.pdf
2 http://www.aapairlines.org/AAPA_Annual_Report_2009.aspx
3 http://www.iata.org/pressroom/pr/2010-02-01-01.htm
4 http://online.wsj.com/article/BT-CO-20100201-710697.html
5 http://www.iata.org/pressroom/pr/Pages/2010-02-01-01.aspx
6 Karlsson, T. 2007: Asian Aviation: Big Growth, Big Challenges. Heidrick & Struggles
International, Inc.
7 http://online.wsj.com/article/BT-CO-20100201-710697.html
8 http://www.aapairlines.org/resource_centre/AAPA_AR2009_ExcessiveRegulation.pdf
9 http://www.chinapost.com.tw/business/asia/asian-market/2010/02/08/244113/Openskies.htm
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10 http://www.independent.co.uk/travel/news-and-advice/open-skies-deal-good-newsfor- asiapacific-passengers-1856368.html
11 http://www.eturbonews.com/14437/asias-budget-carriers-flying-high
12 http://www.eturbonews.com/14437/asias-budget-carriers-flying-high
13 http://www.springerlink.com/content/p764825454032270/
14 http://www.atimes.com/atimes/Southeast_Asia/LB17Ae01.html
15 http://www.atimes.com/atimes/Southeast_Asia/LB17Ae01.html
16 http://www.atimes.com/atimes/Southeast_Asia/LB17Ae01.html
17 http://www.docstoc.com/docs/27710420/Asian-Aviation-Big-Growth_-Big-Challenges
18 flight costs as per company websites, sourced April 27th 2010 for one month out,
one way
19 Button, 2009
20 http://www.atimes.com/atimes/Southeast_Asia/LB17Ae01.html
21 http://news.bbc.co.uk/2/hi/uk_news/2327487.stm
22 http://www.breakingtravelnews.com/news/article/budget-airlines-have-lower-carbon- footprint/
23 http://www.dailymail.co.uk/news/worldnews/article-1218473/Airline-goes-greenasking- passengers-use-toilet-boarding.html#ixzz0mO5ziObr
24 http://www.iata.org/whatwedo/environment/climate_change.htm
25 http://www.iata.org/whatwedo/environment/climate_change.htm
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27 http://www.iata.org/whatwedo/environment/emissions_policy.htm
28 http://www.iata.org/whatwedo/environment/emissions-europe.htm
29 http://ec.europa.eu/environment/climat/aviation/index_en.htm
30 http://www.aapairlines.org/resource_centre/AAPA_AR2009_Environment.pdf
and http://www.
31 http://www.asiatraveltips.com/news10/192-ThaiAirways.shtml
foodweek.com.au/main-features-page.aspx?ID=6587
32 http://www.aapairlines.org/resource_centre/AAPA_AR2009_Environment.pdf
33 https://www.cdproject.net/en-US/Programmes/Pages/cdp-water-disclosure.aspx
34 http://economictimes.indiatimes.com/Airlines-/-Aviation//articleshow/5842620.cms
35 http://www.iata.org/NR/rdonlyres/DADB7B9A-E363-4CD2-B8B9- E6DEDA2A6964/0/
Global_Approach_Reducing_Emissions_251109web.pdf
36 http://www.enviro.aero/Content/Upload/File/BeginnersGuide_Biofuels_WebRes.pdf
37 http://www.iata.org/pressroom/pr/2010-02-01-01.htm
38 E6DEDA2A6964/0/Global_Approach_Reducing_Emissions_251109web.pdf
39 http://www.iata.org/NR/rdonlyres/DADB7B9A-E363-4CD2-B8B9- E6DEDA2A6964/0/
Global_Approach_Reducing_Emissions_251109web.pdf
40 http://www.iata.org/NR/rdonlyres/DADB7B9A-E363-4CD2-B8B9- E6DEDA2A6964/0/
Global_Approach_Reducing_Emissions_251109web.pdf
41 http://www.iata.org/pressroom/pr/2010-02-01-01.htm
42 http://www.enviro.aero/Biofuels.aspx
43 http://www.enviro.aero/Biofuels.aspx
44 http://www.virgin-atlantic.com/en/us/allaboutus/environment/bransonpledge.jsp
45 AAPA Asia Pacific Perspectives June 2009
46 http://en.wikipedia.org/wiki/Camelina_sativa
47 http://www.biofuelsdigest.com/blog2/2009/01/30/japan-airlines-biofuels-flight-testa- success-camelina-algae-jatropha-used-in-b50-biofuel-mix-fuel-economy-higher-thanjet- a/
48 ICAO, 2007
49 http://www.epd.gov.hk/epd/english/environmentinhk/air/data/emission_inve.html
50 ICAO, 2007
51 Stockholm Environment Institute et al., 2004
52 http://www.icao.int/icao/en/env/aee.htm
53 http://www.enviro.aero/airquality.aspx
54 http://www.enviro.aero/airquality.aspx
55 http://www.aerotoxic.org/
56 http://www.aerotoxic.org/download/docs/news_and_articles/Nyco%20letter%20
to%20E ASA_engine%20oil%20tox_24Nov09.pdf
57 http://online.wsj.com/article/SB10001424052970204261704574275980659583434.
html
58 http://www.unescap.org/ttdw/Publications/TPTS_pubs/pub_2307/pub_2307_ch3.pdf
59 http://www.enviro.aero/Noise.aspx
60 http://www.articlesbase.com/ethics-articles/aircraft-recycling-boom-465726.html
61 http://www.enviro.aero/blog/
62 http://www.afraassociation.org/NewsDocs/09_OctNov_ATE_M.pdf
63 http://www.enviro.aero/mt- search.cgi?blog_id=2&tag=recycling&limit=20&Include
Blogs=2
64 http://www.nytimes.com/2009/12/22/business/global/22air.html?pagewanted=2&_
r=1
65 http://www.ana.co.jp/eng/aboutana/corporate/csr/index.html
66 http://www.ana.co.jp/eng/aboutana/corporate/csr/index.html
67 http://www.icao.or.th/news/icao_reg_apac.pdf
68 Karlsson, T. 2007: Asian Aviation: Big Growth, Big Challenges. Heidrick & Struggles
International, Inc.
69 http://downloads.cathaypacific.com/cx/press/CSRreport_en2008.pdf
70 http://www.philippineairlines.com/about_pal/pal_learning_center/courses_offered/
the_ma king_of_a_flight_attendant_workshop.jsp
71 http://www.qantas.com.au/infodetail/about/community/RAP_actionplan.pdf
72 http://www.airhostess.info/2008_04_01_archive.html
73 http://www.csr-asia.com/index.php?cat=72
74 news/2100720d6a9dd4eaaa253a198e70e042
75 http://www.blogcatalog.com/blog/cabin-crewhttp://opinion.inquirer.net/inquireropinion/columns/view/20100305-256906/Genderdiscrimination-in-our-midst
76 http://www.dapmalaysia.org/all-archive/English/2005/may05/bul/bul2712.htm
77 http://en.wikipedia.org/wiki/Singapore_Girl
78 http://www.unicri.it/wwd/trafficking/minors/docs/dr_thailand.pdf
79 http://humantrafficking.change.org/blog/view/airlines_pimp_southeast_asian_women
80 http://www.cpiu.us/hotels-and-airlines-to-fight-child-sex-tourism/2010/01/10/
81 http://www.thecode.org/
82 http://www.thecode.org/index.php?page=6_3
83 http://www.ecpat.net/EI/CST_publications.asp
84 http://www.wunrn.com/news/2008/11_08/11_10_08/111008_child.htm
85 http://www.afp.gov.au/__data/assets/pdf_file/106714/13_HumanTrafficking.pdf
86 http://www.centreforaviation.com/news/2009/08/27/airlines-and-social-media/
© Responsible Research 2010 | Issues for Responsible Investors | 50
87 http://www.centreforaviation.com/news/2009/08/27/airlines-and-social-media/
88 http://www.malaysiaairlinesblog.com/pt/blog/default.aspx?cat=C2
89 www.humanresourcesonline.et/news6986
90 http://www.aapairlines.org/resource_centre/AAPA_PR_Issue02_
AviationSafety_08Jan10.p df
91 http://www.iata.org/pressroom/pr/2010-02-18-01.htm
92 http://www.iata.org/worldwide/asia_pacific/
93 http://www.aapairlines.org/Safety.aspx
94 http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1831&format=HTM
L&age d=0&language=en&guiLanguage=en and http://ec.europa.eu/transport/air- ban/
doc/list_en.pdf http://www.levick.com/index.php?action=show_item&item_id=32&type_
name=newsletter &id=995
95 All Nippon Airlines (2010) ANA Group CSR Report 2009 Web Edition.
96 www.aviationweek.com Apr 13, 2010
97 See for example http://www.nytimes.com/2009/12/26/us/26plane.html
98 http://www.iata.org/pressroom/airlines-international/october-2009/2009-10-05.htm
99 http://www.aapairlines.org/resource_centre/AAPA_AR2009_ExcessiveRegulation.pdf
100 http://www1.voanews.com/policy/editorials/asia/a-41-2010-02-11-voa1101 http://www.ad-group.co.uk/news_view.php?newsID=32
102 All Nippon Airlines (2010) ANA Group CSR Report 2009 Web Edition.
103 http://www.jftc.go.jp/cprc/english/sympo/agenda10.pdf
104 ISO 26000
105 http://thestar.com.my/news/story.asp?file=/2008/7/27/
nation/21903750&sec=nation
106 http://apj.sagepub.com/cgi/content/abstract/47/2/201
107 http://apj.sagepub.com/cgi/content/abstract/47/2/201
108 2/Article/index_html
http://www.btimes.com.my/Current_News/BTIMES/articles/jmas22109 http://www.aseansec.org/aadcp/repsf/docs/04-008-FinalOwnership.pdf
110 http://www.aseansec.org/aadcp/repsf/docs/04-008-FinalOwnership.pdf
111 http://thaicrisis.wordpress.com/2009/01/22/peter-principle-deserate-thai-airwaysrelies-on-government-officials-to-fill-its-aircrafts/
112 http://www.centreforaviation.com/news/2008/12/24/beijing-rings-in-the-changesbutwill-they-be-enough-to-save-chinas-airlines/
113 http://www.eturbonews.com/13407/new-leaderships-make-miracle-southeastasian- airlines
114 http://malaysiaairlines.listedcompany.com/misc/ar2008.pdf
115 Transparency International et al., 2009: Global Corruption Report 2009. Corruption
and the private sector. Cambridge University Press. New York.
116 Ibid.
117 http://nationmultimedia.com/2009/04/22/business/business_30100992.php
118 Transparency International et al., 2009: Global Corruption Report 2009. Corruption
and the private sector. Cambridge University Press. New York.
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