Markets Overview

  • ASX SPI 200 futures down 0.1% to 7,435.00
  • Dow Average up 0.3% to 37,974.81
  • Aussie down 0.4% to 0.6572 per US$
  • U.S. 10-year yield fell 3.2bps to 4.0918%
  • Australia 3-year bond yield fell 2.8 bps to 3.83%
  • Australia 10-year bond yield fell 6.5 bps to 4.23%
  • Gold spot down 0.4% to $2,020.96
  • Brent futures up 1.8% to $79.96/bbl

Economic Events

  • 11:30: (AU) Dec. NAB Business Confidence, prior -9
  • 11:30: (AU) Dec. NAB Business Conditions, prior 9

Stocks saw small gains while still closing at fresh records, with traders weighing strong economic signals and prospects for corporate profits amid warnings that the market has run too far, too fast.

Equities are shaking off a rocky start to the year on bets the Federal Reserve will cut rates and the artificial-intelligence boom will keep fueling profit growth. Earnings season kicks into high gear this week, with companies including Netflix Inc., Tesla Inc. and Intel Corp. due to report their numbers.

The S&P 500 hovered near 4,850. Treasury 10-year yields declined two basis points to 4.10%. The dollar barely budged.

Other News

Densely packed aircraft, little legroom and no free drinks. It’s starting to look like the uncomfortable reality of global air travel for more and more passengers as airlines race to decarbonize.

The spartan cabins and fuss-free service of low-cost carriers appeared half a century ago, a makeover that made flying affordable to the masses. Since Southwest Airlines Co. first took off from Dallas in 1971, dozens of budget peers including Ryanair Holdings Plc, AirAsia Bhd. and India’s IndiGo have emerged to take on more pricey legacy carriers.

With global air travel almost completely recovered from the pandemic, cutting emissions is once again the industry’s No. 1 challenge. The low-cost, low-luxury business model that democratized air travel in recent decades has now become an unlikely template for reducing pollution.

That’s because budget airlines’ obsession with lowering weight in order to save fuel — by installing paper-thin seats, ripping out business-class thrones and ditching heavy extras like booze and blankets — also happens to produce the best emissions metrics in the skies.

The five airlines in the world that emit the fewest pollutants per passenger are all low-cost carriers, according to data from carbon-reduction advisory firm Envest Global. Wizz Air Holdings Plc, the Hungary-based carrier that mostly serves Europe and the Middle East, leads the pack. Major brands including Delta Air Lines Inc., Cathay Pacific Airways Ltd. and British Airways, which is owned by IAG SA, belch out almost twice as many emissions for every passenger they carry, the data show.

It’s grim news for those accustomed to turning left as they board their flights, the traditional path to roomy premium seats. With a 2050 deadline looming for aviation to reach carbon neutrality, the emissions data suggest that airlines in fact need to jam more passengers onto their aircraft, give them less space, and cut back on food and drink in order to make flying sustainable.

“This low-cost model is aligned with the central elements of a low-carbon strategy,” said Envest Global Chief Executive Officer David Wills, who’s based in Sydney. “Everything is designed to minimize fuel cost per passenger.”

Without an overhaul, aviation won’t achieve its mid-century emissions-reduction goals. Its share of CO2 output is set to balloon as other segments decarbonize — to an estimated 22% by 2050 from about 2% today if emissions aren’t cut fast enough. The aviation industry is “not on track” to hit its net zero target, the International Energy Agency says on its website.

Airlines that fail to take sufficient action risk fines and tighter regulation. Fuel levies are already being rolled out in Europe, a jurisdiction that’s leading efforts to make flying kinder to the environment.
Seats in the business and first-class sections of aircraft cabins generate larger carbon footprints for their occupiers because they take up more space and are heavier than economy berths.

For example, a passenger in coach flying from Hong Kong to Singapore in an Airbus SE A350 would wrack up 170 kilograms of emissions, according to the International Air Transport Association’s carbon calculator. The same trip in business class generates 682 kilograms. A ride in premium economy produces 256 kilograms.

Every extra passenger that airlines can squeeze into the plane, and every kilogram they can strip from the cabin, helps cuts each customer’s individual carbon emissions.

Budget carriers have turned this ruthless science into an art-form. Ryanair in 2009 explored the idea of tearing out seats to create a standing cabin where more people could be packed in. Before the pandemic, Philippines budget carrier Cebu Air Inc. was moving kitchens and bathrooms on some of its new Airbus SE A330neos to cram in a record 460 seats. Low-cost carriers routinely fit out planes with non-reclining seats sans entertainment screens to cut down the weight of materials.

It may be fuel efficient, but the budget flight movement has also driven a boom in air-travel demand because of the bargain ticket prices. Low-cost carriers were responsible for almost 90% of growth in fuel use and CO2 emissions from US airlines between 2005 and 2019, according to the International Council on Clean Transportation. Fuel-efficiency improvements by budget carriers just couldn’t keep pace with their passenger growth, the ICCT said.

The task facing airlines, regulators and governments is to harness more widely the fuel efficiency of low-cost carriers and still keep a grip on demand-driven emissions, according to the ICCT. Burning smaller volumes of dirty fuel is critical because the aviation industry’s plan to switch to sustainable fuel is far from assured. Current production capacity of this cleaner-burning power source is barely 1% of aviation’s global fuel requirements, and passenger numbers are projected to double from 2019 to over 8 billion in two decades.

“How can we nudge more airlines to adopt low-cost carrier efficiency measures while ensuring that lower fares don’t turbo-charge demand?” said Dan Rutherford, director of research at the ICCT.

Demand for seats in business class and premium economy has surged since the pandemic, partly because travelers flush with cash or loyalty points are relishing their return to the skies. But the potential need for more austerity at 30,000 feet raises questions about the longevity and affordability of luxury air travel.

It’s time for more punitive measures, according to Rutherford. There’s “clearly” a need for policies such as a tax on frequent fliers or a price on carbon, he said.