Scenarios

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Figure 7 2x2 Scenario Matrix

3.2.2. Bio Jet Fuel Emergence

In case of a low jet fuel price and a low availability of fuel in Europe, the focus will be put on other producible and available alternatives, like bio fuel. Bio fuel is an alternative, however, to use it for current aircrafts, only a 50% blend of bio jet fuel and conventional jet fuel can be used. Even if the jet fuel price traded on the world markets might be low, the lack of availability will lead to a price increase locally in Europe. The main issue in this case is the availability and accessibility on time and long-term (Interview 1, ll. 89-97).

The assumption on bio jet fuel emergence is based on the further development in bio jet fuel, which already started to take its course. Currently, the development of bio jet fuel is stagnant but the possibility to commercialize and further expand its enlargement is clearly possible. By developing alternatives, the momentarily predominant external influence institutions in the jet fuel market, such as oil producing countries, will lose power. The power loss might be replaced by new players in the bio jet fuel production. As there are no changes on the aircrafts needed, the focus will be to innovate as inexpensively as possible.

47 The supply thus will be ensured through reasonable priced bio jet fuel easier available in Europe than jet fuel. The willingness to adapt to bio jet fuel is evident (Interview 1, ll. 385- 392; Interview 2, ll. 235-245). Moreover, this would lead to a shift or smaller impact of the current external conventional jet fuel stakeholders. The jet fuel production and procurement structure will change; imports are involved due to closing refineries in Europe. Infrastructures need to be newly created and improved (Interview 3, ll. 136-147).

In the case that there is no bio fuel available to commercialize, an alternative is increased import and a focus on storage facilities (Interview 1, ll. 178-189). Moreover, there will be continuous effort on making fuel usage more efficient and equipment which is more fuel- efficient will be on the market. The generally low prices of fuel will still lead to a high competition up until the European airline market maturated. While taxing for CO2 emissions, the government might support bio jet fuel efforts with subsidies. One factor which need to be paid attention to is the sustainability of bio jet fuel. To ensure sustainability, bio jet fuel should find a source within Europe. The development of further improvements of jet fuel efficiency will continue to reduce consumption, however, it will not be a main focus aspect.

3.2.3. Stick to Routine

If the jet fuel availability is high and the jet fuel prices are low, development is stagnant.

The airlines have a good and exploitable situation, therefore there is no strong incentive to change the current approach. As long as there is no urgency to adapt or change strategy because of a changing market situation, airlines will follow their existing strategy to sustain the position and competitive advantage they already have. Bio jet fuel supply will be further developed but generally deserted regarding commercialization because there is no need (Interview 2, ll. 58-61). However, if there will be governmental incentives to use bio fuel, the development could still happen. Generally, there will be no tendency towards bio jet fuel otherwise, as there is enough conventional jet fuel available (Interview 3, ll. 123- 132). Conventional jet fuel will further be provided by available refineries and the general product availability and accessibility is not restricted. This facilitates the procurement process. Additionally, the option of imports and resellers is available (Interview 3, ll. 65-

48 68). The procurement thus does not involve high costs and is easily accessible.

Nevertheless, the jet fuel supply chain shows the need to be revised and improved, especially in remote locations. This will ensure no additional costs due to accessibility and availability. Airlines will insistently be highly dependent on conventional jet fuel, as no viable alternative is offered on a commercialised basis. Thus, the power of external influence factors in the conventional jet fuel market is strong, as the influential players are still involved in main supply and price determination. By artificially restricting the market, the jet fuel price is influenced (Interview 4, ll. 93-94, 97-114). Therefore, external players can manipulate the market and increase prices if wanted. Due to low price situation, the incentive of entering and exploiting the market is high. Therefore, there will be a high competition between airlines (Interview 1, ll. 39-47). Continuing price competition in terms of ticket prices will further intensify the competition which will pressure cost efficiency. Furthermore, potential governmental regulations will affect prices in terms of carbon emissions. Additional costs due to carbon emissions trading in the future will most likely occur to improve sustainability. Therefore, jet fuel consumption and the efficient usage will be a factor to pay attention to. Efficiency programs will continuously play an important role for airlines.

3.2.4. Quest for Alternatives

As the jet fuel price is high and the availability is low, the focus will be on finding alternatives. Firstly, it will be bio jet fuel, as there are already viable and approved fuel types, however, the high prices might also start taking completely different alternatives like fuel cell alternatives into consideration. Especially further alternatives will need a high level of investment and a long development process until it can be commercialised. The power of the external influential stakeholders in the conventional jet fuel market, such as OPEC, will decrease, nevertheless, new players of the alternative fuel markets will appear to replace the current stakeholders. Imports will be still an option to improve availability as well as trying to decrease costs through different approaches like resellers as suppliers (Interview 4, ll. 110-116). The lack of refineries will lead to a pursuit for new sources of supply. Moreover, accessibility, especially in remote locations, will show the need for

49 improvement. One focus in the short-term will be fuel efficiency which requires to be replaced by new alternatives due to the lack of availability. Efficiency programs in terms of jet fuel consumption will be ongoing, however, not seen as an ultimate solution, as high prices and low availability urge for alternatives. Generally, the costs of jet fuel procurement will be high additionally to the high market prices. The low availability in the European market hinders further accessibility and increases costs. Due to the high costs, regarding investments and jet fuel price in general, the competition will be low and market entry is unattractive. This means the market will consolidate and only airlines with solid cost structures and revenues will be able to cope with the market environment. Moreover, hedging will continue to be a vital part of the airlines’ strategy to reduce the risk of further increases in price. This can nevertheless only improve the position in the short run, as also future prices will adapt to an increased price environment. In this scenario, governments might also have the inclination to subsidise the development of further alternatives.

Regulations will only be implemented moderately, as the general market conditions, high jet fuel prices and low availability, will make sustainable business activities difficult.

Moreover, regulations regarding carbon emissions will have a moderate impact, as the quest for alternative will reduce the carbon dioxide emitted if conventional jet fuel is replaced by alternative fuel solutions.

3.2.5. High Price Prevention

In a scenario of high jet fuel prices and high availability, the main goal is reducing costs.

External stakeholders of the conventional jet fuel market have a strong impact in the scenario (Interview 2, ll. 165-174). Due to high availability, conventional jet fuel stakeholders also have a price influence. One possibility to reduce costs can be with resellers or other suppliers if they offer more competitive prices. The primary goal is to reduce the prices in every possible way. This can also include infrastructure costs and strategic tankering, which means fuelling at strategically better (i.e. lower-priced) locations (Interview 3, ll. 88-99). Procurement in general is moderately priced, as the availability is high, however, the only factor which can increase the procurement costs further is accessibility. Accessibility could potentially further increase procurement costs,

50 especially in remote locations. Fuel efficiency will be a clear focus and further developed.

Fuel consumption reduced by efficiency programs will thus decrease cost. To reduce risk of further increasing prices, a focus can be put on hedging. However, this is only possible until the hedging prices have increased to the same price level. Due to high jet fuel prices, market entry and sustaining a business is costly. This means the competition is low and the general airline market is generally consolidated. Nevertheless, new ideas could disrupt the market with new ways to fuel or decreasing variable costs in terms of supply chain. New ideas in this case are disruptive technology and improvements or competitive alternative fuels. Due to the jet fuel availability, the tendency to change might be restricted, nevertheless, a cost benefit will have a clear influence on development and further usage of conventional jet fuel. If bio jet fuel is supplied at a competitive or lower price than conventional jet fuel, bio jet fuel will be a viable alternative. Further alternative fuel approaches will also be viable if investment costs are feasible in terms of conventional jet fuel costs. The likelihood of governmental taxation is moderate, as the sustainability and environment are put as priority but profitability will face difficulties if taxes induced are too high (Interview 2, ll. 235-245). Carbon emissions trading will have an influence and increase costs if conventional jet fuel is further used in the long run. This way sustainable use of conventional jet fuel is enforced and by using jet fuel efficiency programs, the conventional jet fuel consumption will be reduced.

3.2.6. Scenario Summary

To sum up, the previous subchapters described each of the scenarios in detail. Figure 9 depicts each scenario summarized with the respective key drivers. As can be seen, each scenario includes all key drivers and the respective development. The key driver airline market conditions has been renamed to airline market competition to clarify the development and rating. Generally, the key drivers have been rated in a maximum scale of 3: low, high and moderate or medium. The exception in this rating is the key driver jet fuel procurement. The scale in this case are simple, difficult and costly. As jet fuel procurement is regarding a process and not a status, the development and procurement can be simple as in the Stick to Routine case with a high availability, difficult with a low availability and

51 costly in the scenario of High Price Prevention, as the procurement will add additional costs to the already high jet fuel price.

Figure 8 Scenario Summary Matrix

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