Air Canuk and the Green Engine Decision

1. Air Canuk and the Green Engine Decision Dr. Jennifer Lynes Environment & Resource Studies University of Waterloo

2. The case study • The Toronto-based airline Air Canuk airline needs to upgrade its aging fleet of DC-9s with a more modern fleet and has decided on the Boeing-737 • The next decision the airline has to make concerns the type of engine they will purchase for the B-737 • The airline is considering purchasing an environmentally-friendly engine for the fleet, but this ‘green’ engine costs more money

3. Your mission • To consider whether Air Canuk should purchase the green engines or stick with the engines that are traditionally used with the Boeing-737 • To think about both the financial and environmental implications of the decision with regards to your role in the company (which we will assign to you)

4. Case Study Objectives • To get you thinking about how corporations balance relationships between stakeholders in environmental decision-making processes • To encourage discussion about how far should a corporation should go to be ‘green’

5. Trends in the airline industry • Growth - over the last 50 years, the industry has experienced almost continual growth in passenger numbers • People are travelling longer distances for vacation and for business than ever before • Since 2001 many airlines have been going through economically difficult times • Low cost airlines are having big effect on the market and forcing larger airlines to lower their prices • Airlines have been experiencing increased pressure from regulatory bodies and environmental groups to reduce noise and air emissions

6. Environmental Issues in the Airline Industry • Flight Operations (approx. 90% of an airline’s impact) • Fuel consumption • Air and noise emissions • Air traffic congestion • Cabin Operations (approx. 5% of an airline’s impact) • Water consumption inflight • Waste produced from inflight meals • Materials used in cabin grooming • Ground Operations (approx. 5% of an airline’s impact) • Energy use of vehicles on the ground • Aircraft maintenance (use of chemicals, de-icing, etc.)

7. About airline fleets • Replacing an aircraft fleet can cost an airline billions of dollars • The choice of aircraft has long-term consequences for an airline since a fleet can last 25-35 years • The type of engine is an important aspect of this choice since it determines, to a certain extent, the fuel efficiency of the aircraft.

8. Air Canuk’s New Fleet • They have chosen to buy 50 new Boeing 737s • They need to decide which engine to purchase for this new fleet • The ‘green’ option for the engine reduces air emissions but adds 10-15% to the total cost of the engines

9. Key considerations • The Market System • Some airports are charging airlines landing fees according to an aircraft’s level of air emissions (I.e. the higher the emissions, the more the airline pays the airport) • More and more airlines are developing environmental management systems • Low cost airlines are putting financial pressure on airlines - forcing them to cut costs The Social System Airlines are feeling pressure from non-government organizations to be greener Protecting the environment is now of the top concerns for Canadians MARKETS Cost-benefit analysis of commercial benefit and marketability Airline Image Financial cost-benefit The Science System Airlines must try to balance noise and air emissions, while also optimizing the fuel efficiency of the aircraft Scientists are working hard to determine the effects of air travel on climate change New technology can be risky as it hasn’t been tested on a wide audience The Political System Noise and air emissions from aircraft are regulated by the International Civil Aviation Authority The Kyoto Protocol is putting pressure on countries to ensure that businesses are trying to reduce greenhouse gas emissions Here are some reasons why airlines are trying to improve their environmental commitment SCIENCE Scientific knowledge and expertise in the assessment of cause and consequence SOCIAL SYSTEM Discourses of knowledge building, understanding and consensus building Deciding which engine to buy POLITICAL SYSTEM Political culture, government influences and regulatory environment Being a good corporate citizen Pressure from industry stakeholders Adapted from Renn (2001)

10. Key considerations MARKETS Cost-benefit analysis of commercial benefit and marketability Image Financial cost-benefit SCIENCE Scientific knowledge and expertise in the assessment of cause and consequence SOCIAL SYSTEM Discourses of knowledge building, understanding and consensus building Environmental commitment POLITICAL SYSTEM Political culture, government influences and regulatory environment Being a good corporate citizen Pressure from industry stakeholders Adapted from Renn (2001)

11. Activity 1: Reading the Case (3 minutes) • On your own, briefly read over the two page case study we have given you • Highlight key points that you think are relevant to the decision

12. Activity 2: Developing your argument (10 Minutes) We will designate each of you to a role you will play for this case study. The roles include: • Financial, • Environmental, • Marketing, • Maintenance, • Non-profit organization • Industry Organization  Write down the pros and cons of the proposed decision and try to come up with arguments for and/or against the decision

13. Activity 3: Stakeholder discussions (10 minutes) • Form into a group so that you now have one member from each of the six different roles • As a team you have to come up with a recommendation on whether or not to purchase the engines based on the arguments that each of you presents to the team • This recommendation will be put forward to Air Canuk’s senior management

14. Activity 4: Presenting Recommendations • One member from each group will present the group’s decision to senior management • Each group will have 1-2 minutes to present their case • Try to make a strong argument so that you can convince management that your recommendation is a good one!

15. Elevator Pitches - the one minute presentation • Many times in business you might only have a short period of time to convince someone that you have a good idea – that’s why we call them ‘elevator pitches’. • If you are on the elevator with the person that has the power to implement your idea you want to make sure you make a compelling case before the elevator door opens! • Elevator pitches can take on various forms – from asking potential investors for money to convincing your boss about a great idea you have for the company.

16. Elevator Pitches - the one minute presentation • You need to identify, package and sell your idea to the executive team in a short period of time • Frame your argument in a way that would convince management that the decision is a sound one for the company • Refer to the handout for a list of things you should include in your presentation

17. What your "Elevator Pitch" must contain: • A "hook" Open your pitch by getting the persons attention with a "hook."  A statement or question that piques their interest to want to hear more. • About 150-225 words Your pitch should be about 1 minute in length. • Passion Investors expect energy and dedication from entrepreneurs. • A request At the end of your pitch, you must ask for something or re-emphasize the argument you are making.   

18. present!