Overview
We visited a European airline’s offices to meet with members of the corporate social responsibility team and the chief operations officer. We engaged on the regulatory environment in Europe with respect to climate change, as well as labor management, product safety, and customer experience.

Key discussion topics
Climate change — Transition risks
We discussed climate-related business risks, including the new “flight shaming” trend on social media and the potential for consumers to substitute train travel for air travel, given rumors of broader taxation of short-haul flights in central Europe. Airlines that offer more nonstop and/or long-haul flights will likely be better positioned. Although the company has the least exposure among its competitors to short-haul flights, it has introduced training initiatives to decrease fuel consumption, such as working with air-traffic control to reduce circling at airports. It is also committed to maintaining one of the most modern fleets of any European airline. The company has not yet seen flight shaming negatively impact European customer demand. On the contrary, it intends to capitalize on the growing propensity among central Europeans to travel.

The airline is the most efficient in Europe in CO2 emissions per passenger-kilometer, and it intends to reduce emissions by an additional 30% by 2030. The audit committee oversees this evolution through fleet purchases and nearly 70 efficiency initiatives. Nonetheless, the company acknowledged that as a low-cost carrier, its ability to pass through additional carbon costs is limited compared to legacy airlines. The company noted that some low-cost carriers are considering hedging carbon prices, although that is not a common practice yet.

Labor management
The company faces less labor risk than a major competitor for two reasons: Its labor force is nonunionized, and it operates in countries with flexible labor regulations. We like aspects of the corporate culture. Management emphasizes mutual respect throughout the hierarchy and supports career development through training and internal mobility. All crews are trained at a central location, where they are encouraged to identify and report safety or operational issues. Executives interact with employees directly through site visits and monthly meetings with a crewmember council to address pain points. Dedicated board oversight of culture reinforces the value they place on people management.

Product safety
The company’s stringent auditing measures include pursuing an IATA Operational Safety Audit (IOSA) certification (rare among low-cost carriers in Europe) and conducting audits of airport safety standards, such as lighting and air-traffic control before entering a new market. The company understands that ensuring an environment where crewmembers are not afraid to report issues is an important means of maintaining a strong safety record.

Customer experience
The company monitors customer feedback through questionnaires and a mobile application. Customer-survey results are strongly correlated with on-time performance. EU61, a European Union regulation that requires airlines to compensate customers for delays, is effective at improving customer satisfaction, but it creates a financial burden for the airline. The company is also addressing customer complaints related to its fee structure by enhancing transparency.

Conclusion/follow-up
This engagement reaffirmed the fact that low-cost carriers are generally more carbon efficient per passenger than legacy airlines. We find this company well positioned, even among low-cost carriers, amid stronger European climate regulations. Corporate culture appears strong, with crewmembers appreciated as essential to business success. From an ESG perspective, we prefer the company to its competitors due to its constructive approach to a variety of regulatory pressures and consumer trends.