Consumers driving holiday and transport companies to go green

The travel sector is being pushed to go green by the growing consumer awareness of environmental issues. “Brand and reputation are everything in this sector – without them, you do not have a business,” says Paul Timlett, of the risk management transportation practice at Marsh.

There are signs of a “modal shift”, with passengers increasingly using railways instead of flying or driving, says Emma Howard Boyd, head of socially responsible investment at Jupiter Asset Management. BAA reported that it handled fewer passengers at 14 of its 17 airports in March against the same time last year, while Eurostar saw a 21 per cent rise in passengers for the first three months of the year.

High fuel prices for airlines and the opening of Eurostar’s St Pancras terminal will have played a part in this, but “environmental concerns are contributing to more people taking the train for short journeys,” says Ms Howard Boyd.

Bus travel has also seen solid growth in recent years, and the trend has benefited train and bus companies such as First Group, National Express and Go Ahead. Not content to sit on their inherent advantage over cars in terms of carbon emissions, the sector has been busy with further environmental initiatives. First Group has pledged to cut 25 per cent off its 2005/06 bus emissions by 2020 and 20 per cent from its rail operations.

All the main companies have trialled a range of technologies, including biodiesel, hydrogen, hybrid and electric buses. The increasing use of technology such as continuously regenerative traps (CRTs), which cut emissions of hydrocarbons, carbon monoxide and particulates by up to 90 per cent, will benefit companies such as Johnson Matthey, the world’s largest maker of automotive catalysts. On the rails, Canadian company Railpower Technologies is looking to recreate the success of the Toyota Prius with its hybrid locomotive.

According to Dresdner Kleinwort, more people now travel from London to Paris by rail than do so by air. The never-ending stream of bad news stories from Heathrow and publicity about the environmental effect of short haul flights has hit consumer sentiment towards air travel, while Eurostar is also less exposed than the airlines to an oil price of more than $100.

Eurostar has also burnished its environmental credentials by promising to make every journey carbon neutral at no extra cost to the customer. This is in contrast to airlines such as British Airways and easyJet, which offer passengers the option of offsetting the emissions from their journey but do not pay for it themselves.

With sky-high fuel prices and aviation due to be included in the EU’s Emissions Trading Scheme from 2012, all airlines are looking to cut their fuel bills. While the technological options for improving fuel efficiency are limited, both Virgin Atlantic and Air New Zealand have flown test flights using a biofuel blend.

Biofuels will allow the airlines to cut fuel bills, reduce emissions and significantly enhance their reputations. One company hoping to corner this niche market is US-based Algodyne Ethanol Energy, which has set up a facility in Brazil to pursue research projects aimed at producing bio-kerosene from algae, according to analysts New Energy Finance.

Most of the focus in the industry has been on the travel part of the equation, says Jennifer MacCarthy, analyst at Eiris, the ethical investment research service. “The reaction from the tourism side has been largely cosmetic,” she says, “but its environmental impact is coming under increasing scrutiny in terms of water usage, soil erosion, pressure on ecosystems and energy use.”

The industry is also likely to be in the front line of dealing with the changes that climate change will bring, including sea level rises and increasingly erratic weather conditions.

With airlines already due to be included in the EU’s Emissions Trading Scheme, the next logical step is for hotels to approach their carbon weighting more uniformly, says Sebastian Brinkmann of Innovest Strategic Investors. “There is a lot of scope for improvement in the sector,” he says, “and anyone who has taken a lead on this will be well positioned. Demand is definitely going to grow, especially from business travellers.”

Some companies have started to tackle the problem – First Choice Holidays has a sustainability awards scheme for its more popular hotels, which are marked in brochures so that customers can consider this in their choice of accommodation, says Ms MacCarthy, while in 2006 it was recognised as Britain’s most environmentally responsible airline by the British Travel Awards. It is also developing a social and environmental audit for its excursions, which customers will be able access when it is completed.

Hotel groups Starwood and Accor have started measuring their emissions, Mr Brinkmann says, while the Marriott group has pledged to make 34 of its golf courses Certified Audubon Co-operative Sanctuaries by the end of the year. (The Audubon Society is a US bird and wildlife protection charity.) The courses will
have to show they are meeting high standards in areas such as wildlife and habitat management, chemical use reduction and water

The increasingly global nature of the industry creates a number of risks to reputation, says Marsh’s Mr Timlett. These include ensuring compliance with a multiplicity of regulatory regimes, and planning for issues such as terrorism or political unrest as happened in Kenya recently.

Firms must also deal with a bewildering array of trends. The ageing population creates a whole new set of customer requirements, while the increasing wealth of emerging economies creates new markets.

To cut risk, says Mr Timlett, firms must either “diversify, globalise and expand or become a specialist operator”. Niches that are doing well at the moment are sporting holidays such as sailing, cycling and walking, where specialists such as Nielsen are well placed.

Next month: Utilities

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