Saving the Planet, Upping the Profit: Lessons from Virgin Atlantic Airlines

09/05/2017

Aidan Calvelli

Saving the Planet, Upping the Profit: Lessons from Virgin Atlantic Airlines

Is it a bird? Is it a plane? Is it S…actually, I bet it’s a plane. In today’s world, air travel is all around us – and that’s a good thing. In 2011, aviation alone contributed almost $50 billion to the UK’s GDP. Airlines like Virgin Atlantic Airways (VAA) help make our communities and economies more interconnected. However, these benefits do come with at least one serious cost: air travel involves high carbon emissions, so it contributes a lot to climate change.

Luckily, companies like VAA have been leaders in addressing this issue head on, taking initiative through its “Change is in the Air” sustainability program. From 2007-2014, VAA reduced its CO2 emissions per Revenue Ton Kilometer by an impressive 10%. VAA has also been using better data collection to give their pilots more information on operating efficiently. Here’s where the behavioural economics comes in:

Partnering with a team of economists, including the Behaviouralist’s John List and Robert Metcalfe, VAA set out to find 3 things: first, whether providing information, targets, and charitable incentives changed Captains’ behaviors; second, whether this behavior change affected fuel use, carbon emissions, and costs; and third, whether Captains were happy with these changes. To do this, the team divided VAA’s 335 captains into 4 groups (described below) and measured 3 behaviours: pre-flight Zero Fuel Weight (ZFW) adjustments, in-flight Efficient Weight procedures (EF), and post-flight Reduced Engine Taxi-in (RET) to the gate.

Group 1 – Control: This group carried on with VAA business as usual.

Group 2 – Information: This group got monthly feedback on their performance on standard operating procedures (SOPs).

Group 3 – Targets: This group got the above information, as well as how they did relative to expected targets for each month.

Group 4 – Charity: This group got information and targets, as well as a monthly charitable donation incentive.

With data on more than 110,000 Captain-level behavioural observations, the team found that all captains, even those in the Control group, increased their fuel efficiency during the study. While this may seem surprising at first, it’s the result of what’s known as the Hawthorne effect – the phenomenon where people change their behaviour when they know they’re being observed. (You know, like how I always do my homework more carefully when I know my teacher is watching).

But the Hawthorne effect only accounted for some of the changes, meaning the behavioural interventions had a real impact on fuel-efficient behaviour. Overall, the Target Group and the Charity group were the most effective, far outpacing the Information group; the former two groups saw an EF increase of 3-5% and a RET increase of 8-10%, along with a 2-3% increase in ZFW (though this result was not statistically significant). In all three categories, the good behaviours were higher during the study than before, and in every category but 1 the behaviours were higher after the study than they were before; this suggests some real staying power of the behavioural intervention, with the good outcomes lingering even after the formal study had ended.

Perhaps most importantly, these individual behaviour changes added up to real savings for VAA (and for the world). The study found that fuel savings were approximately 6,828 tonnes – equivalent to $3,309,489 in value savings for VAA (with fuel prices at the study), and 21,507 tonnes of CO2 savings. The Hawthorne effect again accounted for much of these savings, but 704 tonnes of fuel and 2,218 tonnes of CO2 can be attributed to the behavioural interventions. It’s easy to get lost in the numbers, imagine that each flight you went on used 528 kg less fuel, and you begin to see that magnitude of these behavioural changes. What’s more, these savings show a Marginal Abatement Cost of -$250 per tonne of CO2, twice as cost-effective as current best practices for reducing CO2: in other words, these changes actually lead to a gain of $250 for each tonne of CO2 saved.

Last but not least, the Captains were all asked to fill out a post-study satisfaction survey, and the results were promising: groups 2, 3, and 4 all reported higher job satisfaction than the Control group, and 81% of survey respondents said they want more fuel and carbon efficiency information in the future. In fact, the Charity group had a 5% higher satisfaction rate than the Control group, a change on par with going from poor health to excellent health!

By giving Captains fuel and carbon efficiency information, airlines can cut costs, decrease emissions, and improve job satisfaction – all while continuing to provide a valuable service to consumers. It’s not often there’s such thing as a win-win-win-win situation, this study shows that companies, workers, consumers, and the environment can all come out on top!

Yet there is still more reason for optimism. Unlike in our Myopic Loss Aversion study where more information led to worse outcomes, this VAA study indicates that with stronger information delivery, the benefits from the behavioural changes can still be increased. With new technology, useful information will be able to get to captains even faster, boosting their decision-making. With an expanded range of targeted standard operating procedure metrics, more savings could accrue. All this is to say that with some marginal behavioural interventions, air travel can get a lot more cost-effective and environmentally friendly, making it a great way to enhance economic development.

And hey, even if economics is sometimes seen as a heartless field, the fact that the Charity group saw the largest increase in job satisfaction shows that people’s hearts can warm without having the climate do the same.

 

Study: Read Here