Under pressure to curb their carbon emissions and at the mercy of oil prices, airlines are increasingly looking for alternatives to help wean their fuel-intensive businesses off fossil fuels, although it could be years before they do.
But the move isn't likely to lead to lower ticket prices anytime soon. Biofuels would represent a small portion of the fuel used by the airline. And the airline industry has been enjoying record profits lately, largely thanks to plunging fuel prices, but that hasn't affected ticket much prices either.
Biofuels could help keep costs down when energy prices rise again, United says.
United and Fulcrum plan to build as many as five factories near United hubs. James Macias, chief executive of California-based Fulcrum, wouldn’t say which cities they are considering, but said that the company is eyeing Washington. (The companies are not disclosing the terms of their agreement, including United’s equity share.)
“Your garbage will go in, and within weeks it’ll be flying in airplanes,” Macias said.
At least 20 airlines worldwide have tested biofuels on their flights since 2011, according to the Europe-based trade group Air Transport Action Group. Alaska Airlines partially uses fuel made from cooking oil on 75 of its routes. United also plans to start using biofuel from another provider on some of its Los Angeles flights this summer.
But it could still be a while before garbage and other alternatives make a dent in airlines’ petroleum use.
Fulcrum plans to open its first factory in Nevada in the second half of 2017, and it expects to produce 10 million gallons a year. James Macias, Fulcrum’s chief executive, said that the company expects to be making 300 million gallons a year in five years.
Not all of that fuel will go to United, but even if it did, it would still represent only a small portion of the billions of gallons the airline uses each year. United used 3.9 billion gallons of fuel last year.
“The sustainable aviation biofuel market is in its infancy (from a production standpoint), and thus total supply is small,” United spokeswoman Mary Ryan said in an email, adding that the company hopes to spur growth in the alternative fuel market.
Buying that much fuel carries an enormous price tag – $11.7 billion for United last year – making fluctuating oil prices a key concern for the industry. Fuel is the most expensive part of running an airline, accounting for about a third of their operating costs each year.
Fluctuations add up: If the price of a barrel of crude oil increases by one dollar, it would cost United $93 million over the course of a year, the company said in a regulatory filing. Fulcrum can make a gallon of fuel for less than a dollar, Macias said, but the company will sell its product at the market price.
Airlines, which account for 3 percent of the U.S.’s greenhouse gas emissions, are also under pressure to reduce their carbon footprints.
Global regulators are drafting aviation emissions standards to implement next year, and the Environmental Protection Agency says it plans to adopt them.
Separately, members of the International Air Transport Association, a global trade group, have said they plan to cap their emissions in 2020 and halve their output by 2050, based on 2005 levels.
"Investing in alternative fuels is not only good for the environment,” Brett Hart, United’s general counsel, said in a statement. “It's a smart move for our company as biofuels have the potential to hedge against future oil price volatility and carbon regulations.”