Risk Type Climate-related Risk Description Potential Financial Impact Mitigation Strategy Transition Risks Technology Risk from new technologies aimed at supporting global low-carbon transition AirAsia has confirmed its order for 362 Airbus 321neo aircraft that will be delivered up until 2035. The introduction of zero emission aircraft could significantly reduce asset value of AirAsia’s 321neo fleet and render i ts f leet technology obsolete. Investment in new fleet type or adaptive green technologies will require significant capital investments. AirAsia’s last A321neo is scheduled to be delivered in 2035, coinciding with the expected introduction of Airbus’ zero emission aircraft. AirAsia can consider purchasing this new aircraft type as part of our fleet replacement strategy beyond 2035. Should the zero emission aircraft be available earlier, AirAsia can initiate negotiations with Airbus to convert A321neo yet to be delivered to the new fleet type. Market Risk from market fluctuations as travellers and businesses respond to climate change More companies may opt to cut business travel, in favour of virtual meetings. We believe that business travel will resume as Covid-19 enters an endemic phase. In 2022, we will be introducing voluntary carbon offsetting on all AirAsia flights to enable travellers to choose to reduce their carbon footprint. We intend to make this a mandatory commitment later, once guests are comfortable with the idea of accounting for their own carbon footprint. (i) Changing travel patterns Expansion of China’s Belt and Road i n i t i at i ve to h i gh- speed ra i l connections may also offer guests a lower-carbon travel alternative. We believe that air travel will remain essential to connect Asean as two major countries - Indonesia and the Philippines - are archipelagos where road and rail infrastructure are not well developed. In addition, the Belt and Road initiative has stalled in many countries, leaving cross-border connectivity still a hurdle. (ii) Growing demand for carbon credits With CORSIA coming into effect in 2021, an increasing number of airlines and other businesses will purchase carbon credits, causing prices to rise in the short term before more credits become available in the international carbon market. Any unanticipated increase in carbon credit price could result in AirAsia having to bear the additional cost of offsetting from top-line revenue. We are introducing an option for guests to add an offset fee to their fares in 2022. This will enable us to build internal capacity on carbon trading, including exploring options for forward purchase of available credits. In addition, we are also exploring options for AirAsia Foundation to help some of its environmental social enterprises accredit their programmes to be eligible for CORSIA offsetting. This will enable the social enterprises to benefit from sustainable funding while helping to secure AirAsia’s supply of carbon credits in Asean. Reputation Risk of negative brand impact if AirAsia is seen as not responding sufficiently to climate crisis, resulting in: Guests may choose a competitor that is seen to be doing more and investors may divest. Financial institutions may also impose a premium on lending. We are undertaking a brand campaign to highlight our environmental credentials as the airline with the lowest CO2/ASK in Asia. By claiming our ‘greenest airline’ position, we address our climate critics and potentially stand to gain f r om i nc r eas ed ma r k e t s ha r e among environmentally-conscious travellers. (i) Shifts in guest preferences An option for guests to offset their travel will assuage some travellers’ concerns on their impact on the environment. (ii) Being targeted by flight shame movement We believe the risks from reputational damage due to this movement will be limited as air travel is not a luxury in many places that we serve due to underdeveloped road and rail infrastructure. This can be mitigated with a consistent awareness campaign highlighting our sustainability efforts and providing carbon offset options to guests. 1 3 4 C A P I T A L A B E R H A D Environmental (cont’d.)
RkJQdWJsaXNoZXIy ODU0MjU5