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In March 2007 United Nations SecretaryGeneral Ban Ki-moon told a UN conerencein New York We have to change the waywe live, and rethink the way we travel.

The travel and leisure sector must nowmeet that challenge.

February 2008 Issue 17

Here to stay:

sustainability in thetravel and leisure sector

Hospitality and LeisureHospitality Directions Europe


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over more than $10 billion. Andwhile 39 per cent o respondentswere concerned about potentialdisruptions to their supply chainsrom extreme weather and othersimilar events, 28 per cent sawclimate change as an opportunityto reduce their costs or generateadditional prots rom newenvironmentally-riendly productsand services. Another 29 per centbelieved that an active commitmentto take action on climate changewill bring important intangiblebenets, either or their brands, theircorporate reputation, or their abilityto attract the best talent.

Its increasingly clear that asgovernments try to orce thetransition to a low carbon economythere will be new regulatory andtax measures that all companieswill ace, regardless o their sector.Costs will rise as a more realisticprice o carbon is imposed throughmechanisms like the EU cap andtrade scheme, and other resourcesthat have traditionally been eitherree or too cheap will have to be

bought and valued at a market rate.There will have to be drastic cutsin waste and packaging, and in theuse o chemicals, water and power.

But as the Stern Review alsopoints out, there wont just becosts but business opportunitiesas the markets or low-carbon,high-eciency goods and servicesexpand. As the PwC CEOsurvey suggests, the more agilecompanies and sectors will do this

by predicting and meeting new

demands, creating new productsand services, or simply by turningtheir ethical and environmentalcredentials into competitiveadvantage. In some sectors thisis already happening: cars are anobvious example, but look also atthe growth in demand or organicand Fairtrade ood, at the rise ogreen energy, or at what Marks &Spencer is doing with its 200mPlan A sustainability programme.

So what does all this mean or thetravel and leisure industry? Andhow can companies in the sectorstart to make headway on what mayseem to be intractable problems?

Air pressure

The rst and most obvious issue orthe industry is the carbon cost o airtravel. There is still no agreementon a global emissions tradingscheme or aviation, but in themeantime the EU is proposing toinclude the industry in the EuropeanEmissions Trading Scheme rom2011, and airlines need to start

planning or this now. According toReady for Take Off3, a PwC surveyconducted in 2007, most operatorsare expecting this to result in highercosts, but ew believe they will beable to pass those costs throughto passengers. And the numbersin question are considerable. Anindustry-led study by York Aviationin 2007 put the cost o emissionsreductions at 45 billion or thedecade between 20112020, whichwould in turn cut aviation prots by40 billion.

Here to stay Sustainability in the travel and leisure sector

Climate change has aected ourbusiness expectations rom both a short-and long-term perspective. For example,new commercial aviation regulationsthat seek to reduce the emission ogreenhouse gases could lead to areadjustment o the supply and demandequation or this means o transport.

Raael del PinoChairman, Ferrovial GroupResponse to the PwC Annual GlobalCEO Survey

3 Ready or Take-o? The inclusion o aircrat operators in the EU Emissions Trading Scheme, PricewaterhouseCoopers 2007


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Part o the problem here is thatthe sector has relatively ewoptions that can make a signicantdierence, at least in the immediateuture. The three cited most otenby respondents to Ready for TakeOffwere more ecient aircrat,new technological developmentsin areas like jet uel, and betteruse o spare capacity. As TomJenkins, executive director othe European Tour OperatorsAssociation has said, What weneed is much more enlightenedthinking that simultaneouslystimulates a reduction in carbondioxide emissions and an increasein productive innovation. The

ocus should be on technologicaladvancement and alternativesources o uel rather than punitivetaxation that will destroy theeconomy.

But technological advances tendto have a very long timescale, ithey can be achieved at all: loweremission uels are being developed,but may not reach the market or 20years. Additionally, controversy over

the relative environmental impactso biouels versus traditional ossiluels means that this may not bethe perect solution it may haveseemed. In the long term newand lighter materials could makethe biggest dierence by reducingaircrat weight, but these are evenurther o. In the interim manyoperators will have to rely onmaking the smaller improvementsthat can be realized rom better loadactors, and encouraging carbon-

o-setting.

As the box below suggests, moreand more airlines are oering theirpassengers the chance to oset theemissions generated by their fights,but some observers say that thebenet is marginal at best, and doesnot take into account the crucialact that emitting CO2 and nitrogenoxide at high altitude causes atleast twice as much damage as atground level. And while the sectorscontribution to global carbonemissions is as yet relatively low ataround 3 per cent, this gure nearlydoubled between 1990 and 2005and aviation is now Britains astest-growing source o CO2 emissions,which may cancel out the hard-won

reductions being demanded o otherindustries.

Flying light

Most o the big airlines now givetheir passengers the chance tooset the carbon generated ontheir fight. The trend was setby BA in 2005 and they havenow been ollowed by the likeso Qantas, Virgin, Easyjet, Air

France, SAS, Luthansa andCathay Pacic.

Other airlines are even moreambitious. In July 2007 KLMRoyal Dutch announced plans toachieve CO2-neutral growth bymodernizing its feet, reducingits uel use, and osettingour million tonnes o carbonin the next our years throughinvestments in WWF sustainableenergy schemes. NetJets,Europes largest private jet

company, has set itsel the goalo becoming completely carbonneutral by 2012, and Sir RichardBranson is ploughing all theprots and dividends his groupmakes rom Virgin Holidays,Virgin Atlantic and Virgin Trainsinto research and investment todevelop sustainable sources oenergy. That could amount to$3bn over the next 10 years.

Permit to travel?

Whatever happens in the air, climatechange will bring other morelong-term actors into play or thewider hospitality sector. Changing

weather and temperature patternswill make some parts o the worldmore attractive and others less so;more requent fooding or droughtmay threaten destinations that havebeen popular choices in the past;and pressure will build or moresustainable approaches to waterand energy, especially in relation toair-conditioning, swimming poolsand laundry. The 2007 AmericanExpress Hospitality Monitor ound

that almost hal o the 300 Europeanhotels they surveyed had set targetsto reduce energy consumption, butew had done more to implementthis other than oering not to washthe towels every day. Some werestarting to use energy ecientlight-bulbs and more were makingthe eort to recycle waste, but theoverall impression was that relativelylittle was being done, and a greatdeal more could be achieved.

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The more cynical industry commentators point to theact that only 7 per cent o passengers have oset theirfights so ar as evidence that consumers will be slow tochange their behaviour, i they do it at all, and as suchthe costs o improving environmental perormance arelikely to outweigh the benets. In a similar vein, recentcustomer research by Starwood Hotels and Resortsound that over 60 per cent o people are more wasteulo hotel water and electricity because these thingsare perceived to be ree. And despite years o politediscouragement 75 per cent still wanted their towelsand sheets changed every day.

But those in the opposite corner can cite recentsurveys by the Green Hotel Association, which oundthat up to 43 million US travellers are concerned aboutgreen issues in the hospitality industry, the TravelFoundation, which indicated that only 4 per cent o UKholidaymakers would opt or a ve-star hotel rather thana our-star one with a better sustainability perormanceand Travelocity, which ound that nearly 80 per cent otravellers would be willing to pay extra to visit an eco-riendly destination or business. Moreover, 75 per cento respondents to a Travel Mole survey in 2007 said

they would be prepared to oset their travel-relatedemissions once they understood the impact they werehaving on the environment. 43 per cent chose evenmore radical options, such as imposing new carbon

taxes on the cost o fying, or opting or more neutralorms o transport. Its no surprise, then that both VirginTrains and Eurostar are now promoting themselves onthe basis that letting the train take the strain is greenerand cleaner than going by air, or that VisitBritain isdeveloping a sustainable tourism accreditation scheme.

It may be that consumers really are going to beprepared to buy green holidays as well as greenhousehold goods, but an even more immediatecommercial threat may come rom changes in attitudesto business travel.

A discussion o the companys carbon ootprint isnow a de acto requirement or any business issuing aCorporate Responsibility (CR) or Sustainability report,and in most cases a signicant element o that ootprintwill be generated by fying. For service sector rms likePwC or the major international banks the proportionwill be even higher. As a result most companies saythey are trying to make more use o alternatives likevideo-conerencing, and over time this is bound tohave a knock-on eect on lucrative business classservices. Many big organisations are also starting to

rank the hotels, airlines and trains they use according totheir environmental perormance, looking or supplierswho are reducing the emissions rom their car feets,developing guides or sustainable meetings, and



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promoting sustainability in their supply chains. Much othis is covered in the detailed toolkit produced by theInstitute o Travel Management, which includes policyadvice and practical guidelines on reducing emissions(see www.itm.org.uk/icarus/).

What may be less obvious as yet could be the impacto moves by leading companies to examine thesustainability credentials o their suppliers. Businessesare now expected to make ethical choices in relationto their procurement, and many have started issuingdetailed Corporate Responsibility (CR) questionnaires

to suppliers beore they will agree to use them (seethe box opposite or more on what PwC is doing inthis area). The potential double whammy or the traveland leisure sector could be a potential reduction in theabsolute volume o business air travel and hotel usage,coupled with clients becoming increasingly scrupulousabout the environmental track records o the airlinesand hotel chains they choose.

This is also borne out by a survey by the Associationo Corporate Travel Executives and corporate travelcompany KDS in January 2008, which ound that almost

hal the people booking business trips now eel carbonguilt about their contribution to global warming. Theyconcluded that there is already a real desire to reducethe requency o travel and select greener options.

PwCs approach to business travel

PwC is not only increasing its use o videoconerencing but targeting a 20 per cent reductionin emissions relating to air travel rom eachindividual member o sta.

We also ask all travel suppliers to ll in aquestionnaire relating to their environmentalmanagement and impacts. This includes

inormation on greenhouse gas emissions, waterconsumption, and waste and recycling, as wellas their policies on noise pollution and air quality,and their approach to managing their supplychain.

As Mark Avery, PwCs Head o Business Servicesand ormer Chairman o the ITM, says, Feworganisations have gone quite as ar as PwC hasin translating overall emissions reduction targetsinto individual objectives, but there is certainlyincreased take-up o the ITM toolkit, which isbeing supported by accreditation and awards orthose prepared to go the extra mile.


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The industry will have to adapt to these pressures, butthat process will also throw up opportunities or growth,i businesses have the courage to seize them. Soar the sector has been slow to make sustainability astrategic business issue, or capitalise on its commercialpotential. Tesco is spending 600m on operationalenvironmental improvements because CEO TerryLeahy believes that the market is ready and they canmake sustainability a signicant, mainstream driver oconsumption. Likewise GE has developed a wholerange o Ecomagination products and services, andaims to increase the revenue rom them rom $700min 2005 to $20bn by 2010. As the box overpagesuggests, ecotourism is thriving, but this is a niche endo the market, and ew o the major players have madeconcerted eorts to develop green brands and servicesor newly-conscientious travellers. However, this maybe about to change.

Signs o change or hotels

One practical new initiative is the new set o GoingGreen standards published in June 2007 by theInternational Tourism Partnership, part o theInternational Business Leaders Forum (see www.tourismpartnership.org). This gives sensible advice onthe minimum standards or a sustainable hotel, coveringpolicies and rameworks, sta training and awareness,environmental management, purchasing, people andcommunities, and destination protection. So ar over a

dozen major operators have signed up, including FourSeasons, Hilton, Hyatt, InterContinental, Marriott, Tajand Starwood.

Radisson SAS have won many awards orenvironmental perormance, and around 20 o theirhotels in Europe have third party environmentalaccreditation. Starwood, on the other hand, is anearly example o a mainstream operator developingits own green brand. The new 1 luxury hotels will bebuilt to the Leadership in Energy and EnvironmentalDesign Green Building Rating System, which takes into

account human and environmental health, sustainablesite development, water savings, energy eciency,materials selection, and indoor environmental quality.And each property will also donate 1 per cent o itsrevenue to local environmental organizations. 15 hotelsare planned in the next two years, with the rst due toopen in Seattle in late 2008. There was the usual pressrelease and PR campaign to accompany the 1 launchbut Starwood Capital Group CEO Barry Sternlichtinsists that the new brand is not using eco-riendlyjargon simply as a marketing tool. Our intention with1 is to build hotels and residences that are truly greenand minimize their impact on their environment. Mosto the US hotels are likely to be new builds, but the rstinternational 1 hotel will a reurbishment o an existingbuilding in Paris. This highlights a recurring problemor hoteliers looking to improve their environmentalperormance. Constructing new and greener buildings

is one thing, but what do you do with older propertiesthat would be expensive and perhaps impracticalto upgrade? And when you take into account theresources it requires, even the knock-it-down-and-start-again option raises more issues than it solves.

Another early sign o change last year was IHGsnew innovation hotel website (see www.ihgplc.com/innovation/), launched in September. This makes ulluse o interactive technology to demonstrate howenergy conservation, recycling, water conservation, andwhat they call destination conservation combine to

determine a hotels long-term sustainability. Its a cleveridea with real potential; the next challenge or IHG willbe to provide users with more inormation about theaction theyre taking in each o these areas.

Other recent innovations that could make a longterm dierence include TUIs decision to provideenvironmental ratings or all its hotels. The key tosuccess here will be whether these ratings start toaect consumer behaviour, and how much TUI does toimprove the hotels at the bottom o the scale.



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How green is your holiday?

I you google ecotourism you get over 2.5 millionhits, and thats beore you even start on responsibletourism, sustainable tourism or green tourism.

There are ecotourism resource centres, ecotourismassociations, and ecotourism journals, as well asthousands o companies oering trips ranging romkayaking on the Amazon, to working holidays in Arica.

But despite all this activity theres no single denitiono ecotourism, and no industry body certiying what issustainable and what is not. Harold Goodwin, heado the International Centre or Responsible Tourismat the University o Greenwich, has said that the termecotourism no longer has any real value becausepeople just dont believe it. The Ecotourism Societyreers to responsible travel to natural areas whichconserves the environment and improves the welareo the local people, and points out that a walk inthe rainorest is not ecotourism unless it benets theenvironment and its people in some tangible way. Agenuinely sustainable lodge or hotel will minimise itsnegative environmental impacts by using measureslike solar-powered energy and rainwater harvesting,as well as unding conservation and education, andemploying local people.

The worlds rst zero carbon ve-star hotel nowbeing built in Zanzibar will eature solar heating orhot water, natural cooling rom channelling the sea

breeze, and reed-ltered recycled water or the innitypools. Other hotels emphasise their social as well astheir environmental ootprint. The luxury Kasbah DuToubkal in the Moroccan Atlas Mountains is a jointventure between the Discover travel company andthe neighbouring Berber people. The hotel is notonly managed by local sta but has helped to builda school or 80 children, and provide the areas rstambulance and driver.

But i one trip to New Zealand generates as muchcarbon as 60 holidays in Scotland, theres no gettinground the act that travelling the world to wonder atnatural landscapes and exotic wildlie causes moredamage than staying at home and watching themon TV. Now that people can watch live eeds oendangered species in their own living room throughinnovations like the World Land Trusts Webcam inthe Forest, even more o them may decide that themost environmentally-riendly holiday is the one theydont take.


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Practical ways orward

Given the complex challenges the sector aces, hospitalitybusinesses need to take a rigorous and strategicapproach i they are to ully understand both the risks andopportunities they could conront. PwC has developed aramework to help companies manage this process, whichensures that the right short- and long-term questions areaddressed.

The ramework looks at the consequences o climatechange under our headings: regulation, marketdynamics, physical impacts, and reputation:


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Breaking down the impacts oclimate change like this can helpcompanies ocus on those thatare most material or them, andaddress the key issues that arise ineach area. For example, the sorto questions the hospitality sector

might ask itsel might include:

Regulation

How might new environmentaltaxes aect your protability?

Would your business be ableto comply with more stringentregulations relating to labour rights indeveloping markets?

Do you know how new climatechange regulation might aectyour bottom line?

Market dynamics

What would happen to your businessi domestic holidays become morepopular, either because people travelless, or because domestic climatesbecome more appealing?

What would be the eect on yourmargins i air travel once againbecame too expensive or anyonebut the very rich?

Could you cope i consumersstarted to boycott hotels and airlineswith a poor environmental record, orcorporates insist on suppliers withsound environmental credentials?

Physical impactsWhat happens to destinations thatare particularly at risk rom extremeweather, like Florida, or rising sealevels, like the Maldives?

What would be the eect on yourbusiness i water became an evenmore scarce resource at some oyour destinations?

How many hotels and resorts doyou own on vulnerable coastal

locations?

Reputation

Will people continue to chooseyour hotels i they perceive you tobe a laggard rather than a leader inenvironmental perormance?

Are there opportunities to developnew green products or servicesin your sector? What are your

competitors doing about this?

Do you have a good public reputationor respecting local cultural norms indeveloping markets?


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The Challenge

Climate change issues are

multi-dimensional

What does leadership on theclimate change agenda reallylook like?

Regulation

Carbon constrained production

Compliance costs

Participation in carbon marketsNew product standards

Taxes, subsidies and credits

Disclosure o climate risks

Market dynamics

Consumer attitudes anddemand patterns

New technology, products &markets

Competitor behaviour andpositioning

Carbon as a value driver in M&A

Physical impacts

Assessing asset vulnerability

Supply chain disruption

Workorce disruptionRisk management, insuranceand adaption costs

Reputation

Communicating long termvision to investors

Engaging customers andemployees

Deending/enhancing brandvalue

Source: PwC 2008


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As these questions suggest, itsimportant to understand all thepotential ways in which the impact oclimate change might play out, andthen develop robust plans that cancope with all the dierent scenarios.Depending on the answers, you mayeven nd that what you need is an

Conclusion

StrategyBrands and

SustainabilitySustainable

Sourcing and

supply chain

ClimateChange

SustainableConsumption,

natural resources

& waste

Governance

Management Information

People and Change

Reporting

Assurance

BrandsandSustainability

SustainableSourcingandsupplychain

ClimateChange

SustainableConsumption,naturalresourc

es&waste

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entirely dierent business model.The key to successul managementis in recognising that sustainabilityimpacts every aspect o yourbusiness and needs to be managedin an integrated manner as illustratedin the ollowing diagram:

Do you need a dierent business model? Managing sustainability in an integrated manner

Source: PwC 2008


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www.pwc.com/uk

2008 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers reers to PricewaterhouseCoopers LLP (alimited liability partnership in the United Kingdom) or, as the context requires, the PricewaterhouseCoopers global network or othermember rms o the network, each o which is a separate and independent legal entity.

This publication has been prepared or general guidance on matters o interest only, and does not constitute proessionaladvice. You should not act upon the inormation contained in this publication without obtaining specic proessional advice. Norepresentation or warranty (express or implied) is given as to the accuracy or completeness o the inormation contained in thispublication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not acceptor assume any liability, responsibility or duty o care or any consequences o you or anyone else acting, or reraining to act, inreliance on the inormation contained in this publication or or any decision based on it

Erica Hauver

Lead Partner, Sustainability and ClimateChange services

+44(0) 20 7212 6888

[email protected]

Caroline Hill

Leader, Sustainability and Climate ChangeHospitality and Leisure Team

+44(0) 20 7212 1318

[email protected]

Robert Milburn

UK Hospitality & Leisure Leader

+44(0) 20 7212 4784

[email protected]

ContactsTo discuss any o the issues in thisarticle, please contact:

For urther hospitality & leisure research and newsvisit www.pwc.com/hospitalitydirections

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