Southwest Airlines Retreats on Clean Fuel and Climate Initiatives

(Bloomberg) -- Southwest Airlines Co. is cutting jobs in its sustainable fuel operations and working to sell a renewables company, according to people familiar with the matter, an abrupt pullback after the carrier spent the past year investing in climate-focused initiatives.Southwest last week laid off seven out of 10 employees on two key teams that work to reduce its climate pollution and increase its use of sustainable aviation fuel, or “SAF,” according to the people, who asked not to be identified discussing internal details.The airline is also eliminating a newly created team that makes investments in renewable fuel startups. That team is being given a couple of months to help unload SAFFiRE Renewables, a company that Southwest acquired just 11 months ago, the people said. SAFFiRE is seeking to develop cleaner fuels from corn husks and stalks.

The cuts to Southwest’s sustainability staff were part of the broader layoffs announced on Feb. 17, when the carrier slashed about 1,750 workers, or 15% of its corporate staff. It marked the first round of layoffs in the airline’s 53-year history.

“Many departments were affected by the layoffs last week, including the sustainability and sustainable aviation fuel teams,” said a Southwest spokeswoman in a statement.The outsized hit to Southwest’s sustainability teams comes as the aviation industry struggles to make headway on its climate commitments. Southwest has vowed, like most other major airlines, to zero out its carbon emissions by 2050. It has also pledged to use SAF for 10% of its jet fuel by the end of this decade.But progress has been glacial. While air carriers globally used about 0.3% SAF last year, up from 0.2% in 2023, Southwest has reported using less than 0.1%. To reach its decade-end targets, Southwest will need to boost its use of cleaner fuels more than 100-fold.That’s an incredibly unlikely outcome, according to some experts, particularly if key staff and investments are being cut. “The hard part is finding the deals and making the investments and bringing this stuff to reality,” says Michael Baer, an aviation industry consultant who formerly ran fuel procurement for American Airlines. “Projects need people, and they need champions within an organization.”The Southwest spokeswoman said that the company will publish updated progress on its sustainability efforts, including its SAF usage, in its next environmental report this spring.Air travel accounts for about 4% of human-induced warming to date. The growth in cleaner jet fuel made from sources like used cooking oil and animal tallow has been slower than expected, with 2024 figures coming in well below the industry’s previous estimates. Air New Zealand last year pulled the plug on a key climate target for 2030. And Neste Oyj, a producer of SAF, said last year that demand from airlines for the pricier, lower-carbon fuels has been disappointing.Some governments, including the European Union and the UK, are now mandating the use of certain amounts of SAF. But most countries, including the US, are counting on voluntary actions by airlines to clean up their footprints. California had considered rules that would have regulated jet-fuel emissions from certain flights. Instead, the state unveiled a non-binding agreement with the airline industry in October to voluntarily accelerate their use of SAF.The dramatic changes at Southwest are remarkable given its frenzy of activity over the past 15 months. The airline unveiled a new climate strategy in November of 2023, dubbed “Nonstop to Net Zero,” which detailed how it would eliminate its carbon emissions. The airline affirmed its commitment to use more SAF, while also emphasizing a push to electrify its ground equipment, among other measures.Last February, the airline announced a new subsidiary, Southwest Airlines Renewable Ventures, to invest in SAF startups. This included a $30 million investment in LanzaJet, a sustainable fuels developer, which is building a plant in rural Georgia. A month later, Southwest acquired SAFFiRE Renewables.As part of its layoffs, the airline cut three out of four people working on a group that procures sustainable aviation fuel, according to the people familiar with the cuts. It also cut four out of six people from its environmental sustainability team, which spearheads the company’s overall climate goals and its efforts to achieve them.The airline is also cutting its renewable ventures team, which has been given a couple of months to find a buyer for SAFFiRE. The renewable fuels startup held a groundbreaking ceremony in August for a new pilot plant in Kansas, which was attended by the state’s two US senators. Construction on that plant is on hold, however, as the airline looks to unload the startup.Southwest notched over $27 billion in sales and $465 million in net profits last year, but the airline has come under mounting pressure from activist shareholder Elliott Investment Management to boost its financial performance.Elliott forced a reshuffling of Southwest’s board and ousted its chairman after taking a stake in the carrier last year and threatening a proxy fight. The activist firm argued the carrier failed for years to adapt to changes in the industry, hurting its financial performance and driving down the share price.

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