There are three letters that are set to shape the future of air travel: SAF. Behind the acronym stands the term Sustainable Aviation Fuel – in other words, sustainable aviation fuel. Today we want to delve into this mega-market and provide you as an investor with some interesting insights.

Why is SAF so promising? First, for understanding: SAF is primarily an umbrella term for all aviation fuels that are produced without the use of fossil raw materials such as petroleum, unlike conventional kerosene. In principle, SAFs offer two decisive advantages.

First: Depending on the variant, they offer significant climate benefits compared to conventional aviation fuel. While SAFs also emit CO2 during combustion, the production of these fuels releases less new CO2 into the atmosphere, which significantly improves the overall carbon footprint.

Second: SAFs can generally be used in existing aircraft. This means that the machines do not have to be extensively converted to refuel with sustainable fuels.

Currently, SAFs are mainly blended with conventional kerosene. This already improves the CO2 balance of the corresponding aircraft. However, sustainable fuels have so far played a minor role overall. For example, the Lufthansa Group only used a total of 13,000 tonnes of SAF in 2022, which was just under 0.2% of the group’s fuel consumption.

Biogenic SAF vs. Synthetic SAF By far the largest part of the SAF market currently consists of production from biogenic residues. This involves taking old cooking oils and fats, removing the water, and then converting the biomass into suitable hydrocarbon chains. Finally, the fuel is refined into sustainable aviation fuel. The image shows the process steps:

Source: Lufthansa (https://www.lufthansagroup.com/en/responsibility/climate-environment/sustainable-aviation-fuel.html)

In addition, several companies are currently researching other SAF variants. A prominent example is so-called eSAF, which can be produced synthetically from eco-electricity, water, and CO2 through the power-to-liquid process. This technology is still in the development stage and is far from marketable – mainly because the SAF produced in this way is still far too expensive. Biogenic SAF from used oils is already significantly more expensive than conventional kerosene. The price discrepancy is even greater with eSAF.

Political requirements put pressure on airlines This is why SAF is not likely to fail, however. The reason: Politicians are practically forcing airlines to have a certain percentage of SAF in their fuel balance, and this percentage is increasing. This means that airlines will have to blend more and more SAF in the coming years to avoid penalties. This applies not only to the EU but also to some other markets and regions.

The higher costs for SAF flights will ultimately be passed on to passengers. At Lufthansa, for example, customers can already book special flights with SAF blends for an additional charge, not only to maintain their „green conscience“ but also to improve their carbon footprint – which is economically interesting, especially for corporate customers.

Airlines ignite SAF turbo: an overview It is not surprising, then, that industry players are pulling out all the stops to secure sustainable fuel. Here is a brief overview of the latest activities (compiled by Reuters):

Air France (Investment of 4.7 million USD in SAF production plant by DG Fuels in the USA) Air France (Letter of intent with energy company OMV for extensive supply of SAF) Easyjet (SAF supply contract with Q8 Aviation) Finnair (SAF supply contract worth 192 million USD with Gevo) IAG (eSAF supply contract with Twelve, covering 785,000 tonnes) Icelandair (Letter of intent for 45,000 tonnes with green hydrogen developer Idunn H2) Lufthansa (Letter of intent with specialty chemicals company HCS Group for 60,000 tonnes annually) Lufthansa (Cooperation with OMV, 800,000 tonnes of SAF from 2023 to 2030) Norwegian Air (Partnership with Norsk e-Fuel) Ryanair (SAF supply contract with Shell, 360,000 tonnes by 2030, further SAF supply contracts with Repsol and Neste) Virgin Atlantic (SAF supply contracts with Neste and Gevo) As you can see, airlines have recognized the signs of the times and are investing heavily in higher SAF volumes. For example, the Lufthansa Group plans to invest up to 250 million USD in sourcing sustainable fuel worldwide in the coming years. The German group is already considered the fifth-largest buyer.

Who benefits? OMV already sells SAF certificates The beneficiaries of this mega-market are primarily the manufacturers of SAF products. The list includes some well-known stocks on the supplier side, such as Shell, OMV, and Neste. OMV, for example, now also sells certificates for sustainable aviation fuel and is thus building an additional source of income.

Through the new business unit „SAF Business Solutions,“ customers are offered certificates to indirectly improve their carbon footprint (Scope 3). For this purpose, the Austrians are cooperating with the organization RSB, which verifies the climate measures priced through the certificates. OMV has already landed a major customer. For example, the oil and gas giant sells SAF certificates to Microsoft. The US tech giant can thus improve the carbon footprint of its business and logistics flights.

Shell, for its part, plans to massively expand its SAF production in the USA. The oil company is relying primarily on government subsidies that are also intended for climate-friendly fuel.

My conclusion for you In my opinion, SAF is the future of air travel, even if conventional kerosene will still be in first place in terms of quantity in the coming decades. Experts attribute enormous growth potential to sustainable fuels. According to estimates by Markets and Markets, the global SAF market could grow to 16.8 billion USD by 2030. This would mean an annual sales increase of +47.7%.