{"id":10643,"date":"2016-11-04T01:08:26","date_gmt":"2016-11-04T05:08:26","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/a-carbon-tax-on-airfare-will-it-kill-management-consulting\/"},"modified":"2016-11-04T12:24:39","modified_gmt":"2016-11-04T16:24:39","slug":"a-carbon-tax-on-airfare-will-it-kill-management-consulting","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/a-carbon-tax-on-airfare-will-it-kill-management-consulting\/","title":{"rendered":"A Carbon Tax on Airfare: Will It Kill Management Consulting?"},"content":{"rendered":"

McKinsey & Company, like many management consulting firms, prides itself on bringing the best talent to its clients. The majority of consultants travel twice a week on both short- and long-haul flights domestically and internationally. To say that consultants travel many, many miles would be an understatement. <\/span><\/p>\n

But, flying has a real cost on climate change and will likely be subject to regulation in the coming years. Climate experts estimate that in a sustainable world, each person would be allowed to emit up to four tons of carbon emissions annually [1]<\/span>. According to the NYTimes, one long-haul roundtrip between New York and San Francisco alone emits two to three tons of carbon dioxide per person [2]<\/span>, indicating that air travel comprises the majority of a sustainable allowance of emissions. Some McKinsey consultants take these trips weekly. <\/span><\/p>\n

As a result, air travel will be subject to regulation and consulting firms like McKinsey will need to adapt. While no taxes have been imposed yet in the US, there are signs that environmental groups are trying to pressure the EPA and international organizations to take action on curbing air travel by cutting demand through increased carbon taxes [3]<\/span>. Other markets like the EU are already taking action. In 2012, the EU included aviation under the Emissions Trading System requirements which require airlines to purchase carbon credits to offset emissions [4]. <\/span> Furthermore, given President Obama\u2019s legacy focus on improving climate change, it is not unlikely that he will target the airline industry. Thinking about its margins, the airline industry will incorporate these costs in ticket prices. McKinsey\u2019s global scale indicates that it is already paying higher ticket prices in some markets and if others follow suit, McKinsey will have to refine its operating model. <\/span><\/p>\n

Currently, McKinsey purchases carbon offsets for the travel its consultants do, but the cost of a carbon tax on flights will be more expensive. \u00a0While in a perfect market a carbon offset will be the same price as a carbon tax since they are both a method to price carbon, carbon taxes are pricier than carbon offsets because some firms are grandfathered in and are given carbon credits for free [5].<\/span> As a result, the carbon tax McKinsey would pay on flights would be more than what they are currently paying in offsets. This means that even if after the tax was imposed McKinsey cedes paying carbon offsets, their costs will still increase. <\/span><\/p>\n

McKinsey must make changes to its operational model to maintain margins. As mentioned, staffing occurs on a global scale. While there is some preference given to office location, it is not unlikely for a DC-based consultant to travel weekly to a client in Miami, even though the firm has an office there. If McKinsey wants to maintain margins in order to provide competitive salaries and benefits to its employees, it will have to either raise prices or decrease costs. It would be unreasonable to expect clients to pay more than they\u2019re currently paying for consulting work, especially if they feel that it is from the firm passing on costs from air travel. Therefore, McKinsey must cost costs by reducing travel. <\/span><\/p>\n

Reasonably, the firm has few options to decrease its consultants travel: 1) conduct local staffing and hire enough consultants in each city to match the intended demand of those locations, 2) invest in telecommunications systems so that the firm can provide high client service without being in person, or 3) change the weekly staffing model to house consultants in a cost effective way at their client site. Out of these 3 options, McKinsey should look into option 2 and invest in telecommunications while changing the expectations of what their clients are getting from their services. <\/span><\/p>\n

This solution presents both an opportunity to McKinsey\u2019s operational model. On of the largest drivers of attrition at the firm are travel fatigue and the grueling lifestyle of being on the road and away from family four days out of the week. If the firm were to invest more in telecom creating the consulting experience from the comfort of a home office, consultants who have retired to pursue careers that have lower travel expectations would be less likely to leave. If they\u2019re less likely to leave, it allows the firm to have smaller recruiting classes each year as they will not need to hire and train as many consultants to replace those who have left.<\/span><\/p>\n

In conclusion, companies such as McKinsey that incur heavy costs due to airline travel will have to re-think their operating and staffing model in the face of increased regulation. By decreasing the number of flights a consultant takes, the firm has an opportunity to increase retention. But, how can McKinsey convince its clients that it is still worth the project if the consultants are not on-site? <\/span><\/p>\n

Word Count (793)<\/span><\/p>\n

[1] Elisabeth Rosenthal, \u201cToward Sustainable Tabel: Breaking the Flying Addiction,\u201d <\/span>Yale Environment 360<\/span><\/i>, [<\/span>http:\/\/e360.yale.edu\/feature\/toward_sustainable_travel\/2280\/<\/span><\/a>], accessed November 2016<\/span><\/p>\n

[2]\u00a0 Elisabeth Rosenthal, \u201cYour Biggest Carbon Sin May Be Air Travel,\u201d<\/span> The New York Times<\/span><\/i>, January 26, 2013, [<\/span>http:\/\/www.nytimes.com\/2013\/01\/27\/sunday-review\/the-biggest-carbon-sin-air-travel.html<\/span><\/a>], accessed November 2016<\/span><\/p>\n

[3]\u00a0Elisabeth Rosenthal, \u201cToward Sustainable Tabel: Breaking the Flying Addiction,\u201d <\/span>Yale Environment 360<\/span><\/i>, [<\/span>http:\/\/e360.yale.edu\/feature\/toward_sustainable_travel\/2280\/<\/span><\/a>], accessed November 2016<\/span><\/p>\n

[4]\u00a0\u201cReducing Emissions from Aviation,\u201d <\/span>European Commission Climate Action<\/span><\/i>, [<\/span>https:\/\/ec.europa.eu\/clima\/policies\/transport\/aviation\/index_en.htm<\/span><\/a>], accessed November 2016<\/span><\/p>\n

[5]\u00a0Luca Taschini, Simon Dietz and Naomi Hicks,<\/span> \u201cCarbon Tax vs. Cap-and-Trade: Which Is Better?,\u201d <\/span>The Guardian<\/span><\/i>, January 31, 2013, <\/span>[<\/span>https:\/\/www.theguardian.com\/environment\/2013\/jan\/31\/carbon-tax-cap-and-trade<\/span><\/a>], accessed November 2016<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

How can consulting firms maintain margins when facing carbon taxes on airfare?<\/p>\n","protected":false},"author":1855,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[107,1619,1313,493,472],"class_list":["post-10643","hck-submission","type-hck-submission","status-publish","hentry","category-airline","category-carbon-offsets","category-carbon-tax","category-consulting","category-telecommunication"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nA Carbon Tax on Airfare: Will It Kill Management Consulting? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/a-carbon-tax-on-airfare-will-it-kill-management-consulting\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Carbon Tax on Airfare: Will It Kill Management Consulting? 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