In order to develop our aviation fuel management software for airlines, it’s crucial that we understand the key challenges these businesses face, particularly in relation to data management and business efficiencies.
That’s why we’re always consulting with airlines and using what we learn to help shape our products.
In the last year we’ve been talking to airlines more than ever, as we continue to develop new features on our award winning airline fuel management software.
So we thought we should share what we’ve learned: here is our list of the 5 biggest fuel management headaches for airlines. How do they compare with your own challenges?
For a large airline, the number of fuel invoices the business receives in a year could be hundreds of thousands; for smaller airlines, the figure is likely still in the thousands.
And for each of those invoices, there could be many different items listed, including the product price, the supplier’s differential, into-plane service fees, transport fees, hook-up fees, taxes, and so on.
It’s incredibly time-consuming to check all of these items for every single invoice and the risks of human error are high.
Sometimes, to reduce the workload, accounting departments do one or more of the following:
This means that some airlines are without doubt, over-paying on fuel.
Airlines need to accurately forecast their fuel demand and fuel budget, and arrange fuel supply contracts well in advance.
They don’t want to run out of fuel, or have to buy fuel on-spot, but equally, airlines don’t want to tender for too much fuel, because they could incur contract penalties for uplifting less than they agreed.
So it’s a difficult balance to strike.
The problem is that the volatility of the oil market makes costs difficult to predict long-term. Plus, the complexity around pricing – the number of different price components that make up the cost of fuel to an airline (see point 1) and the variations between suppliers and locations – only adds to the woes of fuel planners.
On top of all that, accurate data about an airline’s previous fuel uplifts and fuel consumption is also difficult to access. This information is often buried within:
So drawing together that data and using it effectively to plan and budget is no mean feat.
This is another decision that will have a big impact on your ability to buy fuel at the best price.
Running fuel tenders, requesting, receiving and analysing fuel bid is a crucial job within airlines – after all, this fuel management activity has the greatest potential to affect an airline’s profitability.
The main challenge here is that you’re often receiving bids in different currencies, based on different market indexes, offering different invoice frequencies and payment terms. Assessing these bids require a diligent normalization which is often done using a complex set of Excel sheets. So it’s hard to make a like-for-like comparison manually; it involves a lot of number crunching.
Again, manual processes here are time-consuming and at high risk of human error. And since fuel accounts for between 25-50% of an airline’s operating expenses, making repeated wrong decisions about who to award a fuel supply contract to, would have a huge impact on the business’ financial sustainability.
Deciding if, when and where to tanker fuel is a key part of buying fuel at the lowest costs.
However, the number of different factors affecting this decision makes it arduous. For example, fuel prices at departure and destination, additional fuel burn due to higher weight, emission costs due to higher consumption, and possibly increased maintenance costs are some of the factors that need to be taken into account.
Wrong decisions around tankering can result in poor fuel efficiency, disputes with fuel suppliers, and financial penalties.
Staying on top of your fuel-related expenditure so you can plan your cashflow and, in the long-term, identify cost savings, is difficult for airlines, for a variety of reasons:
These issues make it difficult for airlines to see, for instance, the average fuel price per location and per supplier, and which contracts (and which elements of those contracts) are the most expensive.
Do these issues sound familiar to you? What others might you add? Let us know on Twitter @FuelPlusGroup using #airlinefuelpain.
You might also be interested in our similar article focused on the headaches of aviation fuel suppliers and resellers; some of the themes are the same. Maybe take a look; it’s always good to understand both sides of the story!