According to several IATA and ICAO reports, fuel is one of an airline’s largest expenses. It can account for between 18-30% of its operating costs.
The efficient management of fuel is therefore a major concern for airlines. It relies on teams from across the organization working well together to adequately plan, forecast, monitor and analyze the business’ fuel consumption and expenditure. However, a number of common challenges have traditionally made this difficult to achieve.
Drawing on our 20 years of experience in airline fuel management, we’ve compiled a list of the most recurrent and frustrating fuel management issues faced by the industry. Here are our five key reasons why your fuel management process might be failing.
1. Historical fuel data is hard to obtain
In order to create an accurate fuel volume forecast, airlines ideally need access to historical fuel uplift and consumption figures. Unfortunately, this is notoriously hard to obtain since this information comes from thousands of fuel messages, tickets and multiple Excel spreadsheets.
Historical data is also usually stored within a separate, standalone IT system or might only exist in a manual format, so consolidating this takes a lot of time and resources.
If statistical historical data is not available, Flight Operations teams will often rely on fuel consumption averages per hour for each aircraft type – either their own internal averages or those supplied by the manufacturer. These averages are obviously much less accurate because they do not account for factors like seasons, weather, short or long haul flights and so on.
So at best, you end up with an accurate fuel volume forecast but it’s taken weeks to put together and consumed a lot of resources.
At worst, you are only able to produce an estimated fuel volume forecast, which means it’s harder to plan an accurate budget, flight allocation plan, inventory forecast and so on.
2. Fuel tendering is an inefficient process
The key aim of the tendering process for airlines is to ensure that their fuel volume requirement is met and at the best price.
Since fuel is one of an airline’s largest expenses, effective fuel procurement is clearly critical to an airline’s profitability. Yet we know that fuel tendering is often one of an airline’s most inefficient and painful activities. Why? Here are some of the main reasons:
- The large number of fuel supply contracts that need to be tendered for and the complexity of jet fuel pricing, means that airlines have to handle and process high volumes of data.
- It is difficult for airlines to compare bids like-for-like due to the different payment terms, jet fuel price indexes and/or currencies used by different suppliers.
- The tender process needs to be completely transparent and documented in detail, so that auditors can ensure it has been conducted fairly.
Few IT systems are built to cope with these complexities so airlines often have to rely on slow and inefficient manual processes for much of the tendering process.
Perhaps most worryingly, the task that ensures bids can be compared ‘like-for-like’ (normalization) involves various manual administrative and data capturing activities, leaving it vulnerable to human error.
This is a major concern because errors in data collection may result in bids being evaluated incorrectly, which could lead to a less favorable supplier winning the contract. It could also lead to an under or over-supply of fuel, which may incur surcharges.
3. The monitoring of contracts is all consuming
For any airline that wants to manage its fuel effectively, it’s essential that they have an up-to-date and accurate picture of fuel received and its cost. Many processes rely on this – for example accrual calculation, period closing and invoice verification.
Contract management is all consuming because of the sheer number and variety of contracts that are in place and because of the pricing complexities of jet fuel and its associated services (supply, storage, transportation etc.)
For example, product contracts often contain a pricing formula that is based on daily energy price assessments. Location contracts are made up of many price components, based on, for example, fuel volume, the fueling event, and varying duties, fees and taxes. Also, actual volumes must be checked against contracted volumes to avoid fuel shortage or penalty payments.
Therefore, contract prices and volumes need constant maintenance and monitoring and there must be an effective flow of information from external and internal sources to do this.
Often, airlines only have one option when it comes to contract management: to manually gather, link and update all the necessary data (contract terms, fuel price indexes, fuel volumes, duties, fees and taxes, and actual performance). This is clearly a huge undertaking. It is extremely time consuming, inefficient and reliant on individual experience and know-how.
4. Collecting and storing fuel data is a serious challenge
As we touched upon in point 1, collecting good quality data for fuel uplifted, in a timely way, is a serious problem for many airlines.
Information is often missing or inaccurate. Paper fuel tickets often get lost, while electronic fuel tickets are often provided in different formats, which make it difficult to store the information in a database. Usually a lot of manual work is required to collect and clean this data.
Even if the airline has the right data from all of the fuel tickets, they need to be able to link these to their operated flights and effective contracts in order to determine the cost of each fueling event. Given the number of fuel tickets a typical airline receives each year – hundreds of thousands – this becomes a significant and on-going task.
Calculating fuel consumption is not straightforward either because you need to know fuel levels in the aircraft before it sets off for journey A and then before it sets off for journey B. This information is stored in two separate fight events and so this data needs to be extracted and linked together.
All of these barriers can lead to missing or inaccurate fuel consumption data. This makes it harder to calculate the fuel volume used and its cost, reducing the airline’s ability to manage its fuel effectively.
It also jeopardizes the route profitability calculation, which is essential for strategic decision-making, and makes it very difficult to undertake the EU Emissions Trading Scheme (ETS) calculations. The introduction of the Carbon Offsetting and Reduction Scheme (CORSIA) in 2021, which will apply internationally, will only exacerbate this issue.
5. Checking and verifying every invoice is often impossible
Some large airlines receive hundreds of thousands of fuel invoices each year and there could be many different items listed on each one, for example the product price, the supplier’s differential, into-plane service fees, transport fees and so on. All of these types of cost need to be registered in the airline’s system before verification can start.
Some airlines don’t have the systems in place to verify each invoice and so they often perform less accurate checks. For example, Accounting teams usually do one or more of the following:
- Approve invoices based on a historic average fuel volume for that flight
- Check only a sample of invoices
- Approve invoices based on quite high tolerances (e.g. “It’s within 5% of the fee we were expecting so we will approve it”).
These less comprehensive checks increase the risk of inaccurate invoices being paid. This can mean airlines end up paying for:
- Fees that were not in the initial contracts
- Duplicated invoices
- Flights for other airlines
- Flight events that did not take place due to cancellations.
For Accounting to conduct these checks, they need to have good communication with other teams including Procurement, Flight Operations and Logistics (for airlines that self-supply). If information is not stored centrally and is not accessible, invoice reconciliation will take longer.
Revolutionize your fuel management process
Most airlines know that improving the design and operation of aircraft can bring fuel savings of around 2-3%. But what’s less well known is that tackling administrative bottlenecks and pain points, like those outlined above, can do the same.
Our free whitepaper, Revolutionizing the fuel management process for airlines, explains how you can improve critical fuel management activities to bring substantial savings and other benefits. It includes examples of how leading airlines have overcome these and other frustrating fuel management challenges. Download the whitepaper now.