Since we last posted a blog, COVID-19 has changed our world and hit the airline industry particularly hard. At its peak, more than a third of the world’s population were living under some form of ‘lockdown’ due to the pandemic, and the majority of the world’s passenger jets are still grounded: around 57% as of 29 May.
Chinese carriers are now beginning to increase flights and Europe has begun to loosen lockdown restrictions, however the situation for the airline industry remains extremely challenging and is expected to remain so for at least another 12–18 months. Therefore, we must all find ways to adapt to this ‘new normal’.
The feedback from our customers has been extremely clear: the only way to survive today and thrive into the future is to reduce and control costs, improve efficiency and ultimately run a leaner airline. It’s now essential for survival, not a ‘nice to have’. But where should you start and how can you begin to do this?
Firstly, we should be clear about what we mean by fuel and cost management. These are our own internal definitions:
Airlines often overlook the importance of investing in fuel and cost management but it’s a mistake to do so. Leading carriers such as Lufthansa, Atlas Air, KLM and Japan Airlines understand this. After all, effective fuel and cost management can bring a host of benefits to airlines, all of which impact profit margins — directly or indirectly. Benefits include:
– Lower direct operating costs: this has a big impact on operating margin
– Reduced labor costs
– Increased efficiency
– Automated processes that are faster.
In fact, our own research shows that you can cut up to 3% off your fuel, airport, navigation and ground operations costs with good fuel and cost management, which means most airlines will save millions of dollars. To find out just how much you could save contact us for an ROI calculation.
It might seem like the wrong time to invest in new software, but fuel and cost management is much more effective if you have highly accurate and centralized data, and that relies on having the right technology in place.
A good fuel and cost management platform will usually pay for itself within a year anyway, and then go on to give you an incredible return on your investment over the next few years. In addition, if it’s cloud-based, your upfront costs won’t be too significant because you will be paying an ongoing subscription to use the software, so you are gaining value from it as you are paying for it. The other benefits of cloud-based platforms are:
1. They are accessible 24/7 from any device with an internet connection — this has been critical during the COVID-19 pandemic when most employees have been working from home
2. In-house IT expertise and hardware isn’t required which enables you to reduce your IT costs
3. You subscribe to just the features you need and pay only for these
4. You can scale your subscription up or down as required and turn new features on easily.
5. Software upgrades are more regular so bugs get fixed quicker and you can get new features faster.
Become a leaner airline with FuelPlus Cloud
Airlines are having to process an ever-increasing amount of fuel and cost data. This comes from multiple, unconnected sources, including:
– Internal airline systems, such as flight ops control systems, flight scheduling systems, flight planning systems, ACARS ground host, accounting systems, data warehouses, and so on
– External supplier systems, such as those that generate fuel tenders, fuel tickets and invoices
– External market data providers such as Platts, Argus and OPIS.
Unfortunately, this makes it extremely difficult to get an up-to-date and complete picture of flight-related costs, and if this is the case, how can you hope to control them?
One solution to this problem is to bring your fuel and cost data into one platform, so you spend less time on assembling and verifying the data, and more time on monitoring and learning from that data. This way, you will gain a more complete picture of flight-related costs, which of course, is the first essential step to controlling and reducing them.
Many airlines still capture and process their fuel and cost data manually using basic tools such as Excel spreadsheets. They either use internal staff to do this or outsource the administrative work. Whichever approach they take, airlines are wasting a significant proportion of their resources on data processing tasks — particularly in the following stages of the fuel and cost management cycle:
– Fuel tendering — IATA reports that up to 80% of tendering is spent on administrative or data capture activities
– Operations monitoring, which includes monitoring spend on fuel, airport and navigation fees
– Invoice reconciliation for fuel, airport and navigation charges — again, IATA reports that 60% of an average Finance team’s time is spent on just processing transactions, rather than helping to manage the business
– Emissions calculations for the EU Emissions Trading Scheme (ETS) and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
However, when you streamline and automate processes, your employees can become more productive and add more value to the business. This becomes possible when you centralize all your fuel and cost data into one cloud-based platform (see point 3) and link this data correctly.
For example, digital fuel tickets can be immediately uploaded and automatically linked to flight events and effective contracts. This resolves the issue of late fuel tickets and late settlement of invoices, which can negatively affect supplier relations and differentials (so you save money here.) When fuel invoices are then received, a good fuel and cost management platform will be able to find:
– the corresponding fuel ticket
– the corresponding data from ACARS or the Onboard Measuring Device, for maximum accuracy
– relevant details within contracts such as prices, taxes and surcharges.
It will use this information and more to verify whether the invoice is correct and either accept or reject it because of discrepancies. Automatic invoice verification can therefore almost entirely eradicate any fuel overpayments or double-payments, potentially saving you a substantial sum of money here too.
These benefits are multiplied when you apply this level of process efficiency and automation throughout the entire fuel management cycle — e.g. planning, procurement, logistics and emissions management — as well as to the management of airport and navigation fees.
Efficiencies in these areas can realize similar benefits, including:
More accurate forecasts — for fuel, airport and navigation fees — and more accurate emissions reports based on real flight data and on approved EU ETS or CORSIA calculation methods
Reduced direct operating costs — for example, by purchasing the optimum volumes of fuel and reducing storage costs, and by accurately verifying invoices for airport and navigation charges
Increased productivity — for example, by automating tendering tasks you can shorten the tender cycle by up to 80% and with less admin to do, resources can be redeployed to more value-adding tasks such as investigating discrepancies or negotiating with suppliers.
Become a leaner airline with FuelPlus Cloud
Airlines have always had to deal with volatility and unpredictability in the market — fluctuating oil prices and exchange rates, not to mention changing political situations. However, the COVID-19 pandemic has brought unprecedented changes to operations and a whole new level of uncertainty. From a catastrophic drop in demand to severe route restrictions, mandatory quarantines for some overseas travelers and strict social distancing rules which affect aircraft capacity.
Unfortunately, fuel and cost management systems alone can’t solve these problems, but they can at least help your airline to stay agile so you can adapt your operations faster as you monitor this constantly changing situation.
If you have centralized all your fuel, flight and related cost data within a system that can handle ‘big data’, you will be able to easily model different scenarios using that data and assess their likely impact.
Best-in-class fuel and cost management platforms should allow airlines to quickly and easily revise fuel volume forecasts and budgets — potentially reducing the time it takes to create detailed budgets from around three weeks to around three hours. Leading platforms can also help you predict the likely impact on volumes and budgets, of changes to routes, aircraft and capacity, days of operation and other important variables. This can enable you to make more informed decisions quicker, giving you a competitive advantage in what is currently an extremely challenging market.
Gigabytes of fuel and cost data flow in and out of airlines every month, but most airlines don’t yet have the ability to truly learn from this data and create value from it.
As everyone looks for ways to emerge from this crisis as a leaner and more competitive airline, having access to sound business intelligence is going to be vital. Intelligence such as:
– How uplifted fuel volume compares to what was contracted — in total and by continent, supplier or airport
– How current fuel prices compare to what was forecasted — for a certain time period, location, leg, or flight number
– Which suppliers are responsible for most of the late fuel tickets and invoices
– The time taken to verify invoices – overall, or by invoice issuer or location
– The number and value of invoice discrepancies — overall, or by invoice issuer or location.
Insights such as these can help you monitor your airline’s performance, get more control over your costs, and uncover inefficiencies that would have previously been hidden within gigabytes of unconnected data. It helps managers identify bottlenecks and issues with internal or external processes and enables them to make better decisions based on data and evidence, rather than subjective opinions.
FuelPlus Cloud is your ticket to a leaner airline. As the leading cloud-based fuel and cost management platform for airlines, it can help you make savings on your biggest costs: fuel, airport and navigation fees. It does this by accurately capturing and connecting all of your data, streamlining and automating key administrative processes, and helping you gain valuable business insights with advanced analytics. Find out more about what FuelPlus Cloud can do in our latest webinar recording: Adapt and thrive with better cost management – Watch now