Most airlines find the task of fuel procurement frustrating. It’s complex, time-consuming and resource-intensive. Yet it’s clearly critical to their profitability because fuel remains one of an airline’s largest expenses. Recent figures suggest that it accounts for about 30% of costs.
Being on the other side of the negotiation isn’t easy either. Fuel suppliers need to respond quickly and competitively to a large number of invitations to tender and the complexity around how jet fuel prices at airports are determined, plus the volatility of the energy market, make this a real administrative pain.
However, the need to put fuel contracts out to tender is not going to go away, so how can we make the experience easier for airlines and fuel suppliers?
To answer that we need to first understand exactly where the problems lie.
High volumes of data
Airlines typically have extensive networks, which include many locations. They need to have fuel supply contracts in place for each location and these contracts need to cover supply of the product (the fuel), associated services and for some locations, storage and fuel logistics.
In order to create invitations to tender for all of these contracts, airlines need to have a lot of data at their fingertips – the volume forecast, budget, flight schedule, details of the services required at each location and so on.
The fuel suppliers that receive these invitations have a high demand for data too. They need to respond quickly and competitively but this is a challenge because of the number of different price components involved in jet fuel, and the dynamic nature of the energy market.
Each airport has their own specific fees, taxes and fuel pricing structure so fuel suppliers need to gather and centralize all of this pricing data. If you consider that fuel suppliers may operate at thousands of locations, this is no mean feat. Furthermore, some of this information changes on a daily basis such as jet fuel indexes and exchange rates.
Significant information exchange
The process of tendering also requires airlines and suppliers to communicate regularly and exchange a great deal of data: tender documents, bids, new round notifications, re-submitted bids, awards/declines, contracts and so on.
Managing these communications (and documenting them for audit purposes) requires a lot of effort on both sides.
Data in different formats
It’s difficult for airlines to accurately compare the bids they receive from fuel suppliers, because they are presented in different formats. They also contain different payment terms, jet fuel price indexes, units of measure, currencies, and so on.
Fuel managers in airlines are forced to perform a ‘normalization’ process, where they make conversions and adjustments so that they can compare the bids like-for-like. This is a largely manual task involving a lot of data inputting, so it’s inefficient and prone to human error.
For all of these reasons, evaluating bids is a high-effort, high-risk job for airlines. Yet errors here could cost them dearly.
Pressure for transparency
Airline auditors need to ensure that tenders have been conducted fairly and according to regulations. For this reason, we have found that most airlines adhere to strict evaluation processes and approval procedures, such as the stipulation that all communications and negotiations are documented.
Tenders often have numerous rounds of negotiations and all these rounds need to be documented and available for scrutiny. This can be difficult if procedures are largely manual or not formalized.
Manual processes or unfit IT systems
Few IT systems are built to cope with the process of aviation fuel procurement, because of the complexities outlined above. This means that airlines often have to rely on slow and inefficient manual processes for much of the tendering process.
“According to a recent IATA survey, tendering is still a largely manual process,” says Lasantha Subasinghe, IATA’s Director, Fuel. “IATA found that up to 80% of effort in tendering is spent on administrative or data capture activities.” In the 21st century, this is quite remarkable and in our view, it has to change.
Often, airlines and fuel suppliers attempt to streamline business processes by buying generic ERP systems, such as SAP or Oracle. But while these are great for activities universal to all industries, such as accounting, they are less effective for the more industry-specific activities like fuel tendering.
How tendering should change
The technology is now available to revolutionize the fuel procurement process for both airlines and fuel suppliers, through automation and digitization. Over the last decade, IATA have been working with airlines, fuel suppliers and specialist IT providers like us, to create a series of fuel data standards. The latest of these is the standard for tenders and bids, which is explained in this video by IATA.
Our involvement in developing these standards, has enabled us to develop our own eTender solution, specifically for the aviation fuel market. It has just been launched.
FuelPlus eTender harnesses the IATA tender/bid standard, which enables it to:
- Automatically exchange all tender communications and data between the airline and supplier – from the tender invitation all the way through to the awarding and declining of bids
- Automatically ‘normalize’, compare and rank bids for the airlines
- Automate or streamline other time-consuming tasks associated with procurement, such as the preparation of bids (by suppliers).
eTender’s other features also make it possible to capture, store and centralize high volumes of data effortlessly. The result is faster tenders, fewer disputes and better deals. And with everything digitized, your procurement process becomes 100% compliant and transparent.
The appetite for change
As the IATA video about the tender/bid standard shows, there is growing appetite for change within the industry. “With current technology, there is no justification in following processes and norms that were built for a manually operated world,” says Vladimir Egorov, CEO of fuel supplier Gazpromneft Aero. “Standardization will be fundamental for the success of this major shift.”
According to IATA, over 100 airlines and 50 suppliers are already using one of its four fuel data standards. Shakti Chopra, Senior Director for Procurement and Fuel Management at Atlas Air explains why:
“Being able to receive the supplier’s bids and invoice data digitally allows the staff to minimize tedious data entry operations and focus on more value-added functions, such as checking the robustness of the supplier’s supply chain or invoices that are inaccurate.”
We couldn’t have said it better ourselves Shakti! At the heart of all our fuel management solutions, is this desire to drive efficiencies and make life easier for the fuel management professional.