Fuel management is a complex process subject to volatile external factors. In-house and third-party departments must decipher an abundance of potentially disparate data while negotiating rapidly fluctuating oil prices and exchange rates.
Overcoming these challenges is vital given that fuel constitutes about 20% of airline costs, down from a high well above 30% in 2012–13 but sizeable nonetheless.
Airlines should look to IATA’s fuel standards to simplify the fuel management process, from start to finish.
Tendering—asking for and receiving bids for fuel supply at different locations—is a key area that could benefit from digitization and standardization.
IATA found that up to 80% of effort in tendering is spent on administrative or data capture activities
The first challenge for airlines is gathering enough accurate information on fuel uplift and consumption in previous years to project current needs. The data is often held by different departments and data stores, to which fuel teams may not have complete access.
Airlines, therefore, tend to fall back on OEM data concerning the average fuel consumption for each aircraft type. This lacks the specifics of how the aircraft is being used, however, including environmental conditions, payloads and many other factors.
Once an approximate fuel requirement is ascertained, there are complex protocols to negotiate. Suppliers complain of airline tenders in diverse formats, unclear terms, and lengthy lead times before a contract is awarded.
In turn, fuel suppliers’ responses use different payment terms, different jet fuel price indexes, and different currencies, among other variables. For all participants, comparing like-with-like is next to impossible.
“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.”
He adds that although airlines may want to tender more frequently, and to a wider audience, to secure a better contract, the unwieldy nature of these legacy processes frustrates this goal.
A proper comparison
Digitization is part of the answer. Many airlines have already moved, or are moving, in this direction.
“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 Gazpromneft Aero.
“The aviation fuel industry should, together with interested stakeholders, work to make full use of digitized processes and automation.
"Standardization will be fundamental for the success of this major shift.”
The adoption of the IATA fuel data standards allows the benefits of digitization and automation to be exploited quickly and inexpensively.
Being able to receive the supplier’s bids and invoice data digitally allows the staff to minimize tedious data entry operations
With fuel data standards in place, tender data can be loaded into spreadsheets and exported via convertors, integrated with legacy databases via transformation adapters or directly loaded and exported using purpose-built fully automated solutions. Airlines would finally get to compare like-with-like.
“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,” says Shakti Chopra, Senior Director, Procurement and Fuel Management at Atlas Air.
Lufthansa has absorbed the fuel purchasing functions of 11 other airlines in the group since 2007.
“We would not have been able to integrate the activities of such a large number of airlines, while maintaining the same number of employees, without having the right electronic support and tools,” says Thorsten Lange, Director Fuel Purchasing.
IATA’s fuel data standards tackle other challenging aspects of the fuel management process too.
After refueling, for example, the fuel supplier usually obtains the delivery receipt via the truck driver while the airline obtains it through the pilot. Receipts come in many formats and must reach the relevant business area before the diverse data is inputted into the system.
Monitors will be installed on refueling trucks, which will automate the movement of oil products and record the aviation fuel flow
Automating the process improves data entry accuracy over manual processes and the loss of paper fuel tickets becomes an issue of the past. But standard data formats bring another level of efficiency.
If delivery receipt data were made easily available to the airlines, suppliers and fuel farm managers, they would gain immediate insight into inventory levels to better manage this precious commodity.
“Gazpromneft-Aero will switch to the automated recording of fuel supplies when refueling commercial aircraft,” says Yulia Selezneva, Head of the International Sales Division of Gazpromneft Aero.
“Monitors will be installed on refueling trucks, which will automate the movement of oil products and record the aviation fuel flow from a fueling station to the aircraft.”
During the refueling process, fueling data is displayed on digital screens. As soon as the correct level of fuel is administered, the system stops refueling, prints the receipt and sends a service report to the company server.
With fuel being such a critical component in airline costs, invoicing is arguably the most vital area of the fuel management process.
Resolving invoice discrepancies is an arduous task for many airlines, involving the coordination of several departments.
“Through improved workflows and the use of IATA fuel data standards, airlines could improve the entire invoice checking process,” says IATA’s, Chris Dodson.
“Using the IATA fuel invoice standard can enable the seamless connection of such disparate teams as purchasing, operations, and finance to quickly resolve large volumes of invoice discrepancies while preserving the segregation of duties to comply with audit requirements.”
Partial payments can also be improved. FuelPlus Group CEO, Klaus-Peter Warnke reveals one airline was receiving around 8,000 paper invoices each month.
Its accounting system didn’t allow them to partially pay invoices, so when one or more invoice lines had an error, the whole invoice was held back.
This affected the relationship with the supplier, leading to an increase in prices.
Airlines encounter significant challenges at each stage of the fuel management process.
Standardized fuel data for the entire fueling lifecycle, combined with streamlined processes and workflows and the automation of labor-intensive procedures where possible, offers a solution with multiple benefits.
Fuel uptake would be optimized, operating efficiency improved, and costs reduced. Airlines would subsequently find themselves on a path toward sustainable growth, and with improved profitability.