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5 ways to control nearly 23% of your total expenses

You are aware that fuel is the most expensive bill that your airline must incur. Nearly 23% of airline expenses are on fuel. You are also aware that this cost needs to be tracked and controlled closely. If not done, it will result in operational inefficiencies thereby further escalating airline costs.

Fuel being a dynamic commodity is subjected to constant price fluctuation and is influenced by many factors. Unit price of Aviation Turbine Fuel [ ATF ] is not transparent. Therefore, understanding its effective unit price is often a complex process.

Fuel also attracts a variety of add-on fees viz local body taxes, value added taxes, customs and other duties. In recent times, cess-related environment protection and emissions are also being charged. All these add-ons / duties / taxes push effective fuel costs higher. Therefore, when you audit your fuel expenses, you cannot exclude these add-on taxes.

That brings me to the important question and the very reason why you are reading this blog.

How can you best control nearly 23% of your airline’s expenses which are for fuel?

I will state here your most common 5 challenges with fuel bills and how you can therefore control your fuel expense.

Handling complex conditions in fuel contracts

These would consist of dynamic PLATTS based pricing, non flight charges such as de-fueling, test check operations, additional charges such as fuel differential, hook up fee, etc.

How can you address this?

A robust contract management system can help in setting up flexible fuel contracts that can address all the above and more.

Difficult rate computation methods and variations in billing methods

Rate computation methods can be “following month average”, “current week average” etc. Billing method variations consist of prepayments, provisional billing and differential billing.

How can you address this?

Auto loading of fight movement data in an automated system helps in such cases. Also, receipts from fuel suppliers can be used to calculate the invoice cost for handling suppliers such as fuel tanks, ITP agents and fuel consortium.

Verification of supplier fuel invoices

Your fuel supplier sends you paper invoices, e-invoices, XML invoices etc. Now, for you to verify such invoices is tedious due to various factors like varying fuel rates, number of fuel uplift instances, multiple vendors etc. This leads to non-identification of over-billings.

It doesn’t stop here. Fuel prices are based on varying fuel rates every day with various taxes and surcharges. Using the right fuel rate for vendor invoice verification is a manually intensive task, which leads to errors and high levels of discrepancies.

My observation is that duplicate billing in the same or multiple invoices, quantity mismatch or incorrect fuel quantity billed, rate mismatch or incorrect rate usage, are the most common errors made by suppliers while invoicing. This leads to overbilling for an airline.

How can you address this?

Calculate expected billing using operations data against the supplier’s fuel contract. Note that this verification process can be automated along with automated expense posting to ERP.

Inability to accurately forecast fuel uplift volume required at each station

Getting accurate fuel consumption and uplift information for each flight is not easy. Lack of accurate data takes away the control over procurement and operational activities. However, if you had this information, it would allow you to accurately estimate required fuel at each station for future flights.

How can you address this?

Use Volume Budgeting – this will not only help you to accurately forecast uplift volume but will also help in rate negotiations with suppliers. A Budget Operating Plan [ BOP ] combined with various rate sources can create a Rate Budget which can then be used for fuel cost budgeting, irrespective of what computation method and billing method is used by the supplier.

Accurate reporting and data analytics for fuel cost and volume

Without presenting intelligence in terms of analytics, no exercise is complete. This applies to fuel as well.

How can you address this?

Various operational reports such as fuel uplift report, fuel matching report, fuel cost – volume report, expected billing report can help you study and present analytics to internal senior management in an effective manner.

To conclude, you need a robust automated system that can substantially reduce your airline’s fuel cost and overcome all the above stated challenges.

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