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Cutting Costs: Why Airlines Overpay Fuel Bills and how to Prevent it!

Most airlines constantly overpay fuel bills. Not because they want to, but they lack alternatives. I genuinely believe that a digital fueling infrastructure makes fuel bill overpayment unnecessary and obsolete. Here's how that works and how it helps airlines.

Airline Need to cut Costs now!

Around the globe, airlines are desperately seeking ways to reduce costs. Since creating demand is currently almost impossible and (even worse) unpredictable, airlines have to focus on streamlining their cost structure. Of course, many airlines focus on the most prominent measures, such as workforce reduction, provider streamlining, or cancellation of aircraft orders. This, for sure, isn’t wrong. On the contrary, you don’t have to be Nostradamus to forecast an airline industry that is defined by less traffic, less demand, and subsequently fewer aircraft and airline employees in the short term. 

Sometimes Cost Reduction Measures are Obvious!

However, besides those prominent cost-cutting measures, most airlines have enormous hidden potential. One of them lies in the fuel and/or payment department.

Airlines Knowingly Overpay Fuel Bills!

Unsurprisingly, even in less operations-intensive times, fuel accounts for one of the leading airline’s costs drivers. Typically, fuel costs represent 20%-30% of an airlines’ total expenses. So, take a minute to digest that figure: Fuel represents almost one-third of an airline’s costs!

Accordingly, one should assume that airlines do everything to keep fuel costs as low as possible. And undoubtedly, airlines operate sophisticated processes to hedge fuel or operational measures to reduce fuel consumption. Therefore, it is even more surprising that many airlines overpay fuel bills. Even worse, it’s not a secret, and airlines are aware of the fact.

I’m not Bullshitting you — Here are the Details of why Airlines Overpay Fuel Bills and Create Additional Fuel Costs!

As long as you are not directly involved in the fuel payment process, you might think I’m telling you bullshit. Why should an airline overpay fuel bills and thereby create additional fuel costs? That just sounds too weird. Well, here are the details:

Throughout the year, an airline has to handle hundreds and thousands of fuel invoices. Depending on the airline size, we are talking about 4, 5, 6, or even 7-digit figures. That’s a whole load of paperwork. And it gets more complex: there are tons of different fuel providers issuing those invoices. And that means: All invoices are different. The invoices are based on different contracts, have other items listed, or have different product prices. And the list continues: Things like the supplier’s differential, into-plane service fees, transport fees, hook-up fees, taxes, and many other aspects create a super-complex environment.

The Airline-Internal Processes Drive Complexity Additionally!

And that’s only one side of the medal. Of course, there are also airline-internal processes. And believe me, this increases the complexity even further! Fuel receipts/slips are usually paper-based and hand-written. Even worse, the pilot has to transfer the fuel slip to the back office.

Accordingly, the situation leads to two immense problems:

  • The process is incredibly time-consuming. First of all, someone needs to transfer invoices and fuel slips into a system. And secondly, someone has to check each item on the invoice and check the corresponding fuel receipt.
  • The process is incredibly error-prone—hand-written documents, paper-based receipts, manual data transfer, etc.—that all screams for errors.

Status Quo: How Airlines Currently Tackle the Fuel Payment Problem?

Of course, I am not telling a secret here, and airlines (most often) know the situation. And that’s precisely where the problem of payment starts. Usually, airlines, to reduce the immense workload, do one of the following things:

  • Instead of strictly checking the invoice fuel volume, airlines approve invoices based on historic average fuel volumes.
  • Instead of checking all invoices, airlines select sample invoices.
  • Airlines introduce tolerances (e. g. 5% or 7%). As long as an invoice amount fits the tolerance, the airline approves it.

We are Talking About a Whole lot of Money!

Indeed, no airline in the world publishes the numbers that are related to this process. Nevertheless, from confidential discussions, we know that airlines calculate with 7 to 8-digit over-payment figures — annually!

Digital Fueling Helps Airlines to Avoid Overpaying Fuel Bills!

Coming back to my initial statements, I am genuinely convinced that it is possible to solve the over-payment problem. Moreover, I believe that a solution is easy to implement, sustainable, and comes with an unmatchable return on investment.

Let’s Talk About Digital Fueling!

Digital fueling is part of IATA’s digital aircraft operations initiative. The concept is relatively simple: Digital fueling aims to digitize the entire fuel-related communication, from tendering to operations and invoicing. AIDX, an IATA XML standard, is the core of the approach since it provides a well-structured and standardized message format for all fuel-related messages.

Due to its digital nature, digital fueling suddenly eliminates the vast majority of current problems:

  • No need for manual data transfer
  • Only a few manual checks needed
  • Elimination of manual error sources
  • No paper-based and hand-written documents
  • Etc.

As a result, airlines can automize their fuel invoicing process to a large extent. Moreover, with automation comes quality. And with quality comes the calming feeling of knowing that overpaying fuel bills is a relic of the past.

Accordingly, digital fueling is the single and most efficient key towards avoiding overpayment of fuel bills!

Want to Know More About Digital Fueling and how it Helps Airlines to Reduce Fuel Costs?

If you want to discover one of the most prominent digital fueling solutions that helps airlines across the globe reduce fuel costs you should start here.

What’s Your Opinion?

I would love to get your feedback on the topic! How’s your airline handling the challenge, what’s your experience, or simply, what are your thoughts on this? Hit me up on Twitter or get in touch on LinkedIn!

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Benjamin Walther

CEO, Frankfurt

Benjamin is Information Design's CEO and a proven content-maniac. Besides running a successful business and developing pioneering ideas, he's dedicated to writing blog posts and creating content.

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