- 24 Jan 2023
- Andre Fodor
- Flight Departments
Though fuel costs are spiraling upward due to external factors beyond the control of Flight Departments, Andre Fodor shares tips on how to claw back savings in the areas that can be managed…Back to Articles
Recently as I began the day with a cup of coffee and read the news on my smartphone, I learned that the oil-producing nations had decided to curtail output as a strategy to raise their profits. With summer approaching and travel increasing with the good weather, Flight Departments face further pressure on their budgets through rising aviation fuel prices.
This, of course, is nothing new. Damages to some of the world’s largest oil refineries, geopolitical disturbances and profiteering have all culminated in sending jet fuel prices sky-high. It comes down to basic supply and demand with the increased need for fuel in Business Aviation since Covid, and lower production output. That’s even before you add the higher cost of logistics, labor shortages, salary increases, higher taxation, transportation costs, and (in some cases) sanctions to the mix.
Given that fuel represents 51% of my Flight Department’s annual operating budget, we’re going to need to have some strategies in place to absorb the price shock…
I was once hired to audit a Flight Department that wanted to cut costs. When I asked the Chief Pilot what he had done to achieve savings, he told me that he’d asked his pilots to stay at cheaper hotels and eat in less expensive restaurants.
I assured him that with those cost-saving measures his pilots were not the least bit concerned about saving on fuel, and that his operation was in fact helping to subsidize my operation’s fuel discounts. Following are some proactive steps to take when addressing fuel costs in your operation.
The first and most important action in any cost savings effort relates to human factors. Everyone should be on board, understanding the benefits of the savings. When your team understands that cost savings equate to job security and longevity, they get on board with them, becoming part of the process of finding practical solutions.
Next, analyze your operations and establish procedures and flight profiles that will maximize savings while still delivering on passenger expectations.
As an example, while some passengers prefer to be flown at maximum speed, when you’re flying an empty leg a slower speed with a lower fuel burn could be selected. And it could be worth considering tankering to take advantage of fuel purchase savings at certain airports.
Keep in mind, though, that excessive tankering could ultimately increase the cost well above the intended savings. There’s a delicate balancing act. If you take too much fuel, you’ll end up burning more fuel than the cost savings were worth. And if you don't buy fuel at some FBOs, you be charged higher operational fees.
Depending on your destination, you may have little control over fuel prices. In some destinations, the cost of mineral taxes, environmental offsets and local fees will easily double the cost of fuel. But depending on the region(s) where you operate, there may be ways to minimize cost by obtaining fee concessions.
In Europe, for example, where VAT represents a major portion of the cost, knowing when, where and how you may avoid taxes is an exercise well worth undertaking. International flights leaving the continent may be entitled to tax relief or a tax refund, and the challenge is to know when and how these are applicable.
Keep in mind that operators, specially of larger aircraft, while attempting to reduce tax costs by tankering fuel found that the local authorities asked for the remaining fuel on-board and taxed anything beyond what they considered normal reserves.
In North America especially, FBO competition is fierce. There may be more than one FBO and fuel provider at the airport, representing an opportunity to make cost savings through discounts. It is not uncommon for competing FBOs to be willing to waive service fees when you purchase of a pre-agreed amount of fuel, or progressively discount according to the volume purchased.
As a flight operation, we always call our destination airport(s) ahead of time and ask about their savings opportunities. I tend to avoid single FBO airports where possible because, in my experience, they’re the most expensive and least flexible in their pricing.
As fuel purchases go, if you pay retail you are failing to offset costs. In fact, you could be helping to subsidize my operation’s savings! You should have at least one fuel purchasing service – such as CAE or Jetex, or a Fuel Card provider – from which to quote your fuel usage. Being a flight operation that flies in many parts of the world, my preference is to have at least three providers as some services are more effective in specific regions.
Some smaller flight operations have started pooling their fuel buying, giving them more leverage to negotiate better pricing with the FBO.
Our international handling company operates and manages over 25 aircraft, and by pooling all their customers’ fuel purchases under one account they can negotiate lower prices. We get the discount in exchange for a small percentage paid as commission on the actual cost.
Finally, your personal relationships may achieve cost-saving goodwill. I strive to make a good impression at the airports and FBOs that I use. Upholding high professional standards I expect superlative service, but I am always polite, friendly and understand that sometimes my expectation may not be attainable.
By building relationships and connections, I feel more comfortable asking for a higher fuel discount or a preferential rate on services. Sometimes, just because we ask, we get a great deal and make new long-lasting friendships.
As much as the external factors impacting fuel costs are well beyond our control, the percentage of the operating budget that fuel costs eat up means that we as Flight Department Managers must work hard to do everything possible to claw back some savings.
Hopefully the above article has highlighted that while some factors are out of our hands, others are well within our control as we continue to run efficient flight operations on budget. It just takes a little more effort – but it’ll be well worth it in the end!
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