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On December 21, 2021
5 min read time

Why is Fuel Efficiency a perfect ally for airlines’ CFOs?

The COVID-19 pandemic has blown up all the airlines’ finances in just a few days and has kept their Chief Financial Officers (CFOs) struggling ever since.

Hopefully, the last few weeks have shown some positive signs as some airlines have progressively started to resume most of their flights.

Still, the demand seems to be lower than expected, and with the actual winter season, CFOs must take actions now to preserve cash, prepare for a brighter future and be more competitive, which is absolutely needed for a prompt and strong recovery.

This article explores how a fuel efficiency program can become an excellent ally to emerge stronger from this unprecedented crisis.

Because fuel is airlines' main operating cost

It is a no-brainer that fuel is the most important concern for airlines. It represents the #1 cost, usually around 30% of the operating costs and sometimes even more.

Along with the pandemic crisis, Jet Fuel price has been continuously raising and is now reaching more than 80 USD per barrel (source: Platts, Datastream).

Jet Fuel Price Currency Comparison

 

In addition to the increase in Jet Fuel price, airlines are facing a slow resumption of traffic demand which delays their financial recovery and harms airlines’ cashflow badly.

Considering these current factors, it is vital for airlines’ CFOs to preserve cash and find new solutions to generate quick positive cashflow.

Andy Grove, former CEO of Intel said that there are three categories of companies: “the bad ones,” which will perish during a crisis; “the good ones”, which will survive; and “the great ones,” which will emerge stronger after a crisis.

Let’s see how forward-looking airlines can belong to the great companies emerging stronger after the crisis!

Because it brings substantial financial benefits...

Fuel being the #1 cost, any airline willing to preserve its cash to get a profitable recovery while being more competitive should tackle the issue of fuel.

Fortunately, there are many ways to address the topic, some are long-term alternatives (e.g. electrical aircraft, hydrogen aircraft), others have a strong upfront investment cost (fleet renewal) and some easier solutions are available today, thanks to new technologies like Big Data, Machine Learning and Artificial Intelligence.

These technologies allow, for instance, to build a fuel efficiency program and implement a Fuel Efficiency Management System that has a considerable impact on the existing fleet without compromising the airline operations, modifying the fleet or infrastructures, nor causing any risk for Safety.

From a Finance perspective, a Fuel Efficiency Management System has even more benefits because it does not require any massive upfront investment cost and, more importantly, it brings:

  • A very quick positive cashflow within just a few months right after the beginning of the project
  • A high Return On Investment (ROI) ratio of 20-50 times higher than the project cost
  • Substantial fuel savings from 2% to 5% of the airline’s fuel cost

Let’s consider a brief example with a fictive airline and see what the impact of 1% reduction of fuel burn would be:

Impact 1% reduction of fuelInterested in knowing how much fuel your airline can save?

...with a very short time to positive cashflow

Another key aspect for airlines CFOs is the time to positive cashflow.

A Fuel Efficiency Management System can be the right solution to achieve this very short time to positive cashflow.

Short time to positive cashflow

Before selecting a solution, be sure to build a strong business case to estimate the key financial metrics for your company: the potential yearly fuel savings, the Return On Investment (ROI) your new solution will bring as well as the time to positive cashflow and the Net Present Value (NPV). It will give you insights on what is at stake and some valuable arguments to select a solution over another.

Forward-looking airlines such as Air France, IndiGo or SpiceJet, are already grasping the opportunity to emerge stronger from the crisis and have recently decided to implement SkyBreathe® Analytics software to cut out their fuel costs and generate quick substantial savings while increasing their competitiveness.

Learn more about the example of SpiceJet, which has achieved in the first six months:

Spicejet case study

Click here to see their complete case study >>

Cost of a long implementation and impact on the cashflow

One thing is key to pay attention to is the implementation duration of the project.

When setting up a Fuel Efficiency Management System, it is essential to select a provider with a high experience in implementing such system. Indeed, the implementation project can either be long, painful and time consuming or, on the contrary, smooth, quick, and under control.

The issue is that the longer the implementation lasts the later the airline will start achieving fuel savings and therefore the longer the time to positive cashflow will be.

Learn more about how to prepare your airline for an efficient implementation project >> 

Because sustainability is of paramount importance today

Today not only airlines are facing a sanitary and economic crisis, but they are also facing a growing social and environmental pressure as more and more people are conscious about climate change.

Considering the growth in air traffic (4% to 5% yearly), it has become of paramount importance to take actions right now to reduce the aviation carbon emissions.

CO2 emissions

By implementing a Fuel Efficiency Management System, not only airlines are addressing the economical challenge, but they are also contributing to a more sustainable aviation by acting right now on their carbon emissions.

Forward-looking CFOs will easily understand that a fuel efficiency program will be for sure a real asset to be both more competitive and commercially more attractive which will also be a great gesture towards the planet.

Remember Save Fuel, Save Money, Save the Planet!

 


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By Erik

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