Low Fuel Consumption and its Impact on the Cost of Airline Operations

As per International Air Transport Association (IATA), the global airline industry’s fuel bill was $188 billion in 2019, accounting for around 23.7 per cent of operating expenses at an average price of $65 per barrel Brent. This was an increase of 4.7 per cent over 2018, and is almost 50 per cent more than the $127 billion fuel bill for 2006, which accounted for 28.4 per cent of operating expenses at $65.1 per barrel Brent. In 2020, the fuel bill was forecast to be $182 billion, accounting for 22.1 per cent of operating expenses at around $63 per barrel Brent. However, the COVID-19 hit the industry hard, and expense and earning calculations got upset.

Jet fuel prices have increased significantly during the past decade, resulting in fuel cost becoming airlines’ primary operating cost. Given the relevance of the air transport system for the economy, it is important that industry and policy makers are aware of changes and likely future impacts driven by increased fuel prices. The FAA Modernization and Reform Act of 2012, covers the need for aviation fuel research and development and independent review of energy and environment related research programmes. The future market-based carbon constraint policies may further increase the effective price of jet fuel. IATA analysis found that the fuel price increase after 2004, could be correlated to airline fuel efficiency improvement. Although fuel efficiency gains from new, more fuel efficient aircraft appear to be limited between 2004 and 2010, data analysis provides evidence for a number of operational changes, such as cruise speed reduction, which may have led to improved airline fuel efficiency. It was found that increasing fuel price may have reduced short stage-length traffic. Future fuel price scenarios indicate that any increase in fuel price would reduce the rate of growth of airline operations, but total operations would continue to grow through to 2025. However, sustained GDP growth gets more air travelers and dampens the impact on airlines of fuel price increase. Increased fuel prices would appear to lead to improved airline fuel efficiency.

The major expenses that affect the airline industry are labour and fuel costs

MAJOR AIRLINE EXPENSES

The major expenses that affect airline industry are labour and fuel costs. Labour costs are largely fixed in the short-term, while fuel costs can swing wildly based on the price of oil. It is because of this, more attention is required to fuel costs. Two-thirds of the cost of flying an airplane is fixed, so changes in fuel costs can swing a flight from profit to loss depending on passengers onboard. Historically, the airline industry continues to be brutally competitive, even though air travel has become an integral part of life. The cost of flying continues to trend lower. Internet has also created greater price transparency, and has reduced margins. Labour accounts for approximately 35 per cent of the total of operating expenses of the airlines. During downturns, management looks to cut labour costs by laying off workers or reducing pay and perks. Maintenance, spares, labour, handling luggage, airport fees, taxes, marketing, promotions, travel agent commissions and passenger expenses, all account for nearly 55 per cent of total operating costs.

FUEL COST AND OPERATING EXPENSES

Most companies try to hedge fuel costs. They buy future contracts to lock in their costs for a set period of time, turning it into a fixed expense. When fuel prices rise, this behaviour is rewarded. When fuel prices decline, it is punishing. The worst time for airlines is when oil prices spike. The period from 2009 to 2014 saw improving economies and oil prices that slowly climbed higher before it leveled around $100 from 2011 to 2014. The drop in oil prices from 2014 to 2017 was particularly beneficial for airlines.

FUEL SAVINGS OPTIONS

There is a need for a comprehensive view of total-fleet operational fuel consumption. Aviation operators need to have insight into current fuel usage through all phases of flight. This visibility enables better decision making to reduce fuel consumption, costs and emissions and giving an opportunity to decrease fuel consumption. Special software can analyse hundreds of parameters derived directly from the operational data and help flight-by-flight comparison for each fuel saving initiative. Airline operators have to control fuel consumption without falling outside the scope of operational procedures and safety rules. In airline business, the basic factors determining the competitive advantage are price, quality and cost efficiency. Airlines do not have many options to directly affect the ticket prices in highly competitive airline market because price is mostly determined by market dynamics. Therefore, airlines primarily focus on their costs. They have to gain a competitive advantage by keeping costs low. Fluctuations in fuel prices and restriction of environmental emissions by international organisations, considerably affect airline fuel costs.

NEED FOR TECHNOLOGICAL INVESTMENT

Airlines needs to focus on technological investments and developments, operational improvements and alternative fuel use to reduce fuel consumption. Fuel consumption is measured by passenger-kilometers per litre of fuel or litres/100km per seat. Typically, an ATR 42-500 with 48 seats uses 3.15 litre/100km per seat; a Dornier 228 6.22; Airbus A321 Neo 2.19 and Boeing 737 MAX 9 2.3. A Boeing 777-200ER on a medium-haul flight uses 2.89 litre/100km per seat, but the same aircraft on a long-haul flight uses 3.08 litres. The Adaptive Cycle Engine (ACE), unlike traditional engines with fixed airflow, is a variable cycle engine that will automatically alternate between a high-thrust mode for maximum power and a high-efficiency mode for optimum fuel saving. ACE is designed to increase aircraft thrust by up to 20 per cent, improve fuel consumption by 25 per cent, extend range by over 30 per cent and provide significantly more aircraft heat dissipation capacity.

For countries like India which are net petroleum importers, fuel efficiency has double benefit and needs to be pushed most earnestly

Growth of computer technology and the micro-electronics revolution allows full-authority electronic digital controls of aircraft engines. The smart engine has huge magnitude of computational power. Flight data is tracked in real time that helps making minor changes to flight plans and aircraft speed to reduce flight time and fuel consumption, improve engine efficiency, reduce maintenance time and costs between flights and also the ‘Life Cycle Cost’. This can result in revolutionising flight efficiency and profitability.

ELECTRIC PROPULSION

There are challenges and opportunities for more-electric aircraft, of 787 or A350 class. Hydraulic and pneumatic systems, such as those for actuation or air conditioning, are already being replaced by electrical systems to save weight and improve reliability. Each 787 can produce around 1,000 kVA for onboard systems, markedly more than previousgeneration models. Onboard power storage has also grown significantly. E-Fan X hybrid-electric demonstrator was expected to fly in 2020. Boeing will initially develop an electrically powered ten-seater. An electrically powered, 180-seat, short-haul aircraft is expected by 2027. Hybrid-electric system would initially be heavier than the fossil fuel-based propulsion system.

FUEL EFFICIENCY SUMMARISED

Lower fuel consumption will provide airlines with economic advantages. It is also environmentally important. In the event of an increase in fuel prices, airlines will have to increase ticket prices. In this case, the demand for the airline will decrease. This will be reflected in revenue losses, decline in sales and market losses. All this makes it imperative to save fuel.

The International Civil Aviation Organisation (ICAO) states that with technological advancements, air vehicles consume 80 per cent less fuel than in 1960. This ratio has been dropping by one to two per cent annually and also the air traffic increases by four to five per cent per year. At the 2010 ICAO meeting, two goals for aviation were identified: two per cent fuel saving per year up to 2020, and neutralisation of carbon value as specified in Paris. A three per cent fuel saving target for each year was set for IATA member airlines. Intelligent fuel hedging to lower fuel costs and using more economical new generation planes and jet engines will reduce fuel costs. The average fuel consumption of new planes is reduced by 45 per cent compared to old planes.

A study in USA found that when the fuel consumed per-mileper-passenger was calculated, there was a difference of about 25 per cent between the top three best performing airlines and the last three airlines that appeared to be inefficient. Generally, deeprooted and large airlines have less efficient fuel use than low-cost and relatively smaller competitors. From an operational point of view, the stages from engine start, taxi, take-off, flight, approach, landing, taxi and engine stop are a cycle in which a plane consumes fuel during operation. The fuel consumed during these stages can be optimised with an appropriate operation planning and strategy. This optimisation is done to provide operational efficiency both in the air and on the ground.

Given the actual aircraft performance, operational constraints, safety, efficiency, operational planning and procedures, fuel economy can be achieved in theory at the levels possible. Some of the operational steps used are aircraft centre of gravity optimisation, fuel carriage planning, ground operation optimisation, air traffic and flight plan optimisation and optimisation of taxiing procedures. There is a fuel management model for operationally monitoring and regulating fuel consumption in all steps of the operation for airline operators. For countries like India, which are net petroleum importers, fuel efficiency has double benefit and needs to be pushed most earnestly.