Staying Competitive While Fuel Costs Escalate
Driven by the need to protect earnings and maintain profitable operations, airlines are sharpening their focus on risk management. In fact, 82% of major airlines currently have fuel hedges in place to help manage fuel price volatility.*
At the same time, airlines need to comply with a range of regulations including the Sarbanes-Oxley Act and hedge-accounting laws. This has led to a strong demand for business solutions that are designed to meet these challenges. There are many pressures that contribute to greater volatility and higher fuel prices.
Discoveries of new crude oil resources have been falling in recent years, global demand has been rising, and air traffic is expected to double in the next 15 years.
Due to these pressures, airlines face a growing need to explore the use of alternative fuels such as ethanol, methanol, biodiesel, and synthetic paraffins. In pursuing alternative fuel sources, airlines can reduce carbon emissions and improve their environmental impact while ensuring the viability of their long-term supplies.
*Source: The State of Airline Fuel Hedging & Risk Management in 2012, Mercatus Energy Advisors, www.mercatusenergy.com
Twenty years ago, fuel was a low-cost commodity and the business focus was on
reliable and timely supply at all operated stations. But since 2006, fuel has replaced
labor as the largest single operating cost item. With increasing fluctuations in fuel
prices, it is more difficult to manage fuel costs and the overall impact on aircraft
routes and network profitability.
Flight-Centric Management Fuel Price Volatility
SAP Innovations
Optimal Fuel Management
39
%
Of airlines said they could improve fuel hedging with strategies that better reflect their risk tolerance and hedging goals
Source: Mercatus Energy Advisors
Many airlines face challenges in verifying fuel invoices due to inadequate capture of fuel uplift information. SAP software integrates fuel uplift and fuel burn data with flight operations processes, links uplift data with each flight, and calculates fuel burn and cost for individual flights. With the software, airlines can accurately capture fuel uplift data, check the data against procurement contracts, and verify invoices. Supplier invoices can be generated automatically based on fuel uplift and procurement contract details.
The flexible solution enables airlines to capture fuel tickets on paper, and in electronic form, based on Aircraft Communications Addressing and Reporting System (ACARS) messages and electronic flight bag data.
The software integrates with risk and hedging functionality. Risk, or exposure, can be based on procurement contract and fuel forecast information. With the risk data, airlines can define hedging strategies and perform hedging transactions while complying with applicable accounting rules and regulations.
Flight-Centric Fuel Management
Fuel is not managed in isolation within any airline. It requires close collaboration
among business planning, supply, logistics, flight operations, accounting, controlling,
treasury fuel supply, and refueling organizations. Flight industry best practices
dictate that flight-oriented fuel management activities and processes yield the
greatest benefits to airlines.
Flight-Centric Management Fuel Price Volatility
SAP Innovations
Optimal Fuel Management
Best-Run Transportation and Logistics
With SAP solutions, airlines can manage fuel use efficiently – which accounts for
about 40% of operating costs – on a daily basis. Connecting departments and
optimizing processes enable near-real-time analysis of fuel costs and the impact on
profitability. This improves decision making and enables airlines to factor risks into
fuel hedging strategies and to measure the effectiveness of risk strategies
continuously.
Optimal Fuel Management Impacts the Bottom Line
No loss in data integrity when airlines exchange data among departments
Faster processes, immediate data updating, data availability for all departments, supplier invoice verification, and improved productivity with reduced data duplication
Hedging closely integrated with the complete fuel management process, helping ensure high quality data input into pricing engines and improved hedging decisions
Unified view of fuel data for analysis and reporting, especially when used with electronic logbooks or ACARS
Routine task automation, including contract price updates, forecasts, budget calculations, invoice verification, and electronic invoicing
Extensible solution to cover variable flight costs such as ground services and catering
270
%
Increase in jet fuel prices for the period of June 2003 to June 2013
Source: index mundi
Flight-Centric Management Fuel Price Volatility
SAP Innovations
SAP database and technology solutions, powered by the SAP HANA platform, enable managers to monitor high volumes of fuel transactions, both physical and paper derivatives, in real time. Airlines can quickly react to market changes and reduce overall fuel risks.
Analytics solutions provide a 360-degree view of the business, regardless of which department is responsible for process steps. Airlines can manage fuel positions based on risk strategies. Airlines can establish criteria for managing fuel risk. For example, they can create and define a standard view of fuel across disciplines, with the flexibility to manage risks to fit profiles.
Mobile solutions enable flight operations and ramp staff to capture fuel transactions on the ramp and feed the data in real time to the next process steps, regardless of organizational boundaries.
Fuel data can be captured electronically from refueling organizations, fuel suppliers, electronic aircraft logbooks, and ACARS messages.
SAP software lets airlines capture fuel uplift and fuel burn per flight and enables invoice verification based on the relevant fuel price index values.
SAP Innovations
Commodity management solutions from SAP leverage the latest technology
innovations to enable fast responses to market dynamics and real-time visibility
into fuel risk. All of this is packaged into low-cost, low-risk, yet highly scalable,
flexible rapid-deployment solutions.
Flight-Centric Management Fuel Price Volatility
SAP Innovations
Integrated Processes and Information
Risk Management and Hedging
Identify, qualify, and mitigate risks associated with fuel price volatility. Fuel Procurement
Efficiently manage processes for buying fuel and fuel-related services. Fuel Sales
Efficiently manage processes for selling fuel or fuel-related services. Flight Operations Monitoring
Capture fuel-related transactions and perform operational analysis. Management and Hedging
Solution Overview
Fuel Sales
Fuel Procurement
Demand Management Operations Monitoring
Fuel management software enables processes such as fuel procurement, sales, risk management, and operations.
Fuel Management for Airlines
Management and Hedging Solution Overview Fuel Sales Fuel Procurement Demand Management Operations Monitoring Why SAP? Finance and Accounting Marketing Procurement, Sales, and Logistics Treasury Flight Operations Define Risk Policy, Profile, Review Flight Schedules Contracts with Commodity Pricing Purchase with Commodity Pricing Sales with Commodity Pricing Hedge Effectiveness and Accounting Invoice from Supplier MTM: Paper, Physicals, and Inventory Capture Fuel Uplift Risk Management and Hedging Flight Ops Monitoring Fuel Sales Fuel Procurement Credit Management Exposure Management Hedge Management Calculate Fuel Burn Per Flight
Paper Trades Fuel Risk Reporting Deal Settlement Delivery to Customer Invoice to Customer Forecast Post Fuel Costs to Flight
AP, AR, General Ledger, Profitability Analysis Take-Off and Landing
The SAP Commodity Risk Management application helps airlines manage price risks by eliminating spreadsheets, increasing transparency, and enabling the production of timely reports on fuel positions and exposures to market prices. Airlines can assess fuel risk positions from commodity procurement and commodity sales transactions in real time and react quickly to business and market changes.
The software supports deal capture and processing of commodity-based financial derivatives transactions, accounting integration, and hedge accounting for derivatives. Airlines can generate up-to-date reporting on the complete commodity portfolio.
To succeed, airlines need to identify and
quantify their exposure to commodity
price and foreign exchange risk. Airlines
need to take effective, proven steps to
mitigate risks while complying with
government regulations.
Risk Management and Hedging
11
%
Of companies follow
innovative hedging practices to protect against supply market volatility
Source: SAP Performance Benchmarking
Capabilities
Management and Hedging
Benefits
SAP Commodity Risk Management integrates tightly with the SAP Commodity Procurement application and the SAP Commodity Sales application to capture exposure positions from forecasts and physical transactions and compile risk positions automatically.
Financial hedging transactions are captured and used to update the appropriate risk positions. To manage these paper trades, the software allows airlines to import and store market prices, handle confirmations and counter confirmations, and help ensure segregation of duties.
Hedge management lets airlines define hedge plans, maintain hedging relationships, measure the effectiveness of hedges, and post hedge accounting results to the general ledger.
Robust commodity risk reporting analytics gives airlines a view into risk positions and risk policy compliance in real time.
Deal settlement functions and tight integration with accounting enables airlines to manage margins, perform month-end valuations, post profit and losses, settle paper deals, and create payments and invoices.
Commodity Risk Excellence
Capabilities
Management and Hedging
Benefits
SAP Commodity Risk Management enables airline executives to manage risks in real time, based on the unique approach and strategy that each organization employs.
Now risk management decision makers can get fast access to trusted, high-quality information. SAP Commodity Risk Management provides a single version of the truth for evaluating and executing the appropriate hedges according to company risk policy.
Integration with financial accounting functionality helps to reduce manual work, eliminate sources of error, and increase the overall efficiency of risk management activities, processes, and reporting.
As a result, top management no longer needs to worry about audits and the regulatory compliance of risk management. They are free to focus on managing the airline’s commodity-related business.
SAP software provides clear, real-time
visibility into the organization’s portfolio
of commodity positions. This means
that airlines can gain efficiencies in
commodity risk hedging, hedge
accounting, and risk policy compliance.
Improve Commodity Hedging Efficiency
Capabilities
Management and Hedging
Benefits
With the SAP Commodity Procurement application, organizations can improve the speed and efficiency of their fuel procurement processes.
SAP Commodity Procurement extends the standard procurement functionality of the SAP ERP application. Sophisticated functionality automates processes and enables advanced commodity pricing on procurement documents. SAP Commodity Procurement supports
provisional, differential, and final invoices.
Now airlines can price fuel based on frequently changing market quotes such as the Platts, the New York Mercantile Exchange (NYMEX), London Metal Exchange (LME), Chicago Board of Trade (CBOT), and Marche a Terme International de France (MATIF). Airline executives can give managers the ability to maintain the negotiated pricing rules in the system to automate price calculations.
SAP solutions enable airline organizations
to price fuel according to market quotes.
Airlines can automate their pricing
calculations and streamline invoicing
processes by enhancing procurement
activities with commodity-specific
functions in the SAP ERP application.
Fuel Procurement
80
%
Of decision makers think access to the right information at the right time is critical to their business
Source: SAP Performance Benchmarking
Capabilities
Fuel Procurement
Benefits
SAP Commodity Procurement enables airline executives to create commodities procurement contracts and purchase orders efficiently. They can create quantity contracts for defined periods, maintain fuel quality requirements, and link pricing formulas, including price calculation rules. The software prices commodities using data from exchanges including Platts, the NYMEX, LME, CBOT, and MATIF. Airlines can create call-off orders with
references to contracts, create spot purchases, and reprice orders using quality factors and formulas from the original contract.
Provisional and differential invoicing allows companies to post invoices before all prices and qualities have been determined and full payment is possible – and even before delivery. And management can do all this without the subsequent hassle of creating multiple debit and credit notes.
Invoices can be matched at the flight level, and verification can be based on fuel tickets, both electronically and manually.
The centralized software pulls data from multiple sources and enables airlines to view all deals that need to be invoiced.
Efficient Fuel Procurement
Capabilities Fuel Procurement
Benefits
SAP Commodity Procurement helps airlines improve the overall efficiency of fuel procurement processes.
The software extends the functionality of SAP ERP for advanced commodity pricing and streamlines, automates, and simplifies processes. The software reduces errors and eliminates out-of-system calculations, reduces manual interactions, and posts clear and concise invoice receipts for each purchase according to all available information at any point in time.
Treasury integration allows airlines to transfer accurate commodity exposure positions to risk management in real time. Companies get a clear view into the physical positions of commodities; a streamlined process for pricing and settling commodities, according to market conventions; and the ability to manage risk in times of high volatility.
Integration with flight operations functionality helps ensure accurate capturing of fuel uplift and error-free invoice verification.
SAP software supports comprehensive,
collaborative processes for efficient
and accurate procurement and fuel
payments, and it reduces errors and
manual interactions. With the software,
airlines can perform procurement and
payment activities for large and small
volumes of fuel.
Improved Pricing and Invoicing Reduces Error Rates
Capabilities
Fuel Procurement
Benefits
SAP Commodity Sales software is designed to run the complete contract-to-cash process, including logistics and settlement of commodities. The software extends SAP ERP functionality to handle commodity-based contractual pricing and provisional, differential, and final invoicing. Integration with the company treasury enables airlines to transfer commodity exposure positions to risk management.
The software gives managers the ability to maintain negotiated pricing rules in the system. The rules are used to automate price calculations and enable the pricing of commodities based on frequently changing market quotes.
Extend ERP functionality to support the
selling of commodities, and gain the
ability to create commodity contracts
priced on market quotes, automate
price calculations, and streamline
invoicing.
Fuel Sales
Capabilities
Fuel Sales
Benefits
SAP Commodity Sales software extends the functionality of SAP ERP to automate the creation of sales contracts and sales orders for fuel. It helps airlines with complex commodity pricing, such as average pricing over multiple months, using data from exchanges such as Platts, NYMEX, LME, CBOT, and MATIF. Airlines can create quantity contracts for defined periods; maintain commodity quality requirements; and link pricing formulas, including price calcula-tion rules. They can create call-off orders with reference to contracts and reprice orders using quality factors and formulas from the original contract.
Provisional and differential invoicing allows companies to create invoices before all prices and qualities have been determined, and full payment is possible before delivery. And they can do all this without the subsequent hassle of creating multiple debit and credit notes.
The centralized software pulls data from multiple sources and provides a single view of all deals that need to be invoiced.
Efficiently Sell Commodities
Capabilities Fuel Sales
Benefits
SAP Commodity Sales software automates commodity-based contractual pricing and enables provisional and differential invoicing to improve overall efficiency fuel sales. It also integrates with SAP Commodity Risk Management software, so whenever new or changed sales documents are posted, airlines gain real-time risk exposure management. SAP Commodity Sales helps reduce days sales outstanding by shortening the contract-to-cash cycle time. It increases efficiency by fully
automating price calculations (eliminating the need for complex manual calculations) and reduces revenue leakage due to miscalculations. As a result, airlines can increase profit margins, limit the impact of commodity price volatility, and simplify the selling process – from contract creation to final invoicing and auditing.
Get a firm handle on complex fuel
pricing, streamline the invoicing
process, and enable real-time
commodity exposure management.
Improve Pricing to Increase Profit Margins
Capabilities
Fuel Sales
Benefits
Fuel uplift information is collected by flight operations from supplier fuel tickets, which are used to create fuel supplier invoices. Fuel uplift data is also captured in aircraft flight logbooks after fuel volumes are converted into weight with calculations based on the specific gravity of the fuel. This is key because fuel is managed within the aircraft according to weight. Aircraft instruments display fuel carried on board by weight.
Fuel ticket information is captured in different ways, depending on the sophistication of fuel suppliers, refuelers, and aircrafts. Fuel information can be captured manually by noting data from fuel tickets into aircraft logbooks and then transferring the data to SAP software. The fuel data can also be captured electronically through mobile devices, electronic logbooks, ACARS messages, or a combination of methods.
Fuel-related information is captured by
flight operations in aircraft logbooks.
By feeding flight operations data into
fuel management software, airlines
can calculate fuel uplift and cost fuel
burns for each flight with a high level
of accuracy and in near-real time.
Flight Operations Monitoring
Capabilities
Operations Monitoring
Benefits
SAP Innovations
Solution Overview
36
%
Higher operating margins for organizations that use IT to enable strategic and competitive advantages Source: SAP Performance Benchmarking
SAP software captures fuel uplift data from fuel tickets, sends it to aircraft logbooks, and automatically posts fuel goods receipt transactions for the first step in the invoice verification process.
The software extends this process to calculate flight fuel burn, enabling airlines to calculate flight fuel costs accurately in near-real time without additional staff effort.
Fuel levels are measured in aircraft fuel tanks, and the software provides an auditable stock adjustment based on actual measurements – data that previously had low visibility.
SAP software provides flexibility in data capture. Airlines can capture data manually through paper logbooks and fuel tickets, as well as with electronic logbooks and ACARS messages. This simplifies the implementation of capture processes and provides a speedy, efficient, and highly detailed data capture.
Flight operations data is integrated with fuel management processes, giving management a single complete view of fuel situations and supporting detailed analysis and reporting. For existing SAP customers, rollout of the software is expedited, as it uses standard modules, primarily in the SAP Enterprise Asset Management solution.
The software can be extended to cover ground services operations and other direct flight costs, including catering.
Manage Fuel at Aircraft and Flight Levels,
and Provide Enterprise-Wide Visibility
24
%
Lower IT spend per employee when organizations have a single solution to manage the business
Source: SAP Performance Benchmarking
Capabilities
Operations Monitoring
Benefits
SAP Innovations
Flight-centric fuel management, an airline industry best practice, helps ensure data integrity across departments. SAP software speeds fuel management processes and makes updated data immediately available to all departments.
The software improves enterprise productivity by eliminating duplicate data entry.
Fuel hedging processes are closely integrated with fuel management for high quality data input into pricing engines and improved decision making.
The software provides a single, complete view of the fuel situation and supports detailed analysis and near-real-time reporting, especially when used in conjunction with electronic logbooks.
The software enables verification of supplier invoices and automates routine tasks, including contract price updates, forecasts, budget calculations, invoice verification, evaluated goods receipts, and electronic invoicing. The software also extends to cover ground services and catering activities.
There is a great deal of fuel-relevant
flight operations data that is not available
to help optimize fuel procurement and,
most important, for fuel analytics.
Airlines need enterprise-wide access to
this data for an accurate and complete
view of end-to-end business process
performance.
Bringing All Departments Together to Help Lower Fuel
Costs
52
%
More employees use mobile solutions when business processes are redesigned to enable access to supporting applications
Source: SAP Performance Benchmarking
Capabilities
Operations Monitoring
Benefits
SAP Innovations
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image #
here
Make Sense of E-Enabled Aircraft Data Track aircraft performance using a single data repository with predefined or customized key performance indicators (KPIs) to analyze fuel performance. Understand the relationships between KPIs for insight into aircraft performance through root cause and predictive analysis. Large volumes of data generated by modern aircraft are no longer an obstacle to performing near-real-time analysis.
Innovations for Flight Operations Monitoring
Capture Data on the Ramp
More and more airlines deploy mobile solutions on the ramp to support line maintenance and line services. Capturing fuel-related data in real time at the source enables near-real-time performance tracking and helps ensure immediate management attention in cases of deviation from agreed standards.
40
%
Higher employee productivity where mobile access is provided to employees across all levels
Source: SAP Performance Benchmarking
With mobile solutions and Big Data
analytics, airlines can capture fuel data
and perform instant analysis to optimize
fuel costs and route profitability.
E-enabled aircraft generate large volumes
of data. To be competitive, airlines must
tap into this data to enhance business
processes, particularly for key areas such
as fuel costs.
Capabilities
Operations Monitoring
Benefits
SAP Innovations Solution Overview
Strategic Demand Management Value Map
Enable fuel procurement, sales, risk management, and operations processes. Management and Hedging Solution Overview
Fuel Sales
Fuel Procurement
Demand Management Operations Monitoring
Why SAP?
Network and Route Performance Management
Profitability and Cost Management
Business Planning and Consolidation
Fuel Management Risk Management
and Hedging Fuel Procurement Fuel Sales
Business Planning and Consolidation
Flight Ops Monitoring
Why SAP?
Integrated commodity management solutions from SAP help airlines optimize fuel
procurement, sales, risk management, and operations processes. Airlines can gain
a consolidated, real-time view of the fuel situation and market trends and react
quickly to market changes.
Tightly Integrated, Comprehensive Software
Directly transfer procurement and sales information to SAP Commodity Risk Management to optimize fuel price hedging.
Improved Fuel Pricing
Define rules for processing physical commodity deals with a fully integrated price calculation engine.
Better Reporting and Legal Compliance
Gain real-time data collection and reporting functionality, and integrate information with finance and accounting solutions.
Integrating Operations
Enable manual and automatic data capture, and eliminate duplication for high data integrity, operational efficiency, and speed.
Management and Hedging Solution Overview
Fuel Sales
Fuel Procurement
Demand Management Operations Monitoring
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