How can you manage financial risks from fuel prices in the airline industry?

1 Fuel efficiency

One of the most obvious ways to lower your fuel expenses is to improve your fuel efficiency. This means optimizing your fleet composition, route planning, flight operations, and maintenance practices to reduce fuel consumption per passenger or per kilometer. For example, you can invest in newer and more fuel-efficient aircraft, use biofuels or alternative fuels, implement fuel-saving technologies and procedures, and monitor your fuel performance regularly.

2 Fuel surcharges

Another way to cope with fuel price fluctuations is to pass some of the costs to your customers through fuel surcharges. Fuel surcharges are additional fees that you charge on top of the base fare to reflect the changes in fuel prices. They can help you recover some of the extra costs and maintain your margins. However, you have to be careful not to overcharge or undercharge your customers, as this can affect your demand and competitiveness. You also have to comply with the regulations and transparency requirements of the relevant authorities and markets.

3 Fuel hedging

Fuel hedging is a financial technique that allows you to lock in a fixed or capped price for your future fuel purchases, regardless of the market price at the time of delivery. Fuel hedging can protect you from sudden spikes in fuel prices and provide you with more certainty and stability in your budgeting and planning. However, fuel hedging also involves some risks and costs, such as paying premiums, fees, or margins, losing money if the market price falls below the hedged price, and dealing with complex contracts and accounting rules.

4 Fuel contracts

Fuel contracts are agreements that you make with your fuel suppliers to secure your fuel supply and price for a certain period of time. Fuel contracts can offer you some advantages over spot purchases, such as guaranteed availability, quality, and delivery, as well as discounts, rebates, or incentives. However, fuel contracts also have some drawbacks, such as limited flexibility, long-term commitment, and potential penalties or liabilities.

5 Fuel diversification

Fuel diversification is a strategy that involves using different sources, types, or grades of fuel for your operations. Fuel diversification can help you reduce your dependence on a single fuel supplier, market, or region, and increase your options and bargaining power. It can also help you adapt to the changing environmental and regulatory standards, as well as the customer preferences and expectations. However, fuel diversification also requires some investments, adjustments, and coordination, as well as careful evaluation of the costs and benefits of each fuel alternative.

6 Fuel management

Fuel management is a comprehensive and holistic approach that integrates all the aspects of fuel procurement, consumption, and optimization in your organization. Fuel management involves setting clear and measurable goals, policies, and procedures for your fuel activities, as well as assigning roles and responsibilities, monitoring and reporting performance, and reviewing and improving outcomes. Fuel management can help you achieve greater efficiency, effectiveness, and accountability in your fuel operations, as well as identify and mitigate risks and opportunities.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?