The aviation industry is reaching new realms of growth with each passing year. In fact, 2017 was an extraordinary year for the industry with low aviation fuel and interest rates helping companies in the aviation industry to gain healthy profits. (Source: Global Aviation Fuels Procurement Market Intelligence Report). Aviation fuel is categorized under petroleum-based products and is used to fuel an aircraft and is considered a high-quality fuel when compared with other petroleum-based fuels such as petrol and diesel. This is because aviation fuel has specific physical properties and additives, such as tetraethyl lead, which help reduce the risk of aircraft explosion that is caused due to high atmospheric temperature. They also reduce the risk of icing – an aircraft engine-related danger. This is one of the primary reasons why aviation fuel prices are considerably higher when compared to other forms of fuel. Here is an overview of the key market factors in the aviation industry:
Aviation fuel market overview
Factors such as increasing demand for aviation fuel from key end-user industries, such as aviation, due to increasing air traffic is driving the market. The recent increase in the operations of commercial airlines is one of the major factors that would fuel the demand for aviation fuel. Furthermore, there is increased demand for aviation fuel with more number of urban middle-class people across regions are increasingly opting to travel by airlines, especially in developing countries of BRIC. Furthermore, the travel rates for business and leisure purposes are expected to be highest in BRIC countries as they account for almost 40% of the world population.
Some of the key pricing strategies in this sector include:
- Volume-based pricing: Aviation fuel prices are set based on forecasts for crude oil prices during the contract period. The aviation fuel prices are set based on mutual agreements between buyers and suppliers and the price forecasts after considering parameters such as demand-supply of crude oil and cost of feedstock during the contract period. These prices include the transportation and freight charges.
- Spot pricing: This is a pricing model where the aviation fuel prices are based on the prevailing market conditions, which include the prevailing demand-supply scenario and the cost of raw materials such as crude oil prices. This model is generally adopted by small organizations that purchase low qualities of fuel.
Market innovations use cases
One of the key innovations in the aviation fuel market is eSourcing technology. A US-based leading airline that has businesses across regions sourced aviation fuel for its different locations. However, the buyer had limited visibility in the capabilities of its vendors. By using eSourcing technology, the buyer was able to compare the pricing offered by suppliers. This helped them to consolidate the category spend and realize cost savings.
Gaining procurement excellence in this sector is a challenging task. However, one of the best techniques to achieve this is through the adoption of an integrated strategic plan. Both the parties (i.e., buyers and suppliers) can optimize the storage costs for aviation fuel. For this, it is necessary to estimate the buyers’ current and future demand requirement for aviation fuel. Furthermore, demand forecasting also allows suppliers to plan and accommodate buffer supply in case of a surge in the demand for aviation fuel.
Some of the top suppliers in the aviation fuels market include:
SpendEdge’s procurement report offers strategic insights on the top aviation fuel companies across the globe and helps procurement professionals to gain information on the supply market, sustainability, and procurement best practices, pricing models, and key sourcing and procurement trends affecting this market.