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Cost savings through operational excellence in theenvironment of volatile fuel prices
Singapore, March 05th 2009
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Contents
1. Introduction
2. Oil Price Development
3. General and Airline Specific Impacts of the ETS
4. Reduction of Fuel Burn in Flight Operations
4.1 Pre - Flight
4.2 In - Flight
4.3 Post Flight
5. Touchdown
6. Lufthansa Consulting
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Contents
1. Introduction
2. Oil Price Development
3. General and Airline Specific Impacts of the ETS
4. Reduction of Fuel Burn in Flight Operations
4.1 Pre - Flight
4.2 In - Flight
4.3 Post Flight
5. Touchdown
6. Lufthansa Consulting
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Introduction 1
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Contents
1. Introduction
2. Oil Price Development
3. General and Airline Specific Impacts of the ETS
4. Reduction of Fuel Burn in Flight Operations
4.1 Pre - Flight
4.2 In - Flight
4.3 Post Flight
5. Touchdown
6. Lufthansa Consulting
2
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Several micro- and macroeconomic factors drive the fuel price development,but the related risks and uncertainties make fuel prices quite unpredictable
World jet fuel demand
Jet fuel supply situation
OPEC policy
Supply from non OPEC countries
Political situation
External factors, e.g. weather, strike, etc.
2
The main influencing factors
The main influencing factorsThe main influencing factors
Source: Lufthansa
US - $
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2
Development of crude oil lt. sweet pit2008
Hedging was the way out for large network airlines until the fuelprices eroded and also put these airlines at peril
When crude oil prices
soared last summer,
airlines around the
world entered into
hedge agreements
aimed at insulating
them from even higher
jet fuel cots.
SIA's third-quarter profit falls 43% on hedges
Fuel hedge adjustments and merger costs trigger massive quarterly losses for Delta Fuel hedging crimps Southwests profits
Southwest may pledge up to 20 737s as hedge collateral
Huge fuel hedge loss, falling demand to hurt Cathay
SIA's third-quarter profit falls 43% on hedges
Fuel hedge adjustments and merger costs trigger massive quarterly losses for Delta
Fuel hedging crimps Southwests profits
Southwest may pledge up to 20 737s as hedge collateral
Huge fuel hedge loss, falling demand to hurt Cathay
Recent Aviation & Airline headlines*
Source: ATW , RATI
US - $
Average price caps of hedged fuel
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Efficient cost control remains number one priority in operationalairline management the target is to control fuel cost
0
5
10
15
20
25
30
35
2003 2004 2005 2006 2007 2008F
[ % ]
$0,0
$20,0
$40,0
$60,0
$80,0
$100,0
$120,0
% of operating costs Average price per barrel of crude
Source: IATA, Platts, ATA, Lufthansa Consulting Analysis
2
Fuel Impact
Operating Costs
The percentage of cost for jet fuel (portion of DOC) has increased by 22 %
since 2002, forcing carriers to cut down on operating expenses
and to focus on operational efficiency. The aim for sustainability can only be met
by adequate measures to cut the operational cost base.
Fuel impact on operating costFuel impact on operating costFuel impact on operating cost
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Profitability can be a matter of one extra seat sold with the volatilityof jet fuel prices the profitability is at jeopardy for all airlines
100 %
50%
75%
25%
10%
100 %100 %Procurement
Marketing
Admin
Pax Handling Charges
Landing, Enroute
Ground Handling
Catering Crews
Depreciation
Maintenance
FUEL
Airline Operating Expenses (2008)Airline Operating Expenses (2008)Airline Operating Expenses (2008)
33 %
2
Source: Selected annual reports, Lufthansa Consulting analysis
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Contents
1. Introduction
2. Oil Price Development
3. General and Airline Specific Impacts of the ETS
4. Reduction of Fuel Burn in Flight Operations
4.1 Pre - Flight
4.2 In - Flight
4.3 Post Flight
5. Touchdown
6. Lufthansa Consulting
3
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The European Emission Trading Scheme will implicate additionalchallenges for the airlines
EU parliament has decided to include airline activities in the scheme for greenhouse gas
emission allowance trading within the community starting from 2012
Applicable for all flights to or from EU airports
Goal shall be the reduction of CO2 emissions by 20% in 2020 in comparison to 1990
European Emission Trading Scheme (ETS) will have major financial impacts on the
aviation industry
Airlines are obliged to take action according to the EU commission guidelines
(Directive 2008/101/EG)
High time pressure since the first deadline is in June 2009
3
European Emission Trading Scheme (ETS)European Emission Trading Scheme (ETS)European Emission Trading Scheme (ETS)
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Only airlines which are able to manage and predict fuel consumptionand the correlated CO2 production will lead the industry
Per consumed tone of fuel 3,15 tones
of CO2 are emitted
EUR/tone of fuel (as of Jan 2009) =
370 EUR
EUR/Certificate (as of Jan 2009)
= 12 EUR
EUR/tone of CO2 = 12 x 3,15
= 37,8 EUR
CO2 costs/fuel costs(%) = 37,8/370
= 10%
Example calculation Conclusion
At a certificate price of 12 EUR and a
fuel price of 370 EUR per tone the
costs for CO2 emissions equal 10% of
the fuel costs
It is assumed that a big network
carrier is facing additional emission
costs in three-digit Mio. EUR amountin 2012
If airlines do not have the necessary
amount of certificates the penalty fee
of 100 EUR per tones CO2 will apply
Emission factor 3,15 tones of CO2 per tone of fuel burned
Assumption: 100% of CO2 emissions have to be paid for
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By managing fuel consumption data, airlines can manage theemission cost scenarios and make a major cost block predictable
Emission cost scenarios
Today's price is 12 EUR, but pricesof 30-50 EUR could be realistic infuture
Prices will rise due to higherdemand for emission rights and the
inclusion of other industries
Expansion since 2004-2006 has tobe bought as well as growth from2012
At a certificate price of 12 EUR withan auction rate of 15% the costs foremission certificates already sumup to 140 Mio. EUR p.a.
EU goal: Auction rate of 100%
Note 1: Auction rate is the percentage of emission certificates which have to be bought by the airlines
Best case 2012 2013 2014
Allocation rate 97% 95% 95%
Auction rate1 15% 15% 15%
Certificate price 12 12 20
Costs 120 Mio. 128 Mio. 222 Mio.
Worst case 2012 2013 2014
Allocation rate 97% 95% 60%
Auction rate 15% 30% 40%
Certificate price 30 40 50
Costs 291 Mio. 517 Mio. 940 Mio.
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However airlines need to push for a global approach, because isolatedEU measures might cause a distortion of competition and detours
NYC-FRA-MUM: 336 tones of CO2(emission certificates needed)
NYC-DXB-MUM: 460 tones of CO2(no emission certificates needed)
FRA-HKG: 251 tones of CO2(emission certificates needed)
FRA-DXB-HKG: 296 tones of CO2(emission certificates only needed
for section)
Increase of CO2 due to detours
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Impact on climate
Example 1:
Example 2:Impact on climate
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The implementation of ETS will have a major financial impact, onlythe airlines who will prepare will stay ahead
Conclusion
With the implementation of EU ETS all airlines with EU traffic will face additional emission
costs, the total cost is not exactly assessable today
Data monitoring, reporting and verification will cause additional administration costs
Demand will be affected negatively
Growth of the airline and aviation sector will be more difficult
Distortion of competition
Financial means spent for certificates are not available for investments in modern and
efficient technologies
Insecure application of emission funds - emission revenues should inure to the
environmental benefit and the reduction of emissions in the aviation industry
International ETS agreement as a global solution is necessary
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Contents
1. Introduction
2. Oil Price Development
3. General and Airline Specific Impacts of the ETS
4. Reduction of Fuel Burn in Flight Operations
4.1 Pre - Flight
4.2 In - Flight
4.3 Post Flight
5. Touchdown
6. Lufthansa Consulting
4
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A reduction of CO2 and fuel cost can be achieved in FlightOperations on a daily basis
Includes all fuel saving
measures in terms of
planning and preparation
for the in-flight phase.
Usually this area involves
Ground Handling,
Operational Control
functions and
administrative bodies.
The In Flight phase has the
major fuel savings potential. The
flight crews are actively
implementing the prepared
measures from the Pre Flight
phase and are executing in flight
fuel saving procedures.
During this stage data from
the In Flight phase are
collected, consolidated and
validated to realize
strategies and measures
for further fuel saving
activities.
4
Pre - FlightPrePre -- FlightFlight In - FlightInIn -- FlightFlight Post - FlightPostPost -- FlightFlight
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CO2 reductions and cost savings go hand in hand withOperational Excellence
Flight Planning &Preparation
Advanced IT tools forroute calculations
Route selection
(time vs. cost vs. fuel) Extra fuel calculations
Establishment of a corporate
Fuel Management
Ground Handling procedures
Usage of APU vs. GPU
Turn-around processes
Cost Index
Weight Reduction
Paperless cockpit
Flight procedures
Idle power descends
Reduced take-off thrust
Flap setting
Tankering / fuel uplift
Taxi procedures
Briefing & communication
Flight level selection
Fuel PerformanceMonitoring
Maintenance Actions
Engine wash
Cost monitoring
Fuel database
Planning & budgeting
Controlling
Fuel supply management
Purchasing & contracting
Interface communication
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Pre - FlightPrePre -- FlightFlight In - FlightInIn -- FlightFlight Post - FlightPostPost -- FlightFlight
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Contents
1. Introduction
2. Oil Price Development
3. General and Airline Specific Impacts of the ETS
4. Reduction of Fuel Burn in Flight Operations
4.1 Pre - Flight
4.2 In - Flight
4.3 Post Flight
5. Touchdown
6. Lufthansa Consulting
4
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Flight Planning Provision of realistic parameters to reducefuel costs and CO2 emissions 4
Ideal flight pathsIdeal flight paths
Realistic flight pathsRealistic flight paths
A B
Vertical profile
A B
Vertical profile
Optimum Altitude
Optimum Altitude
Horizontal profile
BA
Horizontal profile
BA
Restricted Airspaces
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The challenge of flight planning is to determine the exact fuelconsumption but SAFETY remains first priority 4
BA
SafetySafety Profitability Punctuality
Route & Altitude structure
Weather phenomena
Schedule constraints
Operational constraints
Aircraft performance Company specific procedures
RequiredFuel Amount
RequiredRequired
Fuel AmountFuel Amount
Basic ObjectivesBasic ObjectivesBasic Objectives
Influencing FactorsInfluencing FactorsInfluencing Factors
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CO2 and fuel cost efficient flight planning needs state of
the art training and high sophisticated tools
Flight PlanningIT Tool
Flight PlanningIT Tool
ActualWeather Data
NavigationData, e.g.NOTAMs
ActualWeather Data
OperationalData
IndividualAircraft Data
FinancialData
Companyrelated
requirements
Individual & OptimizedOperational Flight Plans
Individual & OptimizedOperational Flight Plans
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State of the art flight planning takes into account real timewind conditions and estimates the saving potential
Assumption:
Aircraft Type: ATR 72
Cruise Procedure: Long Range Speed
Routing: SIN CGK
GC distance: 474 NM
Headwind at FL18: 20 kts
Headwind at FL230: 50 kts
Source: ATR Manual
According to the books and without
considering weather conditions the
recommendation for the Operational Flight
Plan would be:
Cruising Level FL230
Standard calculation
Optimized calculation
If the Operational Flight Plan is calculated by
considering actual weather/wind effects as well
as aircraft performance data the result &
recommendation will be different:
Specific range:
FL180 0.39 NM/kgFL230 0.37 NM/kg
Under this conditions flying at lower altitudes
leads to a higher specific range resulting in lessfuel burn.Fuel savings on this routing:
5 %
Under this conditions flying at lower altitudesleads to a higher specific range resulting in less
fuel burn.Fuel savings on this routing:
5 %
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Extra Fuel needs to be addressed with the cockpit, becausetomorrows cockpits manage emissions and fuel cost
Legal minimum
requirements
Legal minimum
requirements
TripFuel
Contingency
Fuel
AlternateFuel
Final ReserveFuel
+
+
+
+
Extra FuelExtra Fuel
Fuel for the flight from A to B incl.climbing phase and descent phase
Fuel for unforeseen flight incidents
Fuel for flight to the alternateaerodrome
Fuel amount to fly holding patternsat the alternate aerodrome
Fuel that is carried at the discretion of the commanderFuel that is carried at the discretion of the commander
Planned
Take-Off Fuel
Planned
Take-Off Fuel
=
4
Because of the best guess principle the question for the pilot is every
time the same:What is the right amount of extra fuel to carryWhat is the right amount of extra fuel to carry ..
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With the help of the Analyzed Extra Fuel the fuel consumption dueto the carriage of too much additional fuel can be reduced
Fuel that is carried at the discretion of the commander
The Flight Crew decides about the amount of Extra Fuel carried.
This decision is based on estimations, experience, safety and comfort.
The challenge is to find the balance between safety and economic efficiency.
The Flight Crew decides about the amount of Extra Fuel carried.
This decision is based on estimations, experience, safety and comfort.
The challenge is to find the balance between safety and economic efficiency.
On an average B747 routing 25 30 % of the Extra Fuel uplift will beburned just to carry it !On particularly stretched long haul flights this additional
consumption may even increase to 60 %.An example:If on a flight from FRA to EZE the amount of Extra Fuel is 5.000 kg,3 tons of fuel will be burned just due to the higher weight of theaircraft !!!
On an average B747 routing 25 30 % of the Extra Fuel uplift will beburned just to carry it !On particularly stretched long haul flights this additionalconsumption may even increase to 60 %.
An example:If on a flight from FRA to EZE the amount of Extra Fuel is 5.000 kg,3 tons of fuel will be burned just due to the higher weight of theaircraft !!!
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Extra FuelExtra FuelExtra Fuel
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Relation between Extra Fuel ordered and the amount of ExtraFuel actually needed before introducing AEF
-2000
-1000
0
1000
2000
3000
4000
5000
6000ExtraFuel ordered
ExtraFuel needed
4
01.01.03 30.09.04
kg
Example: Extra Fuel for FRA-HAM with A300-600
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Statistical information on the Operational Flight Plan help the Flight Crew
to make a reasonable decision about the desired amount of Extra Fuel
TaxiFuel
TripFuel
ContingencyFuel
AlternateFuel
Final ReserveFuel
+
+
+
+
+
Extra Fuel
TaxiFuel
TripFuel
ContingencyFuel
AlternateFuel
Final ReserveFuel
+
+
+
+
+
Extra Fuel
PlannedTake-Off Fuel
MEAN VALUE MS 2000: Describes the averagely consumed additional (plus - PS) or less (minus -
MS) fuel amount in relation to the Planned Take-Off Fuel.
EF90 MS 860: On 936 considered legs 90% of all flights on this city pair reached their
destination with a fuel consumption less than 860 kg of the Trip +
Contingency Fuel.
EF99 PS 1774: 99 % of all considered flight reached their destination without using Alternate
and Final Reserve Fuel and had to use a maximum Extra Fuel amount of
1774 kg.
-----------------------------------------------------------------------------------------------------------------
ANALYZED EXTRA FUEL SUMMARY
MEAN VALUE MS 2000 EF90 MS 860 EF99 PS 1774
CONSIDERED FLIGHTS 936
-----------------------------------------------------------------------------------------------------------------
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Potential savings due to minimized carriage of Extra Fuel 4
Fuel savings in kg of Airbus A340 (route length 3000 NM):
1000 kg:
500 kg:
Weightreduction
180 kg
88 kg
936 flights
of the flights
Flights not requiringExtra Fuel
936 flights
of the flights
Flights not requiringExtra Fuel
Example:LHR JFK
Yearly fuel savings forone flight a day:
65.700 kg
Example:LHR JFK
Yearly fuel savings forone flight a day:
65.700 kg
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Contents
1. Introduction
2. Oil Price Development
3. General and Airline Specific Impacts of the ETS
4. Reduction of Fuel Burn in Flight Operations
4.1 Pre - Flight
4.2 In - Flight
4.3 Post Flight
5. Touchdown
6. Lufthansa Consulting
4
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The most innovative project certainly is the introduction ofthe cost index concept in flight operations 4
CI optimization of planned speeds will y i e l d s a v i n g s f r o m 2 t o 3 %a n d i n s o m e c a s e s as m u c h a s 1 0 % when a flight is restricted
to a low altitude or in unusually strong winds
(IATA Fuel Action Plan Guidance material and best practices for fuel and environmental management)
CI = CTime
CFuelCI =CTimeCFuel
The cost index is defined as the ratio of incremental time dependant costs and the costs of fuel.An optimum flight speed can be calculated, using the time costs like an additional fuel flow. This
enables the operator to achieve a trade-off between incremental fuel burn and operating costs per
time unit.
The cost index concept requires a comprehensive evaluation of all airline specific direct operating
costs to identify those of relevance for the cost index. It is very important to know, that not all time
dependant costs are also cost index relevant.
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Many airlines have sophisticated planning tools, however fuelsavings during flight or flight tactics are still in its infancy 4
Tactical PlanningStrategic Planning
Provision of CI performance
data for climb, cruise and
descent for improved OFPs
Support of tactical economic
decisions on board following
OFP deviations of any kind
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4
0,50 0,54 0,58 0,62 0,66 0,70 0,74 0,78 0,82
250
260
270
280
290
300
310
320
330
340
350
360
370
380
390
400
410
Mach
Fligh
tLevel
Min. Cost CRJ 100/200
0,0%-0,2% 0,2%-0,4% 0,4%-0,6% 0,6%-0,8% 0,8%-1,0%
1,0%-1,2% 1,2%-1,4% 1,4%-1,6% 1,6%-1,8% 1,8%-2,0%2,0%-2,2% 2,2%-2,4% 2,4%-2,6% 2,6%-2,8% 2,8%-3,0%
3,0%-3,2% 3,2%-3,4% 3,4%-3,6% 3,6%-3,8% 3,8%-4,0%4,0%-4,2% 4,2%-4,4% 4,4%-4,6% 4,6%-4,8% 4,8%-5,0%
Wind Component
250
260
270
280
290
300
310
320330
340
350
360
370
380
390
400
410
-150 -100 -50 +0 +50 +100 + 150
WC [kt]
FlightLevel
Instead of having fixed cruising speeds a variable speedadjustment in-flight would save up to 3% of fuel for this flight