Spend Management at 35,000 Feet — Reducing Fuel Requirements at American Airlines

For all you frequent fliers in the Spend Management audience -- I'm sure there are a good many of you -- this article from the Chicago Tribune this past weekend is one that you should not miss. In it, the authors describe how American Airlines is attempting to get pilots to agree to a policy that lessens the amount of extra fuel remaining on board when a plane lands (based on its original flight calculation). The plan is to drive significant savings for American -- far more than that infamous stunt of taking the olive out of the salad -- in terms of the added cost in fuel consumption for carrying around unnecessary fuel during flight. I'm also sure there's a small working capital cost reduction component to this as well (i.e., the less fuel that goes into a plane on every trip, the less American needs to spend on buying it).

According to the article, "American planes are landing with enough fuel to fly an additional 93 minutes on average ... Extra fuel is always allocated during bad weather, they said, and to account for the probability that planes will be placed in holding patterns near congested airports, among other factors." American wants to reduce the minimum amount of fuel requirements to 65 minutes "of fuel left at the end of a flight," a number that, "is well above the FAA requirement for a minimum of 45 minutes of fuel remaining on domestic arrivals and 30 minutes on international arrivals."

American feels justified in reducing the amount of fuel it needs to carry based on its database and algorithms that forecast requirements (I would assume they adjust for weather and other conditions). The reason American pilots remain against the reduction, in part, is that they argue, "No computer program can reasonably take into account the variables and nuances that pilots and dispatchers process as they prepare for a flight." Moreover, such a decision would set precedent on taking a key decision away from pilots.

I view this as a fascinating case of Spend Management in the sky. As a frequent flier, I'd tend to side with the pilots on this issue given all the nuances of fuel forecasting in particular routes, conditions, etc. I just feel that there's a sixth sense that comes from experience versus a forecasting algorithm that I'm not sure I'm willing to chance. Moreover, it's the passengers and the pilots who assume all the downside risk in this scenario. But perhaps one thing could get me to change my tune -- if American is willing to share in the savings directly with customers, perhaps it's worth a consideration. But I probably have a better chance at getting an olive back in my salad (let alone a meal in coach) than this.

Jason Busch

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