The American Way: US Aviation Fuel Consortiums Explained

Managing how fuel is sourced, stored, and distributed is a key concern for any airline. With aviation fuel costs making up approximately 22% of a US airline’s operating expenses, second only to labor costs, effective and efficient management and distribution of aviation fuel is a major priority.

Fuel consortiums have become a standard approach for ensuring efficient and convenient fuel management in the US. However, this differs from the model most commonly found at airports outside the US, particularly in Europe. 

Other parts of the world often employ joint ventures between fuel suppliers and into-plane companies to provide refueling operations services and store fuel, with the oil companies solely providing logistics. 

Alternatively, agreements may exist between fuel suppliers and larger individual ‘hub’ airlines that self-supply. For example, Delta Airlines was the first airline to purchase a refinery - owned by subsidiary Monroe Energy, Delta bought the Pennsylvania oil refinery to save money on jet fuel costs.

In this article, we look into the benefits of aviation fuel consortiums and compare them to other approaches to managing fuel infrastructure.

What is the European approach to fuel management?

To compare approaches, let us first look at how fueling is managed at locations outside of the US. 

Fuel suppliers such as Shell or World Kinect traditionally control fuel delivery and storage at major non-US airports. The infrastructure, such as tank farms and distribution systems, is owned by joint ventures between multiple supplier shareholders. The entire infrastructure may sometimes be proprietary to the supplier's products and services at smaller locations.

Roadside tankers are owned by logistics companies such as Hoyer International or Wincanton Logistics. Airside tankers and fuel farms are normally joint ventures between multiple fuel suppliers to ensure competition is available at that airport. Each supplier has a designated fuel farm tank space if multiple fuel suppliers operate at that location.

Regarding how the fuel gets from the tanks into the aircraft, this is handled by an into-plane agent, such as Menzies Aviation for solus operations, or by a joint venture with a fuel supplier, such as Aviation Fuel Services (AFS) at London Heathrow. A joint venture between Air BP, Total, Q8 Air, and Valero, AFS provides staff and tanker trucks (or ‘bowsers’) to manage refueling operations for multiple airlines at LHR, including Delta, American Airlines, and Air Canada.

What are Fuel Consortiums?

Before fuel consortiums were introduced, major oil companies typically managed fuel infrastructure in the US. This approach prevented the introduction of other fuel supply options and limited competition, resulting in higher costs for the airlines. 

Starting in the late 1970s, competing airlines collaborated to address this problem by establishing fuel consortia at major airports such as Chicago, Anchorage, and Honolulu.  Since then, most major US airports have adopted a fuel consortium system to reduce costs and increase efficiency. This approach is spreading, with airports around the world beginning to question whether this is the right approach for them.

Multiple airlines operating at each specific airport form collaborative not-for-profit entities known as fuel consortiums. The consortium Chair or Executive Committee is often formed from larger commercial airlines, such as Delta, American, Southwest, or United, which provide a higher volume of flights through that location. In some cases, consortiums can consist of over 50 member airlines.

These consortiums are formed primarily to manage and share investment in jet fuel procurement, storage, and distribution. Each member airline can optimize its fuel economy and achieve the lowest possible environmental impact by sharing the associated costs and responsibilities.

As a result of the commitments made by the consortium to improve infrastructure and efficiency, members normally pay less for using fuel facilities at that location as this is on a shared, proportional cost basis. When a non-member airline refuels at that airport, they are often required to pay a higher rate as an offset to the commitments made by member airlines.

For example, consortium member airlines may collaborate to invest in a single combined fuel farm to receive and store fuel from multiple suppliers or contribute towards a hydrant system to distribute fuel directly to gates (or ‘stands’). Into-plane service providers are normally contracted separately by each airline.

In some cases, airlines may choose to form consortiums for operations other than fuel. For example, some Canadian airlines have also applied the consortium model to aircraft de-icing infrastructure and operations at several major airports.

Fuel consortiums are often supported by third-party service providers, such as Menzies Aviation, FSM Group, or Swissport, who manage the fuel facility and provide financial, legal, environmental, or regulatory support.

What are Fuel Committees?

In the United States, at locations where member airlines collectively own, operate, or lease fuel facilities and assets, the airlines that hold inventory at that airport usually choose to form a Limited Liability Company (LLC). 

These airlines then form an executive committee, or ‘EXCOM’, responsible for representing all member airlines fairly and equally. An executive board is selected by vote, and the Chair is usually from the airline with the largest fuel usage at that location.

This committee works with the third-party management company to govern shared fuel systems at that airport and collaborates with off-site fuel farms, terminals, and complex distribution networks.

Forming a LLC is normally seen by consortium members as an attractive option, due to the ability to sign a fuel lease agreement with the airport. This agreement is useful as it is seen favorably when obtaining capital investment finance. In addition, corporations can optionally issue stocks to attract investment.

It should be noted, however, that the above information applies only to US-based fuel consortiums and committees - Fuel Facilities Corporations (FFCs) in other parts of the world, e.g. Canada, may adopt a different approach.

What are the benefits of Fuel Consortiums?

There are multiple benefits, firstly for the airline members of fuel consortiums:

• Control of Fuel Supply - in the consortium model favored in the United States, airlines control fuel supply to allow supply chain optimization and provide access to multiple fuel suppliers (again, this only applies to US-based consortia which may differ from others found globally)
  
• Shared Costs - fuel infrastructure costs such as fuel storage and distribution systems are shared among consortium members, which can result in significant savings
  
• Shared Maintenance & Facilities - by sharing facilities consortiums minimize redundant infrastructure and maintenance costs, optimizing resource use​. In addition, multiple fuel suppliers can share the same fuel farm facilities
• Streamlined Operations - centralized management of airport fuel logistics and infrastructure can result in increased operational efficiency, with fewer fuelling vehicles required (which in turn reduces carbon impact) This is further improved by implementing end-to-end real-time operational digitalization
• Bulk Purchasing - in some locations, such as some Canadian airports, one option open to consortiums is the ability to negotiate lower fuel prices with multiple fuel suppliers through bulk purchasing, which reduces costs for its member airlines and provides multiple fuel sourcing options
• Supply Stability - by working together, particularly during emergencies where disruption is common, consortiums can more effectively plan and manage reserves. This is made significantly easier by employing a real-time inventory management system.
• Increased Sustainability - with every airport and airline striving to reach net-zero targets, consortiums can implement shared sustainability practices. These can include methods to support the transition to sustainable energy sources such as SAF (anticipated to increase in volume to allow the aviation industry to meet its environmental commitments) or investing in more efficient fuelling technology and operational digitalization. 
  

Then there are the benefits to the airport in which the consortium is based:

• Single Point-of-Contact - by engaging with a single committee versus multiple airlines, airports can more efficiently plan, negotiate, and communicate with increased transparency. In addition, when new members join the consortium, contract negotiations with the airport can be greatly simplified.
  
• Reduced Responsibility - airports allow the consortium to take ownership of fuel supply and logistics, reducing planning costs, quality control costs, and liability
  
• Infrastructure Costs - airports can significantly reduce or even eliminate fuel infrastructure costs such as hydrant systems by allowing consortiums to contribute or pay for the system themselves, enabling or increasing the opportunity to invest in technology that benefits the entire fuel supply chain
  
• Increased Sustainability - by allowing airlines to manage fuel operations, airports receive the benefits of reduced CO2 emissions that come with airlines striving to reach their environmental commitments.

Conclusion

All approaches to managing aviation fuel infrastructure have unique advantages, and fuel consortiums are no different. But the collaboration and transparency provided by the consortium model may emerge as the best approach to finding a solution.

By working together, aviation fuel consortiums offer cost efficiency, operational stability, and the ability to implement collective sustainability efforts. 

Ultimately, the choice of operational model depends on the airline's and airports' specific needs and priorities, and where they are based. As the aviation industry continues to evolve, the best possible approach will continue to be when airlines, airports, and energy companies learn from each other's approaches to optimizing fuel management practices.