Strategic Implications

This section shows the strategic implications which can be made based on the created scenarios. Every scenario has its strategic implications and provides possible ways to strategically plan ahead. Figure 11 summarises the possible strategic options which will be further elaborated in this chapter. The following subchapters will further expand on the depicted strategic implications for each scenario respectively.

Figure 10 Strategic Implications Matrix

56 3.5.1. Bio Jet Fuel Emergence

In the scenario of Bio Jet Fuel Emergence, a partnership with bio jet fuel producers is recommended. While not investing and owning the whole production, a partnership with bio jet fuel producers leads to a direct access of bio jet fuel and ensures supply. Especially a partnership agreement or owning a company stake of a bio jet fuel producer will be advisable. The low availability of conventional jet fuel leads to a necessity of direct involvement in improving the supply. Due to the low overall conventional jet fuel price, a greater investment in an own bio jet fuel production is not feasible. Developing biofuel partnerships will reduce the overall airline risk and restricts financial and managerial obligations. The conventional jet fuel prices in Europe will be higher than in the global market, caused by the low availability and therefore higher demand. The further expansion of bio jet fuel and step towards its commercialization will bring advantages for the airline in the long run, not only in terms of immediate supply but also in terms of potential additional costs added, for instance in the implementation of carbon emissions trading.

Regarding the necessary blend of conventional jet fuel with bio jet fuel, further research will be needed to replace conventional jet fuel completely and to fit the engine specifications.

Moreover, vertical integration in regards to the jet fuel supply chain can improve the company’s situation. By integrating the procurement process, costs induced by the procurement and supply can be reduced to a minimum. This can be achieved by covering costs only in the procurement process and generate the revenue from the airline sales.

Integrating the conventional jet fuel supply chain in procurement, the airline will be able to directly reduce costs sustainably, however, costs of integration will arise. In the long run, additional costs might arise, for instance due to carbon emissions trading and further environmental measures.

57 3.5.2. Stick to Routine

While jet fuel prices are low and the jet fuel availability is high, the focus of airlines should be majorly on fuel efficiency programs. Fuel efficiency programs in this context includes jet fuel consumption as well as cost efficiency programs. As prices do not incentivise a further development into alternatives, the main focus should be on current resources and competences, internal as well as external, which can be influenced without great investments. Jet fuel efficiency programs as an example can include different approaches.

For instance, route planning, which can reduce jet fuel consumption by using shorter and more direct routes to the destination. To reduce costs, for instance, strategic tankering, strategic fuelling based on the most competitive price at a certain location, is recommended. Not only company programs can lead to an improvement in conventional jet fuel consumption but also on ground initiatives in cooperation with airports and other airlines. Airports can help improve the ground handling in terms of time and distances to travel and thus reduce jet fuel use of aircrafts on ground.

Jet fuel efficiency programs improve directly the usage, however, up to a certain extent.

Moreover, increasing jet fuel efficiency does not only entail a reduction of jet fuel consumption but also reduces carbon emissions. This way, potentially induced costs by carbon emission regulations can be reduced as well. Nevertheless, additional costs enforced by carbon emission regulations, such as carbon emissions trading schemes, will add expenses for the airlines.

3.5.3. Quest for Alternatives

Taking into consideration the high jet fuel prices and the low availability in Europe, a joint venture with the production of alternative fuels can be suggested. By partnering with a producer, airlines can ensure the availability and accessibility to alternative fuels in the long run to a competitive price. To reduce costs, investment into own alternative fuel will also be attractive. As conventional jet fuel prices are high and availability is low, the quest for an alternative is necessary. Costly investment in alternative fuels can pay off in the future. The most probable investment will be in bio jet fuel, however, other alternatives,

58 for instance more innovative approaches like fuel cells, are also an option. A joint venture project or complete ownership is recommended. Based on current aircraft specifications, the most likely investment will be into bio jet fuel, as the existing engines can process a blend. Further research is required to eliminate the blend and solely use bio jet fuel with the prevalent engine specifications.

Regarding the low availability of conventional jet fuel, another alternative is vertical integration in terms of supply chain which can be considered to improve the availability.

Similarly to Subchapter 3.5.1., this will improve the supply situation and, moreover, improve the cost structure by covering costs only. By integrating the supply chain and thus the conventional jet fuel procurement, the availability is assured in the long run. Additional costs may arise, due to supplementary costs such as expenses for carbon emissions trading.

3.5.4. High Price Prevention

In a situation of high jet fuel prices and high availability like in the High Price Prevention scenario, the primary recommendation is to vertically integrate. Cost reduction is the first priority, as the availability of conventional jet fuel is secured. Vertical integration can be used to reduce costs already in the short run. Firstly, by integrating the jet fuel supply chain, as mentioned in Subchapter 3.5.3., the procurement can be reduced to a cost covering level. This means the expenses of the airline is held on the lowest possible level and revenues are generated in the airline business activities. This means the lowest available cost will be allocated to the conventional jet fuel supply chain. Nevertheless, initial investments regarding the vertical integration will be costly which will pay off in the long run. As there is a high availability of conventional jet fuel in Europe, alternatives can be considered but there is no direct need. Accessibility can still be improved together with the vertical integration process of the supply chain.

Moreover, in the case of high jet fuel prices, an integration of the refinery process can further decrease costs. By adding the refining process to internal functions, airlines guarantee the lowest possible conventional jet fuel price. The refinery will be on a cost covering basis, therefore the lowest refining cost will be included. For instance, Delta

59 Airlines bought a refinery to reduce costs this way. This further reduces the costs induced by jet fuel procurement. However, high investments are needed and additional risk needs to be leveraged. Moreover, by refining conventional jet fuel, other oil products can be produced. Thus, the vertical integration of the refinery process can be an additional revenue stream.

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