Sustainable Aviation Fuel (SAF) is currently dominating conversations about how the industry is going to achieve its Fly Net Zero commitment. According to the industry roadmaps produced so far, SAF will need to be responsible for at least 50% of the emissions reduction.
To support these ambitions, more and more countries are putting in place mandates that require airlines to purchase a certain percentage of SAF with every uplift. But the way SAF is priced and paid for is different to conventional jet fuel, which means that airlines need to quickly adapt their procurement and accounting processes. In this article, we’re going to look at what needs to change and how you can make sure you’re ready.
Challenge 1 – Managing the procurement of SAF
Jet fuel procurement was already a complex business because of the dynamic nature of fuel prices and volumes, and the various fees, duties and taxes that can vary by location. Unfortunately, sustainable aviation fuel is adding another layer of complexity because of different pricing structures, which means new contracts are required.
For operational purposes, there are currently two ways to buy SAF and though they are both priced by volume, they each have different pricing structures:
- Voluntary uplifts – These are when airlines choose to arrange fuel uplifts for specific flights, which contain a certain percentage of SAF blended with normal jet fuel, such as this momentous BA flight in 2021. Trials with 100% SAF are also becoming more common – Virgin Atlantic is set to make the first transatlantic flight using 100% SAF
- Mandates – Some governments now force fuel suppliers to ensure SAF makes up a certain proportion of all aviation fuel uplifted in that country. Suppliers pass these costs onto airlines who pay a small percentage charge for SAF (or else a penalty) on every uplift they make in that country. Because SAF isn’t yet available everywhere, not all uplifts will actually contain SAF (it’s the total proportion governments care about) – nevertheless, airlines must pay for it, whether they’ve received it in their tank or not.
Because of the supply issues and the high cost of SAF, voluntary uplifts are not yet part of normal operations, so mandates are becoming increasingly popular with governments looking to stimulate demand and production. France, Sweden and Norway already have mandates in place, ranging from a 0.5%–1% SAF charge, which will increase over time. From 2025, similar mandates will be in place in all EU countries, the UK and India. The US has taken a different approach, incentivizing the purchase of SAF with tax breaks. So if an airline chooses to uplift SAF in the US, the pricing structure will be slightly different again.
All of this means that wherever and however you buy your SAF, your procurement process needs to be ready to handle these different pricing structures and new contracts, alongside those already in place for traditional jet fuel. And just as importantly, it needs to be flexible, because regulations and pricing structures are sure to change over the next few years as the SAF industry matures.
Challenge 2 – Accounting for SAF
At the other end of the fuel management process, airlines need to be able to accurately pay for the SAF they have purchased. But there are several challenges here too.
Firstly, airlines may choose not to pay the mandated SAF fee, and instead pay a penalty. This is more common than you might think since the penalties can sometimes be cheaper due to the low availability of SAF. This will change as the industry progresses but in the interim, these fines need to be accounted for.
Secondly, airlines may have a separate budget for SAF, and if so, they will need to split the payment of invoices across different accounts. This is more likely for voluntary uplifts, where separate budgets are often used to avoid the higher cost of SAF impacting on route profitability.
Thirdly, airlines need to be able to account for SAF at a detailed level (such as by supplier and location) for auditing purposes. This is especially important if the airline needs to provide data on scope 3 emissions for their corporate customers. In our next blog, we’ll look in detail at the reporting requirements for SAF.
And finally, when making a voluntary uplift, airlines will only know the percentage of SAF that has been delivered once they receive the fuel supplier’s invoice (because of complexities around SAF production and low availability). This makes it hard for the Accounts team to forecast costs and accruals and verify invoices. There’s currently no way for the airline to check exactly how much SAF has made it into the plane, so they must trust the supplier here. However, they do need to be able to check that invoices correspond with agreed contract prices.
So what’s the solution?
As regulation around SAF intensifies, it’s clear that airlines need a solution to managing these procurement and accounting challenges – and fast.
Ideally, they need a fuel management platform that enables them to:
- track the purchase of SAF as a separate item to traditional jet fuel
- automatically calculate the price of SAF based on volume, percentage blend/relevant mandate (or penalty), taxes, and other contract terms
- quickly check that every SAF invoice is correct when compared to contract prices
- split the payment of invoices across different budgets, where necessary
- adapt pricing structures easily, as and when regulations change.
Upcoming webinar: Introducing, Seamless SAF Management
Fortunately, such a solution is now out there. We’ve just launched a SAF module for our leading fuel management platform, which makes it easy to track SAF right through the fuel management cycle from procure to pay. This means you can increase your use of SAF without adding to your workload or increasing your headcount. You can find out more about this solution, and see an exclusive demo of it, at our upcoming webinar.