Abbreviation	Full Meaning
EAG	Etihad Aviation Group
EY	Etihad Airways
BNE	Brisbane
IATA	International Air Transport Association
ITP	Into-plane
JUHI	Joint User Hydrant Installation
MEL	Melbourne
PER	Perth
SYD	Sydney
USD	United States Dollar

Executive Summary

The primary aim of this project was to explore the different supply chain options for Aviation Fuel at Australian Airports to optimizing the overall benefits for Etihad Airways. Achievement of this aim lead to the attainment of the following goals;

Establishing appropriate working relationships with the new and critical stakeholders in Etihad Airways group including the biggest supplier in Australia.
Delivery of increased value evidenced through tangible savings and improved service quality to Etihad Airways through self-supply.
Shaping the overall direction of the procurement partnership with the airlines in Etihad Aviation Group by developing new entrant in the market.
Tankering fuel to ensure they are getting the best price of fuel for Etihad Airways.
Leveraging on the opportunity of changing their aircraft type to a more fuel efficient type for mitigating the risk of exposing Etihad Airways to the high fuel cost.

The focus of fuel supply has been informed by the fact that fuel represents a critical aspect of the airline’s operations. This is the highest area of spend US$ 337 million in the company hence characterized by high risk and business impact. In Australia, there has been a shortage of fuel, therefore, limiting the success of Etihad Airways and their partner airlines operations. In the analysis, the tools used included the Porters 5 Forces for complexity, supplier positioning, supplier preferencing and analysis of the shareholders. From the analysis, it has been observed that fuel supply in Australia, being a mature market is extensively complex and challenging for the airlines leveraging from a significant advantage. From the analysis, an improved understanding of the fuel supply in every airport inclusive of the respective strategic potential and risks linked with the suppliers.

There are possible strategies for increasing the supply that has been suggested and the integration of different regional tender for encouraging an increased competition. The primary risks of the recommended options included the partnership, legal, operational and commercial risks. In this case, relevant strategies and measures for mitigating the risks were taken into account and subsequently implemented.

Additionally, to establish the Etihad Airways Group Joint Procurement Team, a Tuckman’s model (adapted from Tuckman & Jensen, 1997) for accelerating the development and productivity of the team was done through phases of forming, storming, norming and performing. Distinct concerns were significantly addressed with clarity being emphasized in all their stages. Also, situational leadership was critical as it harnessed the collaboration of experienced professionals, a collaborative approach and harnessed communication, engagement and supportive behaviors in team leadership. From the analysis, there were close relationships established to be in existence in the airlines shaping a favorable direction of joint procurement partnerships in collaboration with the biggest supplier in Australia, self-supply, developing new entrant in the market, improving their overall procurement and service management reputation. The recommendations suggested include consolidation of their business volumes in diverse categories to harness self-supply, earlier market engagement through developing new entrant in the group, and collaboration with the biggest supplier in Australia. Also, it has been recommended the inclusion of Emirati Graduate Manager for successful future projects to decide whether to change the aircraft type to a more fuel efficient to mitigate the risk of exposing the airline on the high fuel cost. Hence, the changes would have on the implication on value creation and saving accrued costs.

1.0 Introduction

1.1 Project title (Key Terms)

Aviation fuel represents a significant level of expenditure for different airlines. In this case, it represents a substantial element of the management of any airline. As shown in figure 1 , it is evident that the different components of the fuel price are platts index/formula price, differential, taxes and fee, and credit terms, approximately 89.16 % of the overall fuel costs. In this case, the statistics for platts index/forumula price is 89.16 %, the differential is 10.39 %, taxes and fees 0.33 % and credit terms being 0.12 %. These prices and other components are pegged in US dollar.

Figure 1: Airline Total Fuel Cost Breakdown Source: (Means of Platts Singapore (MOPS) and Etihad Airways Fuel Plus System year 2017)

More than 60% of the overall airline cost base is passed to the suppliers. Admittedly, a successful reduction of these costs is a challenging endeavor (Yayla-Kullu & Tansitpong, 2013). This is informed by the fact that the majority of the suppliers are oligopolies for instance there exist two caterers in the majority of the airports, two aircraft manufacturers, and two main choices of the host-system providers.

Additionally, the majority of the accrued costs are not negotiable such as the fixed tariffs for the airports and the air-traffic-control charges. The phenomenon is complex by the contracts being long-term. Nevertheless, modern airlines have endeavored in setting elaborate structures that would lead to the development of strategic partnerships with their suppliers as a strategy of driving down the costs and optimization of the products and service levels. Taking into account the above analysis, the title of the current study is exploring different supply chain options for aviation fuel at Australian airports to optimize the benefits for Etihad Airways.

In this case, as part of exploring the various supply chain options for the Aviation Fuel, aspects of purchasing and supply chain management. As noted by McKinsey & Company (2017) a supply chain option with a potential of optimizing the benefits to Etihad Airways must be aligned with the overall airline strategy, engaging skilled teams of professionals in procurement, adopting an innovative approach to category management and supply chain design and structures encouraging progressive business-procurement partnerships.

1.2 Project Scope

As previously mentioned, this study intends to explore the different purchasing and supply chain management opportunities in Australia that can be used in the delivery of the best value to Etihad Airways. In this case, the location of the study would be in Australia with the company of focus being the Etihad Airways. Through a focus on this scope, the dynamics of Australian fuel market, other airlines such as Qantas and Virgin Australia, and strategic suppliers would be evaluated. The best option available for Etihad Airways would be explored on the basis of the extent in which the fuel acquisition price is competitive, streamlining and efficient contracting and facilitating the sourcing of fuel at short notice in alternate and ad-hoc locations globally.

1.3 External Environment

The external environment pertaining to the subject of focus is the Australian Jet Fuel Supply. Currently, Australia imports more than 40% of their jet fuel needs. This is a phenomenon that is projected to grow as a result of the consistent decline in the domestic production and significant growth in the requirements of the jet fuels. As noted by O’Connell (2011), a supply of the jet fuel in Australia’s major international airports is a complex and costly business. The complexity arises from the significant barriers to venture into the fuel industry supply chain in a timely and sequenced manner. The domestically produced jet fuel in Australia is stored at the Clyde and Kurnell refineries were from the storage facilities, the jet fuel is transported to Sydney Joint User Hydrant Installation (JUHI) either by pipeline or by truck. Also, in Australia, the supply chains are significantly owned and controlled by the companies providing jet fuel to airlines either individually or through strategic joint venture arrangements as shown in figure 2.

Figure 2: Australia Aviation Fuel Supply Chain Source: BARA (Board of Airline Representatives of Australia Inc.)

2.0 Background

2.1 Etihad Airways

Etihad Airways initiated its operations in 2003 and involved in the transportation of more than 18.5 million passengers in 2016 (Etihad Airways, 2018). From its Headquarter in Abu Dhabi, Etihad Airways is engaged in flying in more than 116 passengers, and cargo destinations staggered in the Middle East, Africa, Europe, Asia, Australia, and America. The progress of the company is evident from the fact that it currently has a fleet of 121 Airbus and Boeing aircraft with more than 200 aircraft on firm order.

Additionally, the Etihad Airways possess equity investments in Airberlin (AB), Air Serbia (JU), Air Seychelles (HM), Alitalia (AZ), Jet Airways (9W), Virgin Australia (VA), and Etihad Regional (F7). The airlines equally actively participate in the Etihad Airways Partners which is a newly established brand that is tasked with collaborating like-minded airlines in offering their clients an increased choice. The choices would be provided through an improved level of networks and schedules with a positive implication in enhancing frequent flyer benefits as shown in figure 3.

Figure 3: Etihad Aviation Group and Etihad’s Minority Share in EAG Airlines (Source: Etihad Airways, 2018)

The Etihad Aviation Group (EAG) which is comprised of Etihad Airways and all their partner airlines is the seventh largest grouping of airlines globally with more than 330 destinations and more than 700- aircraft and 100 million passengers annually. The group is characterized by concerted efforts of ensuring that they are building integrated networks and schedules, development of conventional products and services and more critically identification of business and cost synergies. Also, in terms of purchasing and supply management, there is a significant emphasis on practicing joint procurement for the delivery of real and significant savings in all the airlines in their group offering all the involved airlines with a real competitive advantage through lowering of the unit costs.

Etihad Airways intends to become the best airline globally. For the sake of attaining this, Etihad Airways must be a World Class commercially profitable and is an enabler in the attainment of the Abu Dhabi 2030 growth plan (Etihad Airways, 2018). One of the strategies already put in place by the company procurement and management is setting an elaborate strategy cascaded from the corporate entity strategy towards the set aim and based on the Balanced Scorecard as shown in figure 4.

Figure 4: Procurement and Management Strategy Source: Etihad Airways, year 2016

Considering Figure 4, it is evident that the company procurement and supply department has the role of becoming a trusted partner for their internal clients, engaging and harnessing the overall supplier relationships and performance.

The procurement and management strategy is usually a 5 years plan and as such it is still in an active implementation today. This is with a strategic and oriented focus on the innovativeness of their services. Additionally, the procurement strategy ensures compliance with the overall set company policies, delivery of projects strategically and punctually, accelerating and embedding the overall Emirati talent.

In contemporary high-pressure aviation environment, procurement and management strategy plays an instrumental role as an additional relevance. The approach is harnessing the improvement of the services quality while significantly reducing the overall costs. As a consequence of the Etihad Airways marginal profitability, it is relevant for their procurement and management department to make a realization of their overall savings targets and cost avoidance through leverage on their equity partner synergies through the joint procurement.

Fuel is the first highest spend category US$ 337M, approximately 40% of overall spend under the procurement and supply management. It is a significant category characterized by the existence of enormous risks and considerable business implication. It has a direct influence on the operations of Etihad Airways as the issue of transport directly impacts them. It directly influences their check-in, safety and departure time, critical to airline performance, high cost and brand impact. The relevance of fuel area of spend is evident from the Kraljic Matrix as shown in figure 5.

Figure 5: Etihad Airways Kraljik Matrix Source: Adapted from Kraljic 1983

2.2 My Role in the Organisation

The researcher is part of the procurement and supply management department team. The specific role is procuring fuel for Etihad Airways in the Asia Pacific and Southeast Asia outstations in an ethical, strategic and on-time manner while ensuring that the organisation maintains its position as a procurement and supply management brand, fulfilling its strategy and set goals.

A significant part of the author roles is acting as a hub of interest’s coalition in the facets of the organisation. The collaboration of interests often tend to target their partner airlines and suppliers and active facilitation of collaboration to harness the following objectives;

Linking the objectives of the procurement and management team and regular communication and effectively to partners and suppliers.
Leveraging a strategic alignment with other categories and airline partners in tandem with corporate strategy and overall objectives.

2.3 Why this Project Matters and its Objectives

The main aim of this project is improving the supply of fuel in Australia, mitigating the barriers faced at Melbourne to optimize the benefits for Etihad Airways. The objective is generally a strategy of ensuring the improvement of fuel supply for Etihad Airways in Australia.

Over the past, Etihad Airways faced a problem of fuel shortages in the Australian Airports and particularly Melbourne (The Guardian, 2016). To mitigate this, in most instances, Etihad Airways has been forced to tanker fuel and taking considerably larger fuel load into Melbourne and as such only a small top-up has been necessary at Melbourne. This is significantly impacted by the vulnerability of the Australians fuel supply which is substantially dependent on the imports after the closure of their refineries (Curran, 2012). This has been as a consequence of intense competition from direct fuel imports from the lower-cost operations in entire Asia. In this case, it is essential for Etihad Airways to edge the competitiveness available and have a constant fuel supply.

Etihad Airways reported a US$ 1.52B loss in 2017. A similar phenomenon occurred their partner airlines apart from Air Serbia (JU) and Air Seychelles (HM) which recorded profits. According to Gulf News, Aviation (2019), Etihad Airways would continue facing significant challenges as a consequence of the continued increased in the fuel costs. This is evident from the warning provided by industry body International Air Transport Association (IATA) on labor and fuel comprising of half of the airline’s operating expenses as a significant problem in 2018. This is evidenced by the IATA report that has cited increased fuel prices as a significant challenge affecting the aviation industry. Prior to partnering with Virgin Australia, the company had all high-cost increases in their fuel consumption leading to their operations in Australia to be deemed almost impossible. This is a critical concern since the costs increase in the fuel category elicits a significant implication on the Etihad Airways and Etihad Aviation Group Direct Operating Costs. It is essential to ensure that the costs increases are maintained at the very minimum values and as such if there is a possibility to harness cost reduction.

Currently, the Etihad Aviation Group is still in its infancy stage of growth. In this case, despite Etihad Airways having a joint procurement project in its areas of operations with Air Seychelles and Jet Airways in Asia, it is their initial collaboration with Virgin Australia. Hence, this is a critical chance of establishing a closer and detailed procurement partnership with Virgin Australia and furthering the strength of their common procurement foundation with other partners.

3.0 Current Situation

3.1 EAG Operations in Australia

The operations of Etihad Airways in Australia is majorly through their partnership with Virgin Australia. Currently, the stakes in the Virgin Australia Holdings is at 19.9% which translates to a total of 515 million shares in its equity partner airline. This is a reflection of creating significant support for the business strategy and management through a close working relationship between the two airlines and potential focus of strengthening their commercial foundations. Currently, Etihad Airways has seamless connectivity to a total of forty codeshare destinations in Australia, New Zealand, Indonesia and Thailand privileges which include priority baggage handling, priority boarding, and airport lounge access for their top tier program members. In total, Etihad Airways (25) and Virgin Australia (3) is operating twenty eight flights weekly between Abu Dhabi and Australia with their passengers having seamless access to a holistic global network of a total of 280 destinations.

As a consequence, the airline has carried more than 2.5 million passengers between Abu Dhabi and to four different Australian gateways in the past six years. In Australia, the Airports are growing at a rate of 10% annually in their international travel and disconnected from the Melbourne JUHI and suppliers. This is on the extent of suppliers on supporting the growth with minimal infrastructure and limited supply chains with known pinch-points. Majority of the airlines have switched to A380 airframes hence increasing the level of demand for fuel in Melbourne. As part of the strategic procurement process shown in figure 6 , an in-depth analysis was carried out which is inclusive of the Etihad Airways partner airlines.

Figure 6: A Strategic Source Framework Source: Etihad Airways 2017

3.2 Analysis of the Fuel Contracts by Etihad Airways in Australia

In Australia, Etihad Airways sources its fuel from Caltex, Shell, ExxonMobil, Q8 and BP Companies. Despite the contracts with these companies being sufficient for the fuel supply, there are still deficiencies that are impacting the sourcing of fuel from the companies. The issues that are affecting their operations despite the existence of IATA and Aviation Fuel Supply Agreement (AFSA) include the issues of termination, disputes indemnity, liability, settlement, and code of ethics. There are however some of the observations pertaining to the contact points that can be improved to ensure that the fuel contracts are more robust in their implementation. The improvements must be oriented on the Melbourne Airport, Perth Airport, Sydney Airport, and Brisbane Airport.

Potential Improvements in the Fuel Contracts	Melbourne Airport	Perth Airport	Sydney Airport	Brisbane Airport
Number of years in active operation	3	3	3	3
The existence of outdated and inconsistent supply strategies of the fuel	X	X	X	N/A
Outdated notification of the contract	X	X	X	X
Payment relief not done for the fuel procurement strategies	X	X	X	X
Failure to include all the aircraft types and jet fuels	X	X	X	X
Is not inclusive of a free ad-hoc services	X	X	X	X
Does not include volume discount nor Etihad Airways Partner (EAP) consideration	X	X	X	X
Does not include a discount for centralized load control	X	X	X	X
Does not specify the minimum trained staff and the types of training offered	X	X	X	X
Include midnight surcharge in the fuel delivery	X	X	N/A	X
The process not inclusive of different check-in services at downtown fuelling stations and terminals of the airline	N/A	N/A	X	X

Table 1: Essential Improvements of the Contracts Source: Observation from the Author

The areas of interest as presented in the above analysis of the contract is supposed to be strategically addressed in the contract template for the RFP and negotiated with the successful fuel suppliers for driving better value for Etihad Airways Group.

3.3 Analysis of the Fuel Supply Market in Australia

Australia’s international aviation industry has major challenges to overcome in seeking to maintain and grow commercially viable passenger and freight services. Foremost, among these challenges is the excessive fuel price by international airlines for jet fuel due to uncompetitive supply. The jet fuel markets at Sydney, Melbourne, Brisbane and Perth airports are dominated by only one or two effective suppliers.

The cost of jet fuel is critical in Australia, with international aviation defined by very long distances between ports, leading to high fuel consumption. The supply chain in each airport will be described as follows:

Figure 7: Sydney Jet Fuel Supply Source: Shell Presentation year 2017

Figure 8: Melbourne Jet Fuel Supply and Structural Issues Source: IATA Fuel Forum year 2017

Figure 9: Brisbane Jet Fuel Supply Source: Shell Presentation year 2017

Figure 10: Brisbane Jet Fuel Supply Source: Shell Presentation year 2017

There are hence existing contracts which have already been set in place in the different airports. This phenomenon significantly restricts competition in the already mature industry orchestrating complacency, with distinct suspicion of collusion in prices and the overall market share. The fuel suppliers in the respective airport are as illustrated in table 2;

Incumbent Contract Details (Jun’16 – May’17)
Airport	Current Supplier Name	Contract dates		Contracted Volume (USG)	Est. Contract Value (USD) based on Jan’17 prices	Fuel price as on 11 Jan’17 (USD/USG)
Airport	Current Supplier Name	Start	End	Contracted Volume (USG)	Est. Contract Value (USD) based on Jan’17 prices	Fuel price as on 11 Jan’17 (USD/USG)
BNE	Caltex	01/06/2016	31/05/2017	9,624,000	16,015,490.88	1.6641
MEL	Shell	01/06/2016	31/05/2017	32,987,500	57,897,021.00	1.7551
PER	BP	01/06/2016	31/05/2017	7,300,000	13,281,328.00	1.8194
SYD	Caltex	01/06/2016	31/05/2017	30,900,000	51,866,978.70	1.6785
Total				80,811,500	139,060,819	1.7208

Table 2: Fuel Supply Market in Australia Airports Source: (Etihad Airways, 2017)

3.3.1 Complexity Analysis

Figure 11: Porter’s 5 Forces – Complexity Analysis of Fuel Supply Industry in Australia Source: Adopted from Porter 1985

Zero to Five represent High Score which is also indicative of the view that the industry is complex and more challenging to successful source for leverage. The supply of fuel for different airlines in the Australian airports is a commercial undertaking that is often involving an active negotiation directly between the various fuel suppliers and airlines. It is in this case that the Australian Government has been requesting all their stakeholders to work collaboratively in resolving their current issue at Melbourne Airport. As noted in figure 12, it is evident that the industry rivalry, buying power is both low with the supplier’s power being higher. Further, the barriers of entry to the industry are high and substitution possibilities being limited in the industry.

Figure 12: Porter’s 5 Forces-Complexity Analysis of Fuel Supply Market in Australia Airports Source: Adopted from Porter 1985

Since the industry is complex and more challenging to obtain significant leverage, it is essential to conduct a supplier positioning and preferencing supplier analysis (Amin et al., 2011). The relevance of this undertaking is overseeing the extent to which the fuel commodity can be significantly influenced and conditioned with a strategic role of altering or exploiting the Etihad Airways Group current positioning and direction.

3.3.2 Supplier Positioning Analysis

In the verge of assessment of different risks and strategic potential of the suppliers of fuel in the different airports. Conducting a supplier positioning analysis is essential. All the suppliers of fuel can be identified as being capable, certified and already involved in handling reputable international carriers with sufficient resources to supply Etihad Airways fuel in their different airports or stations. With more than one Etihad Airways present and the sizeable weekly number of flights at every station, the overall risk is substantially higher as opposed to their average. In this case, the higher risk or supply vulnerability is significantly assigned to the fuel suppliers currently not supplying fuel to Etihad Airways. This is since they are not familiar with the criteria set by Etihad Airways and increased the potential for delays, safety issues among others with switching costs raising their overall operations of Total Cost of Ownership (TCO).

Airport	Spend/USD	Airlines	Weekly Flights
BNE	16,015,490.88	Etihad, Virgin Australia	20
MEL	57,897,021.00	Etihad, Virgin Australia	15
PER	13,281,328.00	Etihad, Virgin Australia	32
SYD	51,866,978.70	Etihad, Virgin Australia	18

Table 3: Etihad Airways Profile at the Australia Airports

Bottleneck

Strategic

Non-critical

Leverage

Figure 13: Supplier Positioning in Australia Fuel Supply Source: Adapted from Kraljic 1983

For Brisbane, it could be ill-advised for not selecting BP owing to the negative implication it could have on the codeshare agreement between Etihad Airways Group and BP. Similarly, it is advisable for Etihad Airways Group must end up breaking any form of complacencies with BP and in handling the Etihad Airways Group and arising from the codeshare agreement. Conversely, BP could effectively plan in preserving their fuel supply with the Etihad Airways Group as a result of the codeshare agreement and rather than losing their face value. Through a realistic messaging and planning, Etihad Airways Group could significantly possess an increased negotiation leveraging with BP as opposed to the Shell. A balanced strategy can be essential in collaboration with BP. Unless there is a significant and instrumental value provided by the Shell Company, it would significantly be advisable for maintaining their partnership with BP. In any event, there is a likelihood of the Shell being selected, the issue would require to be increasingly discussed with the Etihad Airways Group Alliances as the first undertaking, assessing and mitigating the commercial risks to their codeshare.

Since Etihad Airways has had issues with Melbourne airport, the lowest risk to choose Shell as they are already involved in the supply of fuel. Also, Shell represents the most significant partner of Etihad Airways in their current network. As part of establishing a new system of procurement and supply, Etihad Airways has already created a major partnership program which has been a source of partnership and attended by the company senior management group. In the case of any concern, it is significantly taken into consideration critically. It is advisable for Etihad Airways to join hands with Shell as they have the strategic potential of being part of the group. Caltex supplier has the highest risk since it is 100% owned by Qantas, a Sydney based carrier with the most significant operations in Sydney destination. In the event of any Sydney exigencies, their prioritization would be with Qantas and all the Qantas-related airlines which would elicit a significant implication on the Etihad Airways Group 3 airlines and the total of 21 flights involved in the region.

In an event Shell company has to be selected, there must be immense efforts taken into account in establishing a strategic and sustainable relationship. A similar phenomenon would characterize BP supplier who would be significantly be committed to Pel-Air Aviation Pty Ltd. whose operations are not considerably extensive as compared to those of the Qantas Airlines. From a technical point of view, all these issues would be taken into active consideration with the partnership with Shell or Oman Oil being a long-term undertaking. This is informed by the fact that BP has the most strategic potential and as such would be more committed to Qantas and regional express airlines as opposed to collaborating with Etihad Airways. Being a bottleneck, there is a demand for ensuring that BP consistently supplies fuel to Etihad Airways and if possible with the attention of a critical account.

3.3.3 Supplier Preferencing Analysis

For the sake of enhancing the overall analysis of suppliers, it is essential to analyze the perception of suppliers to the Etihad Airways Group, this is illustrated in figure 14. The rationale of this would be gauging the overall interest in having EAG as their fuel supply client. As noted by Qin and Li (2013), customers tend to gain optimum from their suppliers as they regard them as critical. In this case, the preferencing can be identified by taking into consideration the volume of business and spend as a proportion of their overall turnover which is one measure. Further, the adoption of standard specifications in a contract as much as possible in the different airlines in Etihad Airways would also be a practice of significance. The non-spend factors would equally lead to an increase in the overall attractiveness of the clients such as future potential and branding among others. In order to identify the external constraints, the author sourced for feedback in all the situations and from the industry contracts.

In Sydney, Shell Company was extensively selective pertaining to the fuel supplied and the costs. Shell was mainly involved in the phenomenon where there were constraints in the local currency payment and operational restrictions. As an airport, Sydney had been characterized by short supply incidents in 2016. But the Shell Company has significantly supported the Etihad Airways effectively at this period despite the existence of the rationing.

In Brisbane, Caltex has been keen to supply the fuel products to all the international airlines. Their operations have been boosted by their partnership with the providers of JUHI owned by the airport authority. Nevertheless, the Caltex culture has not been significantly attuned as it is the case with the Shell Company. Shell company supply of jet fuel to Etihad Airways was as a consequence of their codeshare agreement. In Melboune, the demand for fuel is of the significant standard which is a replica of the Singapore Changi Airport. In this case, the positive approach would be anchored on pricing. Since Shell had been involved in fuel supply to Pel-Air Aviation Pty Ltd and Qantas, they have been optimistic that they would end up winning the fuel supply contract.

In the past, Shell has demonstrated their significant efforts of increasing their overall market share. This can be categorized as a directive by the Caltex Company as a consequence of the weak financial performance in the past. Being an established competitive fuel supplier, BP is characterised by a market share of 40% with their reputation for quoting high fuel prices and pursuing only the premium rewarding airlines portraying their operations. Hence, all the suppliers have significant capacity and holistic capability of handling the fuel supply for the Etihad Airways. They do have to invest in any additional investment of fuel equipment or infrastructure for handling the fuel supply for the company.

Development

Key Accounts

Nuisance

Exploitable

Figure 14: Supplier Preferencing/Customer Positioning Source: Adopted from Steele & Court 1996

Taking into account the supplier preferencing and customer positioning, introducing an increased competition would require a strategy for shifting the fuel suppliers to view Etihad Airways as a fundamental account. Through this, they would be in an appropriate position of achieving all requests and provision of increased levels of value-added services. A significant consolidation of volume in all the airports where Etihad Airways is currently operating would lead to a substantial increase in the overall attractiveness and the overall value of the Etihad Airways business operations. For instance, Shell would be more motivated to ensure that Etihad Airways is a critical player in supporting BP in winning in Melboune and vice versa is right in the case of Sydney. Shell (Melbourne) level of motivation would equally be dependent on the level of motivation characterizing the Caltex supplier in an equal manner as they tend to own a 50% of the overall shares of Exxon. In this case, it would be challenging to motivate Shell Company since a more focused fuel supply services characterize them without necessarily creating restrictions. Through the partnership, it would be possible to construct additional jet fuel storage at their Newport Terminal in Melbourne and to upgrade their trucking facilities at their Geelong refinery in Victoria. Shell also has a significant reputation for charging premium prices and are not in any way involved in the budging of their overall prices. The phenomenon is complicated as the Viva Energy is the exclusive and sole licensee of the Shell brand for fuel distribution in entire Australia. This is on top of their 1000 shell branded service station network and their overall Geelong Refinery (VIC). Their Viva Energy is involved in operating in the aviation, bulk fuels, bitumen, marine, chemicals, and lubricants businesses actively supported by more than 20 storage terminals in the entire country.

Taking into account the above analysis of the supplier preferencing, it is evident that it only puts into consideration the current situation and does not in a dynamic orientation. As a consequence, it is sufficient to approach for the current study.

3.3.4 Shareholders of Fuel Suppliers Analysis

In Australia, there are currently only four fuel suppliers involved in the supply of fuel through the use of two pipelines to Sydney Airport. This is coupled with the presence of three more off-airport storage locations which are readily available. As aforementioned, there are currently four distinct suppliers which include the Shell, BP, Exxon and Caltex with Qantas who is into jet fuel self-supply. As noted by Qantas Business Report (2011), the three off-airport storage locations commonly include the Caltex Kurnell Refinery, Shell Clyde Refinery and Vopak Terminal in Sydney. As an indicator of their relationship, the Vopak is characterized by a connection to the Caltex Pipeline enabling Shell, BP, and Qantas in accessing the Caltex Pipeline. The significant challenge is the lack of truck loading facility at the Vopak for the Shell and Qantas. BP has, however, a truck loading facility that is readily available at Vopak nor is there any permanent or stable Bridger receipt facility available at the JUHI. Etihad Airways would be forced to participate in the fuel supply into the aircraft through leveraging into an into-plane service provider including the Airport Fuel Services (AFS). Its significant size informs the significant Total Cost of Ownership by Etihad Airways. Currently, the annual Total Cost of Ownership is approximately USD 170 million for the volume requirement of roughly 93 million USG in Australia and USD 72 million for a volume requirement of roughly 40 million USG Southeast Asia for a total of 13 Months.

The identified relationships influencing the fuel suppliers demonstrates a likelihood of introducing increased competition through the use of a regional tendering process. For example, Caltex and Shell have a common shareholder who is Vopak who is equally Etihad Airways service provider. In any event, a similar tender is issued to all the suppliers, they could be encouraged to bid for every station and as a consequence collectively offering a further discount or value-added for the purpose of winning more business engagements. BP in Sydney would be characterized by increased competitive pressure since they would be the only fuel supplier without any form of partnering in Sydney and Melbourne.

4.0 Undertaking the Work

4.1 Different Options and Evaluation of Options

Several options need to be taken into consideration when Etihad Airways are focusing on considering the different purchasing and supply chain management opportunities in Australia delivering the best value to the company.

Option A: Product with Into-plane

In accordance with their past operations and general practice in the fuel supply industry, the best practice could be sourcing for a product with into-plane (ITP) service provider that performs the fuel uplift operation. This would include making a contract with the fuel provider including the ITP.

This is the most adopted option familiar in the Asia Pacific and Southeast Asia region with a direct contract for the product into-plane delivery and service since there lacks any distinct or separate ITP contract availability. While with Etihad Airways Group, as an equity partnership, it is more detailed. The critical impetus of not losing any form of value as a group is significantly higher. While each airline in Etihad Aviation Group can make a strategic decision if they would be willing in participating in joint procurement, upon their active involvement, the in-principle agreement in all the airline to be actively prepared in assuming a hit in an event it is significantly essential for the entire benefit of the group. Since there are multiple joint procurement projects, the group believes that the gains would dramatically lead to outweighing their overall hits collaboratively. In any event the overall hit is severe, the entire group would equally lead to opening a significant discussion of the entire sharing of benefits.

Option B: Ex-hdyrant and ITP

Etihad Airways are engaging in their contracts collectively in their respective station through sourcing Ex-hydrant and on top of that sourcing for an ITP. This would be inclusive of the contract with the Fuel provider and with another service provider that provides ITP.

This can strategically be the least time for completion of a contact. Nevertheless, it can equally be the most resource inefficient with the airline procurement manager enduing up harnessing a duplication of the contract negotiation work. In addition, airport charges and other associated fees in Australia are pass by the supplier to the Airlines with full transparency.

Option C: Into Storage

Etihad Airways partners are collaborating to work into storage. This option would be inclusive of contract with fuel provider, contract with airport logistic and contract with ITP. The process can be implemented by the construction of jet fuel storage at the airports particularly in the Newport Terminal in Melbourne. The competition at every airport is identified as a status quo. This is contrary to the best possible result for the airlines particularly the airlines which are characterized by a small volume of flights. The inefficiency of this option is founded on its failure in driving the overall cost synergy for the involved group and also not satisfying the interests of the airlines in a real competitive advantage through strategic leverage on the available lower unit costs.

Option D: Self Supply

Actively engagement with the self-supply through a collaborative involvement with the barges, airport logistic, airport logistics and into the plane. This is through arranging with the fuel suppliers, contracting with Airport Logistic and contract with ITP.

An implementation of this option would lead to the existence of increased but limited competition through a strategic consolidation of the volumes at all the stations. It is worth noting that such an undertaking would be significantly resourced efficient with an airline being appointed for leading and generating successful joint procurement projects in all the areas where the Airline operates.

In self supply option, there should be availability of essential infrastructure, open access to fuel farms and pipelines. Hence, Australia should focus on this development.

Option E: Tankering

Tankering process which would be taken into consideration of the flying through a station with a known high cost for fuel, fuel quality in a station identifies as poor quality, operational restriction mitigation and constraints in the local currency payments. This option does not, however, take into account the opportunity of leveraging on the pan-Australia relationships by the different suppliers. With the ultra-long flight at Australia, tankering could not be an option as this will might more costly to the business as opposed to the short haul flight. The options are as demonstrated in figure 15;

Figure 15: Etihad Airways Sourcing Options for Aviation Fuel

4.2 Methods Adopted

In the data collection, interviews, questionnaires, internal upstream/downstream/midstream, external suppliers, websites, Airline partners, Articles, News and internal colleagues were used in the data collection. This means that this study adopted to the use of primary and secondary data. The data collection involved an analysis of the Australian Market for understanding whether the fuel storage access can be offered to the Airlines. Additionally, the process would include a study of the other Airline set-up such as the Qantas and Virgin Australia provided they have an opportunity of leveraging them as their partners. This would be implemented by a focus on the exploration of importing of products individually and the extent in which they can successfully mitigate the overall risks linked with the strategic approach. The last practice would be working collaboratively with the strategic suppliers for the sake of exploring any possibility of successful partnerships. For instance a successful product swap or a joint strategy of entering the Airport or long-term successful relationship in the process.

5.0 Analysis of the Findings

5.1 Risk and Mitigation

The first part of the evaluation of the risks and their mitigation in the context of probability and impact which are inclusive of the partnership risk, legal risk, operational risk and the commercial risk.

5.1.1 Partnership Risk

It was possible to collect the data pertaining to the partnership risk since the author had been involved in a significant fuel supply tender in Australia Sydney Airport for Etihad Airways and the Virgin Australia Airline with substantial joint savings and adding substantial value. Since the Sydney Airport was the initial integration in the Pacific region, a substantial amount of time had been used meeting and working with the Virgin Australia Airline for establishing a significant level of comfort and trust for the Etihad Airways. Through this, it would be possible to practice a joint procurement of fuel procurement and using the Etihad Airways contract template.

5.1.2 Legal Risk: Anti-Competition/ Anti-Trust

As a strategy of making the distinct preparations for the joint tender, the rates and contracts were supposed to be shared with all the airlines. As demonstrated in the IATA Aviation Fuel Supply Agreement (AFSA) (Version 4, year 2013), there exists a clause for protecting the overall confidentiality of their respective contract, mitigating it from being shared with other involved airlines. After a successful consultation with the legal department of Etihad Airways, the Airline ended up writing to the suppliers officially for sourcing an approval and permission for sharing their respective contracts. Also, a clear statement that Etihad Airways had been authorized in negotiating on the significant care taken into account for sourcing advice from Etihad Airways legal. This had been done on the limits and guidelines of the joint procurement as evidenced in both Appendix 1 and 2. In the process of leading the joint tendering process for fuel supply, the author strategically offered a reminder to all the participating airline to source a similar regulation from their legal department. It was only through their strategic confirmation and making clarity that the entire team ended up tendering the procurement.

5.1.3 Operational Risk

It is a fact that all the fuel supplier entities would lack sufficient resources in handling all the Etihad Airways supplies in their respective stations. In this context, the Etihad Aviation Group tender pack would be inclusive of their flight schedules, a contract among others. As the inclusion of their submission of their tender, all the suppliers were supposed to actively make a confirmation that they possess strategic resources for the provision of all fuel supplies. This would also be inclusive of attaching a list of their different resources such as equipment, workforce, and facilities. Also, the engagement would engage in advising of the Etihad Airways Group plays any role in flights falls in their peak operation colleagues.

In the active implementation of the tender and negotiations processes, the author lacked any form of knowledge with the fuel supply detailed service demands. There exist a significant risk to negotiate a contract that could not be achieving the needs of the suppliers. For the sake of mitigating this risk, the supplier’s representatives were called upon in negotiations.

5.1.4 Commercial Risk

Despite Etihad Airways being interested in introducing an increased competition, there exists a sufficient risk that the fuel suppliers could not intend to engage in supporting each other for winning more of the business as they are only limited shareholders. This is a significant risk as it has a likelihood of being a 1^st time a tender of such a scale done in Australia region. In the process, prior to the issuance of the solicitation, the author was engaged in conducting every tender management to offer them to a heads-up on the upcoming Australia joint tender by Etihad Airways. After a successful first bid being submitted, the author and team ended up visiting all the stations for negotiating all the contracts. In all the meetings, there was a presentation being shared, the strategic highlight of the overall attractiveness of the Etihad Airway brand. This is a reliable and fast-growing operation with excellent financial background and with more than a hundred aircraft on the firm for the sake of their delivery in the next seven years. As a consequence, they are significantly encouraged to focus on the airlines as a group of the region instead of focusing on the individual airlines in the different locations of their operations.

5.2 Stakeholder Management

A strategic stakeholder analysis was carried out with the primary and secondary stakeholders. This process included mapping out of the overall potential vital blockers, champions of change and managers and considering the actions influencing the overall critical blockers for advocating a successful project implementation. The concern was also on the fundamental messages consistently communicated to the diverse stakeholder’s levels.

The most instrumental stage of the process was to win the trust of the involved partner airlines in the joint procurement process. As noted by Choudhary and Shankar (2013) trust is identified as a bedrock of successful engagement relationship where the projects are dependent for their overall success. The most successful is the relationships, the more productive they end up becoming. The stakeholders are equally characterized by a likelihood of shifting along with the overall changes that have been implemented successfully. It would be more useful to be highly innovative and focusing on available opportunities rather than spending time and energy in overcoming the underlying issues from the existing negative relationships.

In the last one year, the joint procurement message involved a substantial undertaking and communication involving the Etihad Airways top management. In this case, a joint procurement group for the fuel procurement was equally formed. The relevance for this would be an exploration of diverse purchasing and supply chain management opportunities in Australia delivering the best value to the company. It was essential that in the past months, the author of this report had been involved in a tendering process in Sydney Airport for their fuel supply which was established with significant joint savings and value-added practices. In this project, the author ended up spending enormous time achieving and working with their partners in developing a considerable area of comfort and trust for Etihad Airways for learning in the generation of joint procurement of jet fuel products.

In any event the stakeholders were supposed to be actively managed effectively, they would be supportive extensively. Contrarily, in an event they were ignored, they could be sabotaged with the entire project.

5.3 Stakeholder Mapping

It is essential for the overall success of the project to appreciate on the different stakeholders for the sake of identifying the stakeholders who are the most useful for actively engaging with. According to Reed and Curzon (2015), the process of stakeholder mapping has been adopted in assisting the author viewing the area in which the stakeholders are located on the basis of their similar criteria in comparison with each other and distinct interplay of their relationships. It is in this case that a strategy of stakeholder engagement was strategically crafted as shown in figure 9.

S/N	Stakeholders	Current Commitment	Desired Commitment	Change Impact	Influence on Change	Attitude
1	Virgin Australia Regional Mgr	5	5	2	3	Positive
2	Virgin Australia Commercial	5	5	1	3	Positive
3	Etihad Airways Head of Ops	6	6	2	2	Positive
4	Etihad Airways Head of CFC	6	6	1	1	Positive
5	Etihad Airways Area Mgr	5	5	2	2	Positive
6	Etihad Airways Airport Managers	4	4	3	2	Positive
7	Virgin Australia Mgr Purchasing	4	4	2	2	Neutral
8	Virgin Australia VP purchasing	5	6	1	3	Positive
9	Virgin Australia Station manager	2	4	2	2	Neutral
10	Etihad Airways Head of fuel managers	6	6	2	3	Positive
11	Etihad Airways Head of supply	6	6	0	2	Positive

Table 4: Etihad Airways Stakeholder mapping tool with Australia Fuel Procurement Stakeholder Mapping

Figure 16: Etihad Airways Stakeholder mapping tool with Australia Fuel Procurement Stakeholder Mapping

5.4 Developing and Leading the Etihad Airways Group Joint Procurement Team to Deliver Best Value to the Company

As part of the secondary research review, the author focused on the Tuckman’s model of group development (Bonebright, 2010) and the appropriate task behavior. This had been adopted to accelerate the overall team development and productivity, specifically on the forming and storming stages. Without assuming Virgin Australia and other partners for granted, the author engaged in active participation by the representatives of the airlines in all the stages for sourcing a deeper buy-in and overall commitment. This is with a constant echoing of John Kotter’s 8 Steps of Change Process (Appelbaum et al., 2012). This is as evidenced in figure 17;

Figure 17: The Tuckman’s Stages of Group Development Source: Adapted from Tuckman & Jensen, 1977)

In the stage of group forming, the author (Asian and experienced in Pacific Fuel supply) had an opportunity of engaging the potential supplier of the fuel with ITP with a contract with a fuel provider. Part of the engagement was to evaluate their willingness of allowing Etihad Airways in leading in the Australian Airport tendering process. The process is with a mixture of selling and strategically deducing an elaborate and attractive vision with strategic support from Virgin Australia. The underlying principle in this phase is understanding how people tend to operate with and their needs and ensuring rewards offered for them deserved and wanted by them (Vroom’s Expectancy Theory) (Parijat & Bagga, 2014). Etihad Airways ended up appealing to the sensibilities of potential suppliers based on their low flight frequencies where they would not be in a position of sourcing as much negotiation leverage and overall value. This is when compared to being in a group with Etihad Airways and Virgin Australia. In this process, this is a significant communication by the author on the need to establish a common purpose of joint procurement and joint gains as highlighted by the Etihad Airways top management.

There was equally a meaningful communication carried out for making a clarification on the scope of creating a clarification on the project scope, level of accountability of the airline representative in the set project team. A critical segment of the clarification was assisting the building of trust and a significant mutual understanding.

The second stage involved storming where the author went a step higher in ensuring that all the airline representatives are engaged in the active discussion on the extent in which the product with ITP joint procurement project would end up delivering the benefits, ideas, and suggestions all inclusive. The emphasis, in this case, would be the establishment of a conventional approach. In this context, the most preferred and elaborate undertaking would be the development of a joint tender. In this case, indicative timelines and response time would be discussed in-depth. The roles and accountability of all the airline representative would be further clarified, and all concerns addressed holistically. The author made an assurance to all the supplier teams and demonstrated to them the past successful joint procurement projects already implemented, with a holistic integration of all the airline. This process was however challenging since there was no one on one meeting and the communication was done through conference calls and emails. To achieve a successful communication, patience and mutual respect were critical for suiting the different cultures of the 4 distinct companies and nationalities with the engagement being in distinct time zones and working days.

In the norming phase, the team was involved in developing common agreements on the approach, creating common objectives, project timelines, and finances budgeting. It is in this stage that the issue of clarity and transparency of the overall process was emphasized. Etihad Airways ended up assuring their partner airlines that there would be no decision made unless there was an agreement between all the involved stakeholders. Also, there was a critical discussion sought for the airline’s input for the tender. Based on necessity, the Etihad Airways equally offered an opportunity for negotiation for all the airline’s input for suiting the tender objectives which included the template, period and need for meeting the airline’s needs as much as possible. It was agreed that to ensure that the fuel contract process is in line with the Australian Government regulations and holistic stakeholder engagement, the overall process would be summarised with a successful signing of a contract.

In the performing stage, the mutual emphasis was targeting to gain common benefits for the entire team. After a successful receiving of the bids by the Etihad Airways, they were later forwarded to their respective airline representative for the purpose of updating and commenting on them. Whilst the Etihad Airways guided the entire process of joint tendering and evaluation, their partner airlines such as Virgin Australia were invited for active participation in the negotiations with the authors. Also, the Melbourne was involved where they were required to send their operation persons for participating in negotiating all the technical aspects of the set contract.

Prior to undertaking the trip in negotiating with the potential suppliers (Shell, BP, Total among others), the authors engaged in sharing and reviewing the general negotiation strategy and levers with their group. Also, prior to the everyday active meeting, the author ensures that they collaborated with the Etihad Airways Group team over breakfast for breaking the ice and working to understand each other and building closer and positive relationships. These relationships were aimed at working effectively as a team. The agenda of the meeting and subsequent negotiation strategy were equally reviewed, and each individual role in the meeting clarified. After negotiations, updates were forwarded in the same evening to all the airline partners and potential suppliers. There was a holistic appreciation of all the efforts, transparencies and prompt updating which makes contributions towards the overall trust and appropriate working relationships, This was a tiring undertaking but worth it with the responsiveness begetting responsiveness. Upon a significant negotiation process presentation, all the representatives of the airline were strategically motivated for active coordinating smoothly and played their roles in processing and leveraging on the contracts signed in the agreed time.

The situational leadership model Lynch et al. (2011) was equally critical in the selection of the appropriate leadership style for approaching the Shell and BP supplier in their initial joint procurement project with them. As an initial undertaking, specific attention on an exhibition of extensively supportive behaviors. This is since the supplier’s representatives are experienced professionals who could be wary of the current Etihad Airways overpowering control. The emphasis was put on the need to maintain an active listening and subsequent sharing of the decision-making process. It was a stringent case of procurement leader in the cross-company/cross-functional team tasked with the responsibility superseding their authority. In the contract process, the leadership played the roles of the establishment of an elaborate vision, sharing the vision with others and provision of information, knowledge, and approaches for realizing the method. The process would also be inclusive of coordination and balance of conflicting interests of all the involved members and stakeholders.

6.0 Negotiation Analysis

6.1 High Engagement of Etihad Airways Partners

The tender sourcing for a strategic supplier was sent out and processed by the Etihad Airways management. After a successful evaluation of all the supplier’s initial bid, a visit was made to Shell, BP, Caltex and Exxon for evaluating if they met the set criteria for the supply of fuel to Etihad Airways. The author’s engagement of the Etihad Airways partners was significantly high. All the airlines were actively invited in participating in a joint meeting. The Etihad Airways managers arranged the meeting, and they equally engaged in the meetings.

6.2 Messaging to Airlines Fuel Suppliers Representatives

In every meeting held, Etihad Airways made a corporate power point presentation. The presentation involved featuring the Etihad Airways history, its initial struggles in its formative years which were equally the challenging times in the entire aviation industry. Also, the approach adopted in risk mitigation strategy of Etihad Airways in the formation of Etihad Airways Group for expansion of its overall network promptly and exponentially, and the changes elicited by the Etihad Airways. The suppliers were strategically encouraged in ensuring that Etihad Airways and partner airlines not as distinct airlines but as a group contract with the similar supplier at all potential opportunities. Currently, EAG is still ranked as the fasted growing airline group globally (with 9 new stations last year; 100 and more aircraft on delivery over the next 7 years ) while at the same time other airlines have been involved in cutting down of their frequencies and stations.

Also, part of the presentation involved updating the potential suppliers on each respective airline with their financial position identified. The imminent risk is that despite the fuel prices reducing, Etihad Airways had hedged its fuel price for 3 years. While assuring the suppliers on unwavering support from the Abu Dhabi government, Etihad Airways requires steadfast support of their suppliers for strategic, cost-effective proposals without in any way compromising the safety, security and service delivery which is anchored in the processes of the fuel supply. The PowerPoint presentation printout was left with the fuel supplier’s representative’s team. In any event, they required validations for justifying their top management for offering Etihad Airways with their most strategic proposal.

The message that was vehemently communicated to the suppliers was that pricing is not a determinant of cost but by the level of competition. Despite the author being skeptical in advocating that the suppliers practice marginal costing for all their clients, the author strongly requested them to delve into a strategic consideration of the Etihad Airways. This is since Etihad Airways would be a good brand with immense business growth potential. Further, owing to the fact that Etihad Airways operations were beyond the peak-of-peaks period, there existed a significant possibility for increasing the level of revenues earned from the Etihad Airways to their bottom-line. In this case, there was no necessity of capital expenditures for investing in expensive fuel storage equipment and facilities. If possible, the representatives were requested to allow Etihad Airways group to import their products as an approach of mitigating any risk linked with the approach.

After presentation with the options and the validation of the Etihad Airways options for the fuel in the Australian airports for optimization of the benefits for Etihad, technical feedback was provided to the suppliers on their proposals. They were equally invited to present their revised proposals to the author within a week for another meeting.

6.3 Airlines Fuel Suppliers Representatives Responses

6.3.1 MELBOURNE

Caltex, as expected, failed to show an increased interest as compared to Shell due to their focus on supplying fuel as a Vopak terminal and partner airlines which is characterized by zero truck loading facility. Shell had initially quoted high, but after back and forth badgering from BP marketing, and in order to assist their sister company BP to win, Shell reduced their initial price offer as much as 25% to offer Etihad Airways and Virgin Australia Airlines with a limited discount from their existing state.

6.3.2 SYDNEY

The consolidated volumes of fuel supply of joint partnership of Etihad Airways, Qantas, and Virgin Airlines lead to increased attractiveness of the fuel supply in SYD airport. Shell did not in this regard intend to dissociate with Etihad Airways which is their current client to Caltex. They were increasingly concerned that BP and Caltex would have made a very competitive bid for Etihad Aviation Group both at Sydney and Melbourne where they had already faced complexities in the past in terms of fuel supply and delays as a consequence of shortages in Australia. From the engagement and the aggressively competitive 2^nd proposal by Shell, it can be argued that the ordinarily non-competitive and bureaucratic airport authority shareholder (majority) could have potentially been held back substantially. Shell reduced its offer to 32% from their initial proposal with Caltex being adamant in lowering their offer rates. At this point, it is evident that there was evidence of value which is a characteristic of increased competition between the different potential suppliers.

6.3.3 BRISBANE

As projected, Caltex failed in competing aggressively in the context of their pricing. After the second round of clarification, a shortlist of the suppliers who would be engaged by Etihad Airways was provided which included Shell and Caltex. The rationale for this is that the two companies were close in terms of their commercial standings. A subsequent third round of clarification was initiated. In this case, the author ended up leveraging the Etihad Airways Group fundamental supplier relationship with the BP. After the involvement of the marketing by the Vopak and JUHI ground for the into-plane service providers, Caltex won it. This is after Caltex reducing their offer significantly with 15% from their initial offer; Shell came down by 19% with BP by 20%.

6.4 Follow-Up

The author used a combination of both the technical evaluation sourced from the end user and the commercial evaluation to decide on their results: Shell in Melbourne, BP in Sydney and Caltex in Brisbane selected for supplying fuel to Etihad Airways. Significantly enumerated results were shared with all stakeholders in the project teams. There was a unanimous agreement with the results and decision benefitting all the Etihad Airways Group airline. Distinct processing of the results was done by individual airline through leverage of their internal channels. Also, award and regret letters were later sent by the author for Etihad Airways initially and later by the colleagues of the respective airline through coordination with the author.

The excellent results coupled with the savings and value-add to the different contracts were significantly consolidated and later emailed to all the stakeholders in Etihad Aviation Airline drawing positive feedback and significant attention. There were subsequent tracking of the cost savings and subsequent updating for the Etihad Airways and their partner’s procurement benefits tracker. Further, the Etihad Airways procurement and supply management strategic role was appreciated by all the end users, the corporate financial control, and all their partner airlines. This ended up increasing their willingness and appetite of their partner airlines for practicing their future joint procurement projects. This was also inclusive of the branding of the Etihad Airways procurement and supply management.

The project was successfully brought to a close well and timely with the partners of Etihad Airways Group in Australia being grateful for the accrued positive results. Also, the untiring efforts by the author of bringing the team and the project together successfully were appreciated. The author was particularly appreciative of the overall trust and support from the airlines involved in the partnerships and other relevant stakeholders.

6.5 Detailed Results

6.5.1 Selected Fuel Suppliers in different Airports

S/N	Airport	Selected Fuel Supplier
1	MEL	Shell
2	SYD	BP
3	BNE	Caltex
4	PER	BP

Table 5: Etihad Airways Selected Fuel Suppliers in different Airports

6.5.2 Australia Fuel Supply Overall Evaluation

Historical Premium information on SYD and BNE for EY
			Contract Period		SYD					BNE
					Diff (USC/USG)			Airport Fee (AUD/Lt)		Diff (USC/USG)		Add-on Fee (USC/USG)
			2008-09		19.75			0		19.50		0
			2009-10		18.40			0		16.25		0
			2010-11		20.11			0.002		18.25		0
			2011-12		20.11			0.004		20.60		0
			2012-13		21.85			0.004		20.40		0
			2013-14		21.85			0.004		20.25		0
			2014-15		19.19			0.005		19.99		0
			2015-16		16.15			0.005		14.73		0
			2016-17		13.70			0.005		13.70		0
Net Proposal*			2017-18		12.47			0.005		12.47		0
Est. Volume (USG)					37,500,000					10,000,000
Savings (USD)					461,250					123,000
Total Savings (USD)					584,250
* If the rollover proposal is accepted, Caltex/Chevron has agreed to extend differential of 12.70 USC/USG effective 01 Feb 2017 rather than starting it from next contract period Jun 2017 which makes the effective differential of 12.47 USC/USG for next contract period year 2018
	RFI Offers
	Airport	Shell		Shell Package		BP	Exxon		Q8*		Chevron**		Incumbent
	SYD	15.75		15.20 (50% vol)			20.50 (15% vol)		15.00		12.47		13.70
	MEL	24.20		22.00			No Product						22.80
	PER					24.40	Present						24.40
	BNE	16.10		15.60		14.20					12.47		13.70
	* Q8 did not respond to the latest RFP; however, earlier in Dec’16 they requested the author to refer to their last year bids for indicative prices
	** Chevron offered this as a rollover proposal, and the prices will not be extended if EY tenders the locations. The rollover offer is 12.70 at BNE and SYD, and the reduction in price will be effective immediately (01 Feb’17) rather than for new contract period making an active differential of 12.47 for the new contract period.

Table 6: Etihad Airways Australia Fuel Supply Overall Evaluation

In the market research and while exploring on the option of the self-supply in Australia, if we buy directly from ICN refinery and ship the annual requirement in one shot, the cost of managing the supply chain to Australia is MOPS + 10 USCents. This doesn’t include the price risk exposure costs, insurance, hedging costs, the capital cost as the refinery will have to be paid at the time of purchase.

ACTUAL COST BUILDUP
65,000 mtns of Jet	USC/USG
Premium over MOPS	$0.00557
Freight	$0.07748
Insurance	$0.00167
Inspection at Load Port	$0.00071
Port Wayleave Charges at Discharge	$0.00238
Inspection charges at Discharge	$0.00095
Product Loss/Gain	$0.00200
Storage/Thruput Charges	$0.00476
Admin Costs	$0.00048
Demurrage	$0.00286

65 KT cost into the tank	$0.09886

Table 7: Etihad Airways Fuel Supply Evaluation provided by Chevron email year 2017

The RFI and rollover details are with finance for their internal review and discussion. Based on the outcome of the Finance internal review, it was decided that tender will be floated in Feb 2017.

6.0 Conclusions

In this report, strategic sourcing and through leverage on tools such as Porter’s 5 Forces, Supplier Positioning, Supplier Preferencing, Stakeholder Mapping and a detailed analysis of the supply market, a strategic approach was crafted for a successful introduction of increased competition. This is to the non-competitive fuel supply market. After an evaluation of all the available options, a decision was made to opt for the regional tender involving the partners rather than self-sourcing or storage. In the selection of the regional tender, issues of risks were identified and the best approach in their mitigation identified in facets of partnership, legal, operational and commercial. The author successfully established an Etihad Airways, joint procurement team through the adoption of Tuckman’s Group Development Model and Blanchard’s Situational Leadership. Through an appropriate message and negotiation approaches, leverage on the Etihad Airways supplier relationship with the key suppliers increased this project leveraged benefits.

In terms of benefits from the project, it can be concluded that consolidation of volumes of fuel supply and joint procurement was the best approach. For instance, Virgin Australia and Qantas individually would never be in a position of leveraging from the preferential rates. Virgin Australia was planning to operate only a single weekly flight with Qantas only 4 weekly flights but only for 7 months. Etihad Airways had already made negotiations with their preferential scheduled rates to be extended to both airlines. Additionally, through this project, a critical supplier relationship was emphasized and better understood by Shell and Caltex. Both companies retained Etihad Airways and subsequently won a new EAG Airlines. Additionally, through this project, a closer relationship between Etihad Airways with their stakeholders was also established. This had a significant implication in shaping up the procurement partnership with Virgin Australia which had an increased implication of strengthening the overall joint procurement foundation of all the players in the Asian region.

Additionally, through this project, attainment of the Etihad Airways Procurement and Supply Management strategy and goals was realized. In the financial factor, the process had a positive realization of the entire annual cost savings targets for fuel supply and equity partner synergies through a joint procurement strategy ending up maximizing additional gains from the value-added services. In terms of the client, the process leads to the development of engaged and improved supplier relationships and performance; an increased internal and customer satisfaction through provision of innovative service and being a trusted partner in the different procurement strategies. Further, for the internal business process objective, this was attained by harnessing the strategic sourcing, procurement operations delivery with the utmost punctuality, quality, and reliability and effectiveness of the costs of operations. Lastly, for the learning and growth, this was attained by managing the skills development and performance to the delivery success achieved by a reference to the CIPS course knowledge.

7.0 Recommendations

7.1 Best Practice Recommendations

Good practice recommendations are viewed as being essential for making clarifications or contextualizing specific technical recommendations. In this report, the best practice recommendations have been sourced from experience and research and have proven to offer desired result to the Etihad Airways fuel procurement in Australia.

Majority of the airlines still lacks sufficient capacity of offering presentation similar to the one presented by the author. The potential fuel supplier’s representatives found the presentation relevant. It was extensively assistive sharing future operating plans instead of snapping shot the current operations only
Due diligence is always critical which can be implemented through an appropriate observance of the commercial and operational due diligence
Service level requirements can be implemented by harnessing elaborate expressions of the service level demands for all the partner airlines and opening up experienced suggestions for the suppliers in fuel storage
Negotiation is a critical impression guiding the establishment of a long-term relationship as opposed to only facilitating a one-off cost saving engagement. All the airports where the company had based their operations was offered with similar information attained through an aligned appreciation.

7.2 Recommendations for Future Projects

This section presents different recommendations that can be adopted by Etihad Airways and integrated in their future planning and projects. The relevance of this recommendations is their influence on systematic change and altering their operations as observed in the research.

The Etihad Airways should explore importing products by themselves through strategic assistance from the suppliers to mitigate the risks linked to single supplier reliance in every airport in Australia
Sourcing the services of an Emirati Graduate Manager in their future renewal
Implementation of initial market engagement characterized by critical messages and done several months prior to This would lead to increased dialogue with potential fuel suppliers, engagement in conferences and exposing them to the tendering process at an earlier phase. As part of the process can be suggestions of distinct approaches of goals attainment by Etihad Airways. Also, early market engagement would be essential for assisting the organization procurement in rethinking its set strategy and sourcing improved results
Offering the fuel suppliers more time in responding to the RFI with approximately 3 weeks characterized by increased discussions among all the involved entities in regional deals.
The author had identified the bottleneck and the supply constraints due to structural issues at Melbourne. A close engagement with IATA, partner Airlines and neighbouring airlines (e.g. Emirates Airlines) shall be establish to have a long term solution to achieve the common goal where it will take between 24 – 36 months infrastructure plan.

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McKinsey & Company (2017). Buying and flying: Next-generation airline procurement. Online available at< https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/buying-and-flying-next-generation-airline-procurement> Retrieved on 8/11/2018

O’Connell, J. F. (2011). The rise of the Arabian Gulf carriers: An insight into the business model of Emirates Airline. Journal of Air Transport Management, 17(6), 339-346.

Parijat, P., & Bagga, S. (2014). Victor Vroom’s expectancy theory of motivation–An evaluation. International Research Journal of Business and Management, 7(9), 1-8.

Qantas Business Report (2011). Application for declaration of the JUHI and
Caltex Pipelines. Online available at< http://ncc.gov.au/images/uploads/DEJFBASu-009.pdf> Retrieved on 8/11/2018

Qin, Y., & Li, Y. (2013). The Wholesale Price Contract Under The Framework Of Fairness-Preferencing Nash-Bargain In A Two-Level Supply Chain. contract, 3(4).

Reed, M. S., & Curzon, R. (2015). Stakeholder mapping for the governance of biosecurity: a literature review. Journal of Integrative Environmental Sciences, 12(1), 15-38.

The Guardian (2018). Jet fuel shortage at Melbourne airport to ease as supplies resume. Online available at< https://www.dallasnews.com/news/news/2016/06/16/airlines-need-different-playbook-to-keep-up-profitability-report-says> Retrieved on 8/11/2018

Turner, B. (2010). International Air Transport Association (IATA). In The Statesman’s Yearbook (pp. 45-46). Palgrave Macmillan, London.

Yayla-Kullu, H. M., & Tansitpong, P. (2013). A Critical Evaluation of US Airlines’ Service Quality Performance: Lower Costs vs. Satisfied Customers. Journal of Management and Strategy, 4(4), 1.

9.0 Appendices

Appendix 1: Questionnaire

S/N	Question	Shell	BP	Exxon	Caltex/Chevron
1	Were the tendering terms and fuel supply requirements clear?	Yes	Yes	Yes	Yes
2	Was the presentation offered by Etihad helpful?	Yes	Yes	Yes	Yes
3	Did the other airlines equally offer you with a presentation in their meeting with your company for negotiation?	Yes	Yes	This was partly tailored to half of the involved players	Yes
4	Do you face any challenge in supply of fuel in Australia and beyond for airlines?	No	No	Definitely no as they tend to refer to them in their joint ventures	Yes but partly as an element of need of considering the individual interactions
5	What can you term your expectation on the level of fairness in the negotiation with the company? Is it appropriate?	There is no significant difference in the process	They were significantly detailed	Yes	Leveraging on a direct and open and sticking to tendering process for communication onset
6	Was there fairness in Etihad Airways process of negotiation with the company?	Yes	In most cases, this is the situation	Basically no	This is challenging to deduce
7	What are the best practice that you have noted relevant for the procurement in the RFI and negotiations?	I am not sure	Conducting an appropriate diligence inclusive of different parties in both operational and commercial	Etihad Airways always involved in expressing their overall service legal demands pertaining to their subject airlines elaborately and openly for suggestions from the fuel suppliers	The presentation is extensively helpful particularly in the part involving sharing of future operating plans as opposed to only a snapshot of the current operation with negotiation being characterised by impeccable impression to establish long-term relationships as opposed to only one off exercises
8	Which are the areas of improvement in the supply and negotiations do you feel need improvements?	To be sincere, it is a challenging undertaking for all involved parties to achieve a final and conclusive agreement that is mutually inclusive and satisfying to all. As a service provider, it is always our expectations to offer the most appropriate service quality to our clients at all times for their optimum satisfaction.	Based on individual experience, I appreciate it is necessary to leverage on more time in proposal preparations as it is inclusive of different airlines. If possible, a period of several weeks can be taken in tendering process.		I believe it would be necessary if there are more time taken into account in proposal preparation

Appendix 2: Estimated Total Cost of Ownership

The annual TCO for Etihad Airways is currently estimated to be USD 160 Million (AED 536 Million) for a volume requirement of approx. 92.5 Million USG in Australia and USD 72 Million (AED 263 Million) for a volume requirement of approx. 40 Million USG Southeast Asia for 13 months. Etihad Airways (this is in reference to the fuel price updated in the Fuel Plus System and the updated add-on fees).

The estimated TCO for Jet Airways at Singapore is USD 33 Million (AED 122 Million) for a volume requirement of approx. 21.3 Million USG for 13 months.

Index price: (non-negotiable) representing 85% – 90% of the TCO
Differential: (negotiable) fixed for the entire contract period and representing 5% – 10% of the TCO
Add-ons: (limited option to negotiate) changes according to the airport / supplier notification and contribute up to 5% of the TCO
Credit value (negotiable) less than 1% of the TCO

The general fuel price component structure for Australia location is that the non-negotiable portion of Index and taxes & fee contributes up to 89.5% of the total cost.

· Platts/Index 89.16%

· Differential 10.39%

· Taxes & Fee 0.33%

· Credit Terms 0.12%

Appendix 3: Etihad Airways Legal Guidelines for Joint Procurement Projects
1. Etihad Procurement and Supply Management (“P&SM”) must complete and submit a Joint
Procurement Tender Questionnaire to the P&SM manager in charge of the Joint Procurement prior to commencing a an RFP (“Purchasing Project”).

Etihad’s Competition Compliance Policy shall apply to the Purchasing Project and all
participants at all times.
The Purchasing Project must be narrowly defined, and personnel participating in the
Purchasing Project must be limited to those who are reasonably necessary to explore or implement the Purchasing Project. If the Purchasing Project includes a tender process, the parties must follow the Joint Procurement Tender Process Guidelines, which are attached.
When commencing a Purchasing Project, the parties will limit the information exchanged to
that which is reasonably necessary to evaluated a proposed Purchasing Project, commence a tender, and/or engage in negotiations related to the same. For Purchasing Project meetings (including preliminary meetings to evaluate a proposed Purchasing Project), the participants shall prepare a written agenda that states with particularity the meeting’s topics, and the parties shall adhere to the written agenda.
The parties to a Purchasing Project shall limit the information exchanged to that which is
reasonably related to exploring or implementing the Purchasing Project and exchange the same
pursuant to a non-disclosure agreement (“NDA”). Parties shall not discuss or exchange information that is not reasonably related to the Purchasing Project.
A. Topics parties shall not discuss at any time:

fares, rates, and/or other airline fees;
Airline customers;
Plans (unless it is expressly related to a Purchasing Project, such as the collective design of a new hard product such as a seat or inflight entertainment system);
Yield and other sales data;

Costs unrelated to the Purchasing Project

Topics parties may discuss if reasonably related to the Purchasing Project:

product/service specifications;
Volume(s) needed and delivery schedule(s);
Past ex experiences, pricing and other key terms with particular vendors/suppliers (provided party does not breach any contract-imposed confidentiality provision when providing the same);
Procurement policies and practices, including best practices;
Administrative issues (contracting mechanism, etc.)

When exchanging information pursuant to these Guidelines, participating parties shall ensure
the information to be exchanged or discussed is not subject to confidentiality restrictions, such as a contract that bars disclosure of key terms. If a party proposes to provide information subject to a confidentiality clause, it must receive written consent from the counterparty to the applicable contract before providing the same.
Etihad Airways Partners are free to participate, or not participate, in a Purchasing Project.
Neither Etihad nor any other participant shall force or otherwise coerce a prospective participant to participate in a Purchasing Project.
Actual or potential vendors and suppliers shall not be forced to participate in a Purchasing
Project, and are free to contract with Etihad Airways Partners individually. Nothing in these Guidelines requires Etihad to contract with an actual or potential vendor or supplier independently.
9. Etihad Airways Partners shall not boycott or collectively refuse to deal with any particular Vendor or supplier. Any decision to trade or refuse to deal with a specific vendor or supplier must be made individually by the respective airline. Rejecting a vendor’s or supplier’s proposal does not constitute a boycott or collective refusal to deal, unless the parties further agree that they will never deal with the vendor or supplier again, either in a collective manner or individually.
10. Participating airlines may appoint a representative to negotiate on behalf of the parties. In
such circumstances, the designated representative shall not have the authority to bind or otherwise contract on behalf of participating carriers. Instead, the designated representative shall negotiate in good faith on behalf of participating carriers and provide proposed contracts or offers to participating carriers for their consideration.
Participating may execute a single contract (with all participating parties executing) or an
umbrella agreement containing general terms (such as pricing, volume commitments, and
specifications) with participating carriers executing separate bilateral purchase orders. In either
circumstance, the salient commercial terms shall reflect the outcome of the collective negotiations.

9.0 Bibliography

https://bara.org.au/publication/jet-fuel-infrastructure-reform-melbournes-eoi-is-a-good-start/

https://www.smh.com.au/business/companies/major-fuel-shortage-at-melbourne-airport-could-force-flight-delays-diversions-20161125-gsxica.html

http://www.abc.net.au/news/2016-11-26/melbourne-airport-jet-fuel-crisis-eases/8060332

https://www.theguardian.com/australia-news/2016/nov/26/fuel-shortage-at-melbourne-airport-disrupts-flight-schedules

https://www.news.com.au/travel/travel-updates/fuel-shortage-at-melbourne-airport-disrupts-flights/news-story/bb4fc4d44e3d963e49340109320bd19d

https://www.medianet.com.au/releases/134115/

http://minister.infrastructure.gov.au/chester/releases/2016/November/dc201_2016.aspx

https://www.pc.gov.au/inquiries/completed/access-regime/submissions/submissions-test/submission-counter/sub002-access-regime.pdf

http://fortune.com/2016/11/25/melbourne-airport-fuel-australia/

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(Solution) CIPS Final Project Advanced Practitioner Level

New User Gifts

Description

Executive Summary

1.0 Introduction

1.1 Project title (Key Terms)

1.2 Project Scope

1.3 External Environment

2.0 Background

2.1 Etihad Airways

2.2 My Role in the Organisation

2.3 Why this Project Matters and its Objectives

3.0 Current Situation

3.1 EAG Operations in Australia

3.2 Analysis of the Fuel Contracts by Etihad Airways in Australia

3.3 Analysis of the Fuel Supply Market in Australia

3.3.1 Complexity Analysis

3.3.2 Supplier Positioning Analysis

3.3.3 Supplier Preferencing Analysis

3.3.4 Shareholders of Fuel Suppliers Analysis

4.0 Undertaking the Work

4.1 Different Options and Evaluation of Options

4.2 Methods Adopted

5.0 Analysis of the Findings

5.1 Risk and Mitigation

5.1.1 Partnership Risk

5.1.2 Legal Risk: Anti-Competition/ Anti-Trust

5.1.3 Operational Risk

5.1.4 Commercial Risk

5.2 Stakeholder Management

5.3 Stakeholder Mapping

5.4 Developing and Leading the Etihad Airways Group Joint Procurement Team to Deliver Best Value to the Company

6.0 Negotiation Analysis

6.1 High Engagement of Etihad Airways Partners

6.2 Messaging to Airlines Fuel Suppliers Representatives

6.3 Airlines Fuel Suppliers Representatives Responses

6.3.1 MELBOURNE

6.3.2 SYDNEY

6.3.3 BRISBANE

6.4 Follow-Up

6.5 Detailed Results

6.5.1 Selected Fuel Suppliers in different Airports

6.5.2 Australia Fuel Supply Overall Evaluation

6.0 Conclusions

7.0 Recommendations

7.1 Best Practice Recommendations

7.2 Recommendations for Future Projects

8.0 Reference List

Etihad Airways (2018). Abu Dhabi Global Market and Etihad Airways become global strategic partners. Online available at < https://www.etihad.com/en-us/about-us/etihad-news/archive/2016/abu-dhabi-global-market-and-etihad-airways-become-global-strategic-partners/> Retrieved on 23/8/201

9.0 Appendices

Appendix 1: Questionnaire

Appendix 2: Estimated Total Cost of Ownership

9.0 Bibliography

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