Introduction
In business, it is always wise to sit back, reflect on all the business activities, and determine if they are worthwhile. Suppliers are the major stakeholders of any business because they determine the production cost, as well as the profits that a company makes.
Oman airline is the company in discussion in this case. Like any other airline, fuel cost is the most significant input factor to consider in Oman airline.
Currently, Oman airline’s fuel requirements approximate to about 140Million USG annually. According to current reports, Oman airline consumed USG 80,997,662 between January and July this year, where, the airline spent OMR 96,166,247.
Oman air does not have direct contracts with fuel suppliers as its contracts are made through AACO (Arab Air Carriers Organization).
A time has come for Omar airline management team to sit back and asses the strengths and weaknesses they endure for purchasing jet fuel through AACO. This paper will provide the management team with the needed information.
Strengths in purchasing jet fuel through ACCO
- ACCO has a high purchasing power, and thus gets jet fuel at discounted prices. The discounted prices trickle down the customers, where, Omar airline is able to obtain jet fuel at discounted prices.
- ACCO has superior experience and strong connections with suppliers, and it can easily interact and negotiation with the regulatory bodies to support and protect the interests of the Arab airlines.
- ACCO has the capacity to launch joint projects between member airlines to lower the costs of jet fuel in a consistent and efficient manner to the advantage of all its customers.
- ACCO can connect and outsource fuel from suppliers located far off during shortages. Therefore, Omar airline does not suffer from jet fuel shortages
- ACCO is a big contactor that connects many counties. ACCO’s powerfulness influences the jet fuel pricing in oil producing countries to the advantage of Oman airline and other customers.
- ACCO acts as the umbrella that covers all its customers. It imports and exchanges new experiences and act as the benchmark to compare the competitiveness of the jet fuel prices.
Weaknesses in purchasing jet fuel through ACCO
- Oman airline is weakened by the fact that ACCO offers 1-year contracts. Renewal of contracts on a yearly basis is a tedious exercise that would mean an increase in jet fuel prices.
- Oman airline purchases low volumes of jet fuel from ACCO, and thus, it does not benefit from the discounted prices.
- AACO enjoys the monopoly power, where, it only tenders out contracts to stations with more than one vendor. Oman is disadvantaged because it does not have vendors.
- Oman airline is weakened by the fact that ACCO does not offer total solution strategies. In case of dispute between the supplier and the airline, ACCO plays a very limited role, where, the airline has to suffer all the consequences of the dispute.
- There is no concrete control of the pre-qualification, leakage of information or documentation of transactions, which highly weakens Oman air and other airlines. In fact, membership into AACO is free for any airline and this negatively affects the existing airlines because additional members reduce their bargaining power.
Conclusion
From the above analysis, it is noteworthy that Omar airline endures a number of weaknesses for purchases jet fuel though ACCO.
If Omar airline considers withdrawing from AACO, it would directly deal with fuel suppliers, negotiate package deals and negotiate for long-term price contracts of up to 3 years.
Withdrawing from AACO rules and regulations would bring freedom from suppression for Omar airlines. While it may seem difficult at the start, Omar airline would experience increased profits in the end.