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/Ex /f N. à; N.” W p¡ M P' % í? W ' *N i3 mmmià* TANKERING FUEL: A Cost Saving Initiative GRADUATE RESEARCH PAPER Walter J. Lesinski III, USAF AFIT/IMO/ENS/11-06 DEPARTMENT OF THE AIR FORCE AIR UNIVERSITY AIR FORCE INSTITUTE OF TECHNOLOGY Wright-Patterson Air Force Base, Ohio APPROVED FOR PUBLIC RELEASE¡ DISTRIBUTION UNLIMITED

The Views expressed in this document are those of the author and do not reflect the official policy or position of the United States Air Force, Department of Defense, or the United States Government.

AFIT/IMO/ENS/ l 1-06

TANKERING FUEL: A Cost Saving Initiative GRADUATE RESEARCH PAPER Presented to the Faculty Graduate School of Engineering and Management Air Force Institute of Technology Air University Air Education and Training Command In Partial Fulfillment of the Requirements for the Degree of Master of Science in Logistics Walter J. Lesinski III Maj or, USAF May 201 l APPROVED FOR PUBLIC RELEASE; DISTRIBUTION UNLIMITED. ii

AFIT/IMO/ENS/ 1 1-06

TANKERING FUEL: A Cost Saving Initiative Walter J . Lesinski III Major, USAF Approved: //SIGNED// 3 JUNE 2011 Alan W. Johnson (Chairman) - iii

ABSTRACT

The practice of tankering for cost avoidance is an important technique used by commercial air carriers to reduce their operating costs. This paper examines the option of fuel tankering as a viable cost saving initiative within Air Mobility Command (AMC), the United States Air Force and the Department of Defense. It explores the history and theory of research done in the field of study as well as current practices, models, and flight programming software used in the commercial sector, specifically with Atlas Air, Continental Airlines, FedEX and UPS. It identifies the factors and guidelines that should define an Air Mobility tankering program. A simple model compares fuel costs of historical flights completed without tankering to the respective fuel costs of the same flights With tankering, and demonstrates potential tankering savings of up to $111 million per year . The model also enables AMC to determine if a planned flight should consider tankering, and if tankering is used, it estimates the total dollars saved in cost avoidance for that flight. The paper also identifies positive and negative factors the Air Force would need to address if it implements such a program. The final section identifies factors AMC should consider in any tankering implementation program, focusing on overall safety and training while maximizing potential savings. iv iv

ACKNOWLEDGEMENTS

I would like to thank my wife and sons for the time and support they gave (and gave up) me in completion of this project. Special thanks is also warranted to my AFIT advisor Dr. Alan Johnson and my entire sponsor team in AMC A3/ Fuel Efficiency Office, especially Col Kevin Trayer and Mr. Jerry Goodin. I would like to thank Hakan Yilmaz, Principal Partner with aeroSmart Solutions, for his expertise and information about the tankering programs used in the commercial sector. This project would not have been able to be completed without the help from the teams of people who share their knowledge and time with me at Atlas Air, Continental Airlines, Fed-EX, and UPS; specifically, Mitch Dubner, Greg Kappen, and Larry Dunn. v V

Table of Contents
Table
List
List ofTables
General l
Background and l

Research Objectives, Questions, & Hypotheses 6 Focus_______________________________________________u_______u_______.7 Air Force Guidance on 8 DLA-ENERGY - How Fuel is Purchased in the DoD and How AMC is Charged 9 Historical Review - Initial Tankering Models: 15 Current Commercial Practices and 18 Air Mobility Command Aircraft 24 Public Opinion and Environmental: 26 Methodology ofthe 27 Assumptions and 30

RESULTS AND 36
CONCLUSIONS AND RECOMMENDATIONS 39

39 Recommended Rules for an AMC Tankering 39 Additional 43 44

vi

Future Operations Research Considerations 45 APPENDIX A: DFSP 48 APPENDIX B: Into Plane Contract Locations 64 APPENDIX C: Non Contract Fuel Locations 85 APPENDIX D: Historical Data of Selected Flights 86 APPENDIX E Blue 103 APPENDIX F Quad 106

vii

List of Figures
Figure Page

Figure l: U.S. Federal Energy Consumption Snapshot: From the Federal Government to the Air Force Figure 2: Recent History of Standard Fuel Prices 12 Figure 3: Diagram of Flight Loop Giving Fuel Prices at Airports and Flight Distances Between 15 Figure 4: Plot of the Data and the Best Fitted Regression Function for the Beirut-to-Paris Flight ofthe A310-300 16 Figure 5: Demonstrated Cost Savings with an Increase in Fuel Consumption (example 1) Figure 6: Demonstrated Cost Savings with an Increase in Fuel Consumption (example 2). Figure 7: Model Example 32 viii

List of Tables
Table Page
Table 1: List 3
Table 2: Latest Standard Fuel Prices. 10
Table 3: Breakdown ofInto-Plane Fuel Contracts 13
Table 4: Company Comparison in Tankering Operations 24
Table 5: Reasons Why or Why Not to 25
Table 6: AMC Aircraft 26

Table 7: Example Calculation of Fuel Purchase Ratio, Fuel Cost Ratio, and Tankering Index 34 ix

Part I
INTRODUCTION
General Issue

The Department of Defense (DoD), the United States Air Force (USAF), and Air Mobility Command (AMC) need to save money where ever possible. The potential exists to save a significant amount of money by adopting a commercially used practice known as tankering for fuel cost avoidance. This paper will identify why it is important to consider tankering as a cost-avoidance option for the DoD, explore the history of research done in the field and current practices in the commercial sector, identify the factors that should define an Air Force Program, demonstrate potential cost savings, and identify positive and negative factors the Air Force would need to address if it implements such a program.

Background and Motivation

The Department of Defense is the largest user of petroleum products government- wide in the United States. Figure 1 shows that within the DoD, the USAF uses 64% of all fuel, and of that, AMC uses 52% (AF Energy Plan, 201023-4). These high usage rates, coupled with the recent increase in fuel prices, result in exorbitant fuel bills compared to the respective costs incurred just six or seven years ago. The USAF alone consumed approximately 2.5 billion gallons of aviation fuel in 2008, costing $7.56 billion (AF Energy Plan, 2010:3-4). The USAF and AMC have been challenged to save money in this era of high fuel costs and fiscal austerity. The most obvious way to do this is to use less fuel; however, another option is tankering - paying less on average for each gallon of fuel bumed. “Tankering, the purchase of fuel in excess of that immediately required for the next flight leg, simply means topping off the tanks at the cheaper stations to the extent the increased burn penalty and station supply allow” (Nash, 198121). Some of the tankering terms in this paper are not commonly used. Therefore, Table 1 provides a list of aircraft and tankering terms and their