A conceptual design and costing of a blockchain-based system for fuel purchasing in the airline industry

Abstract

The use of Blockchain has been on the rise in the last few years and is expected to continue to increase. Traditionally the aviation industry lags in the adoption of new technologies. In the case of Blockchain, airlines have been hesitant to adopt this technology due to the high costs involved. This study develops the concept and investigates the cost of a Blockchain-based system that would be used to aid in the purchasing and verification of fuel for commercial airlines around the world. The creation and use of such a system aims to improve the purchasing experience, increase transparency and efficiency, and minimize the risks associated with fuel purchasing. In the current system, as can be seen from the research below, airlines pay more than the fuel market price as they adopt hedging strategies. This offers them protection from fuel price movements, allowing them to plan. The known cost of the flight allows them to set the minimum cost for the flight tickets. Their ability to hedge fuel at the right price is reflected in the customer ticket price and may play a significant role in their competitiveness. However, this system of fuel hedging offers its challenges and downsides too. In the study, the fuel costs from four (4) airlines are investigated, in order to establish the impact of fuel hedging costs when compared to fuel purchasing using the market price. This thesis then proposes an alternative Blockchain-based system that gives the airlines freedom to purchase fuel tokens which then can be exchanged for a certain amount of fuel. This digitizes the process and therefore makes it more efficient. The thesis presents a full cost analysis of such a system and the outcome shows that having a Blockchain-based fuel purchasing system, will reap benefits going forward due to less friction within the whole system and more automation resulting in fewer costs, even though there are higher costs to be paid in the beginning.