MRO Software: Oil Prices And The Texas MRO Industry

The current drop in oil prices has the potential to change Texas’s economic equation. Since the decline in crude oil prices, the airline industry has reported better financial performance. According to a report issued last year, every one-percent decrease in jet fuel prices allows big US carriers to cut more than $130 million in operating expenses. Higher profitability has a massive effect not only on airlines but also on the MRO industry and consumers, who will benefit from lower costs and better services. How will the oil price downturn affect the Texas MRO sector in the long term?  

Understanding the Shift

A few years back, the airline industry faced an immense rise in fuel prices due to unprecedentedly high crude oil prices and inflation. To protect themselves, most airlines have invested in fuel-based hedges. But after the price of crude oil started to decline, many airlines have lost a lot of money, as they couldn’t benefit from the sharp drop in oil prices.

Currently, the world’s airlines spend about 20 to 40 percent (some airlines even less) of the amount they spent on jet fuel in 2010. According to a recent article published by Dallas News, Alaska Air Group Inc. reported $10 million spent on fuel in 2014 compared to $60-$70 million spent in 2010. Not only the overall oil demand has declined over the years due to new energy-efficiency standards, but also the "fracking" revolution has led to an excess supply of crude oil everywhere in the world, including in the US. The decline in crude oil prices is therefore the effect of large-scale technological development programs.

Texas MRO: Taking a Peek into the Future

For most carriers, a 20-percent decline in fuel costs translates into $30 to $40 billion in savings, with a major positive impact on airlines’ profitability. This, in turn, will create a favorable environment for lower airfare prices, stimulating air travel demand and fleet expansion. Even small airlines will be able to continue to operate and extend their service offerings.

What does this mean for Texas MRO? Currently, buying a new aircraft model is not as attractive, financially speaking, as maintaining and repairing the aircrafts in use, considering the low jet fuel prices. As a result, most airlines focus on maintaining and repairing the aircrafts they have instead of opting for new aircraft models, which promise savings on fuel consumption. Indirectly, slower fleet retirement rates spell bad news for aircraft manufacturers and good news for MROs, as there will be a higher demand for technical specialists, parts, and supplies.

But the real question is, are Texas MRO companies ready to meet new needs, as they arise? Unfortunately, the MRO sector in Texas is facing a significant staffing deficiency, which is further aggravated by the need to train the new generation of technicians. To respond as quickly as possible to increasing demands for maintenance professionals, most MROs have hired untrained and unskilled workers. As a result, many of them must deal with low productivity and high operating costs.

However, MROs must make every effort to respond to new customers’ needs. Employee training aside, one way to do this is to conduct accurate MRO inventory analysis and determine what equipment, parts, and supplies will be required in the coming months. To match supply with demand and order only the equipment and parts required, Texas MRO companies can use advanced ERP solutions, such as Dynamics AX.

Making available powerful, feature-rich inventory management functionality, Dynamics AX allows MROs to gain detailed insights into inventory management; forecast, classify, analyze, track, and adjust inventory whenever necessary; streamline the returns process and reverse completed inventory closes; create bills of materials quickly and easily, based on work orders; and integrate inventory management with other business areas, including fixed assets, accounts receivable, accounts payable, and Microsoft SQL Server analysis and reporting services. By using Dynamics AX to manage and order inventory based on known or forecasted demand, MROs are able to eliminate inefficiencies and improve business performance.