By John L. Enticknap, Aviation Business Strategies Group
“Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes — it should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the one we are living in, change is the norm.”
— Peter Drucker- Management Challenges for the 21st Century
Over the last several years we’ve seen some major changes in fuel supplier relationships within the FBO industry. It wasn’t that long ago when most FBOs had a fuel supply agreement directly with the oil company.
Then the landscape changed. Prominent industry brands like Texaco, Exxon, Air BP, Chevron, Mobil and Gulf Oil, if you remember that far back, have been acquired by other oil companies and then the majors have withdrawn from the retail marketplace.
These actions beg many questions. Why has this happened? Who is replacing the oil companies? Is it good for the FBOs selling to the end user, and is the FBO the only business selling to the end users?
First, let’s get to the bottom of why this happened. Basically, it comes down to economics. It costs the oil companies quite a bit of money to support the FBO marketplace. As much as we all love the FBO business, General Aviation is a small market segment for oil companies, considering the huge auto market they have to support and, closer to home, the commercial airline marketplace. On top of this, Avgas is a small percentage of the world aviation fuel market, and most oil companies would miss it on their ledger if they blinked.
In short, the support of an FBO takes much effort and expense. As we’ll discuss in our NATA FBO Success Seminar next week in Las Vegas, the fuel suppliers provide a number of services to FBO’s, in addition to the fuel:
- Truck Leasing Programs
- Quality Control Inspections
- Over the Road Carrier certification
- Credit Facilities
- Marketing Support
- Credit Card Processing
- Into-plane programs for corporate aviation
- Airline into-plane support
Changing Pricing Policies and Business Model
Most of the aviation fuel pricing policies have changed over the past 20 years. The basis has changed from rack prices at the loading point to Platts based national/international indexed pricing. The result may reduce the profit margin for the fuel supplier who also faces increasing costs for support and, in recent years, a shrinking marketplace.
Another change oil companies have encountered is the advent of a new type of FBO fuel supplier like Avfuel, who was one of the first. They purchase the product directly from the refiners and, as wholesalers, remarket the fuel supply to the FBO marketplace. Avfuel provides a high level of marketing and support to the FBOs including other necessary support like fuel trucks, credit card processing, credit facilities, etc. They do a good job and at a lower cost than the oil companies.
Because of this metamorphosis in the FBO fuel supplier landscape, we have an almost complete change where the oil companies have very few direct accounts. We have observed the rise of firms such as Eastern Aviation Fuels, representing Shell, and Epic Aviation as a direct fuel supplier to FBOs after termination of the Air BP relationship. Others include Avfuel - which we previously discussed - Arrow Energy, Perry Brothers, World Fuel and others.
World Fuel is a very special case. Just a few years ago they were in the wholesale Jet fuel business and marine markets. Within the last few years they have grown into the retail fuel supply business by purchasing Hiller Aviation (who acquired most of the Chevron Oil business when they exited the FBO business), Western Petroleum (large Exxon wholesalers) and Ascent. Now they are one of the largest providers of fuel and support services to the FBO business.
World Fuel, through their various wholly owned affiliates, can provide credit cards, accounting software, contract fuel and branding opportunities for a range of different sized FBOs, along with competitive pricing programs.
Is Change Good or Bad?
Is all this change good or bad for the FBO industry? In a nutshell, we would have to say it’s good. The fuel supply and support FBOs need is available from a number of different firms. They’re all doing a great job for the FBOs. They each have their own competitive market position in the business and aggressively price their services to knowledgeable FBO firms.
The marketplace needs these services. Large FBO chains have the financial capacity to provide for many of their own FBO back office services. The medium and small FBOs need value added to help with such things as fuel truck leasing programs, credit card processing, contract fuel programs to assist in selling fuel and, in many cases, help with government into-plane services.
What about Contract Fuel?
As we mentioned, the “new” fuel suppliers help the FBO in marketing their fuel with contract fuel programs. This leads to the discussion about who will be the main contact for the customer under a contract fuel program? Is it the FBO, the contract fuel supplier or the wholesale fuel supplier?
It is my belief that the FBO needs to be the contact for the customer. After all, it’s the FBO who controls the customer service experience, as it should be. When the customer’s aircraft arrives on your ramp, it’s your employees who spring into action providing your brand of service.
More than anything, it’s the customer service experience that will determine the amount of fuel to be purchased. The fuel supplier can assist you and your firm with all the support services, marketing, good purchasing power, etc. However, where the “rubber meets the road” is on your ramp and with your people. Therefore, invest in proper customer service training and use the resources of your fuel supplier. After all, it’s a changing business environment … and it’s the new norm.
Thanks, and let us know your thoughts and feedback. Please, contact me at jenticknap@bellsouth.net.
About the authors:
Ron Jackson
Ron Jackson is Co-Founder of Aviation Business Strategies Group and President of The Jackson Group, a PR agency specializing in FBO marketing and CSR training. He has held management positions with Cessna Aircraft and Bozell Advertising and is the author of “Mission Marketing: Creating Brand Value” and co-author of “Don’t Forget the Cheese!” the ultimate FBO Customer Service Experience. Ron co-developed NATA’s acclaimed FBO Success Seminar Series and writes an industry blog for AcUKwikAlert.com titled: The FBO Connection.
John Enticknap
John Enticknap founded Aviation Business Strategies Group in 2006 following a distinguished career in aviation fueling and FBO management, including President of Mercury Air Centers network of 21 FBO locations. He is an ATP and CFI rated pilot with more than 7,800 flight hours and is the author of “10 Steps to Building a Profitable FBO”. John developed NATA’s acclaimed FBO Success Seminar Series and writes an industry blog for AcUKwikAlert.com titled: The FBO Connection.
There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things
