Essential Fuel Supplier Agreement Elements: Contract Fuel Programs
/Part 4 of 4: Detailing the 10 Essential Elements of a Favorable Fuel Supplier Agreement
By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group
Publisher’s note: Our bloggers, John Enticknap and Ron Jackson will be discussing these topics and others affecting the FBO Industry at the next NATA FBO Success Seminar, March 8-9, New Orleans.
Previously, we talked about nine of the 10 essential elements of a favorable fuel supplier agreement: Term of agreement, pricing methodology, transportation and delivery, terminal locations, credit terms taxes, quality control/training, marketing support and credit card processing. A favorable fuel supplier agreement is one of the six intangibles that can build equity in your FBO.
For this blog post, we’ll discuss the final element of the favorable fuel supplier agreement, contract fuel programs, and provide insight and tips to help you protect your business while adding intrinsic value.
Contract Fuel Programs
When it comes to developing the contract fuel programs section of your fuel supplier agreement, keep in mind you have the ability to define the program or programs that make the most sense for your FBO. Too often, FBOs accept without question what is written in the agreement.
Here are a few tips:
- Do your homework. Know the amount of gallons you are pumping to contract customers. Are they based customers, all transient, fractionals such as NetJets or Flight Options, FAA Part 135 operators, or something else?
- Contract fuel suppliers do not operate for free. Before you establish your pricing, ask the question: What additional fee(s) are being added on to your already established FBO fees for a final price to the end customer? Extra fees can be substantial.
- Determine what margin you want to receive for all your labor and cost of delivery. That means you must figure out what it costs you to pump a gallon of fuel. Use a simple formula by adding up all of your line service costs and divide that number by your total fuel pumped.
- Are you being paid according to the contract including being paid promptly and no fees for processing?
- If you have based customers on a contract fuel program, it might be more profitable for you to negotiate your own discount rate and, in the end, make a better margin.
- Maintain a before and after record of non-contract fuel sales versus contract fuel sales. Are you selling more gallons at a reduced margin? If so, how much? Sometimes it’s beneficial to sell less fuel at a greater margin by reducing or eliminating contract fueling altogether. In the end, you may make a greater profit.
- Keep your contract fuel agreements short, no longer than one year. The market is ever changing and one year contracts, to some extent, force you to reevaluate your pricing structure.
Please keep in mind that there are many factors and nuances and we will not be able to expound on all of them in the framework of a blog. Therefore, we encourage you to attend our next NATA FBO Success Seminar, March 8-9 in New Orleans, where we spend additional time discussing these important topics as well as others.
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About the bloggers:
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.