Fueling Issues Faced by FBOs
The need to change business models and practices has prompted the FBOs to look for new profit-generating ventures in the aviation industry. The need for change attributed to the emergence of business jets that require fueling at almost all stops along the way. According to Airport authorities across most cities, seeing jets on their ramps would potentially encourage FBOs to serve kerosene burners (Thurber, 2008). There is a need to subsidize FBOs with lower rents, free, or shrunk utility bill and a collection of other incentives. However, subsidies and low rent are often negligible because airports are not categorized as a prime real estate. Initially, jet fuel was cheap when bought on wholesale, but today fuel has become relatively expensive. When purchased in wholesale, FBOs used to realize high business returns and the surplus would be reinvested to expand the infrastructure and other facilities to attract even more fuel business. The FBOs face various fuelling issues, some of the most ones being contract fueling, fluctuating fuel prices, management of fuel inventory, availability, and high pricing of AvGas.
Issues
Contract Fueling
Fuel supply agreement is one of the most crucial aspects of contracts that need to be implemented to operate a successful FBO. Fundamentally, the lease agreement with respective airports is also important for a business, but fuel supply agreement through contracts carries immense weight. Fuel contracts regularly go through the renewal process. Therefore, it is imperative for FBOs to sign strong contracts that may not jeopardize operations in future (AC-U-KWIK, 2016). Unfavorable contracts have led to irregular margins that have often led the FBOs to lose their contracts with the customers. The best way to cope up with this issue is to draft their contract sales price and then offer them to the customers. FBOs must negotiate fair prices from the suppliers so that customers may not suffer. The agreement signed must be competitive enough to sustain the business, which will ensure that FBOs operate along profit margins through accurate determination of costs. There is a substantial cost that must be taken into account when establishing a contract with suppliers and customers (Enticknap, 2011). These include cash flows, balance sheets, and profitability of the business. Suppliers must provide fuel at friendly rates to allow FBOs to adjust their prices for their customers appropriately to establish a mutual contract of benefits. The signed agreement should be a winning contract with suppliers, FBOs, and customers.
Fluctuating Fuel Prices
Fluctuating fuel prices have seen the money paid at the refinery shoot by 92.7 percent. The refinery is usually the starting place for a company looking to establish the price of fuel. This point equates the costs that FBOs pay for a jet-A, considering other costs and expenses, such as taxes and markup that must be taken into account when deciding the retail price. In the United States, the fuel price may not change a lot, but the fees and markup will vary creating disparities in retail prices. A survey indicated that customers were worried about fluctuating fuel costs in most of the airports (Thurber, 2008). Further, they also expressed concern as to how prices were different between large and small airport FBOs (Thurber, 2008). According to them, the high prices did not in any way correspond to high-quality service (Thurber, 2008). In response, FBOs claim that the current competition is not only about other FBOs but also corporate aircraft for long distance and tankers. The final price of fuel is arrived at after taking into consideration the myriad costs associated with doing business on fuel in airports (Nelson, 2012). Fluctuations are attributed to the business environment in which FBOs operate. Fuel is delivered to the airports through pipelines to some companies. In contrast, fuel is delivered to organizations that lack pipelines by trucks that inflate the final price of fuel. Airport flowage fees also contribute to the increase in the price of fuels and typically the cost ranges from 5 to 10 cents per gallon. Additionally, some airports charge concession fees that account for 26 percent of the cost that must be adjusted in the final price to realize profitability (Hodges, 2008). The way to minimize the impact of fluctuating fuel prices is to make sure the FBO keeps track of the price and loads in the tank. The margin an FBO wants to should be constant and related to the changes in the inventory. It is a usual practice that pricing data is related to fuel changes.
Management of Fuel Inventory
The law of supply and demand applies even to fuel business. Customers must be able to access a product and service when they need to do so. A good business reputation is built through established relationship necessitated by the availability of a product or service. FBOs must ensure that their fuel reserves do not go low or dry. Experts warn FBOs that they should not be caught short of fuel supply (Gamauf, 2016). That will mean transfer to business to somewhere else. Meeting demand for aircraft is important to promote sales and improving profitability margin. A survey conducted in airports in the United States revealed a worrying revelation (Gamauf, 2016). Some FBOs were unable to meet the ever-increasing demand of their clients who had to resort to acquiring fuel from competitors. Therefore, it is important for FBOs’ business managers to consistently check the fuel levels to discover shortage trends and prepare ways of ensuring constant supplies. Fuel inventory often becomes insufficient, which leads to lags in the flight programs. The solution to this issue is to develop daily dashboards to keep track of fuel in the tanks. Some FBOs have engaged the use of technology in checking fuel inventory. For instance, fuel management software has been useful in managing inventory and provide management reports to that effect.
Availability and High Pricing of AvGas
Rising prices of AVGas and uncertainty of supplies is another painful problem faced by FBOs. The issue came up during a survey. An anonymous individuals acclaimed that “uncertain supply issues that continue to plague delivery and pricing of AvGas, rising prices which are counter to the price of oil and gasoline price at the pump are trends that are harming the industry as a whole, making it difficult, if not impossible to forecast sales and the future of the industry” (Enticknap and Ron, 2015). Therefore, the problems led to an inability to forecast the sales and growth of the fuel industry correctly. It is imperative for FBOs to coordinate efforts with suppliers to ensure that AvGas is readily available for clients.
Limitations of Research and Future Studies
The fueling issues faced by FBOs will likely affect the future of the industry. There is need for NATA to act as the mouthpiece of aviation businesses. The body is uniquely qualified to appropriately address issues surrounding competition, fluctuating fuel prices among others. Despite the challenging business environment and conditions, FBOs must be able to improve on service provisions because the aviation industry demands for more modern infrastructure and facilities. The research was limited as it investigated the FBOs in United States yet the businesses are operated globally. This research suggests the need for structured discussions and dialogue with all aviation stakeholders. The research raises a question on how best the industry can be efficient, attract more investment and adequately meet customer needs. Further, future research should probe on how FBOs and users can deliver benefits that aligns with the requirements of the aviation industry and other sectors.
Conclusion
Fuel issues that affect the operations of FBOs include contract fueling, fluctuating prices, poor management of fuel inventory, and the availability and high pricing of AvGas. It is essential for the industry to harmonize prices and create unity in processes aimed at meeting demands of customers and establishing a profitability margin. All it takes is a coordinated effort between FBOs and entire fuel stakeholders to devise ways of promoting business within the aviation industry.
References
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Enticknap J. (2011). When negotiating the best Fuel supply agreement, preparation is as
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Enticknap, J. and Ron R. (2015). The Top 10 FBO challenges for 2015. AC-U-KWIK.
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http://www.aviationpros.com/article/10815553/technology-advancements-coming-to-fbos. Retrieved April 17, 2018.
Thurber M. (2008). FBOs explain sky-high fuel prices. AIN Online. Retrieved from
Thurber M. (2008). IFBOA: independent FBOs benefit from cooperation. AIN Online.
Retrieved from https://www.ainonline.com/aviation-news/aviation-international-news/2008-12-01/ifboa-independent-fbos-benefit-cooperation.