Contract Fuel: Is It Worth It For You?

 - October 9, 2006, 11:22 AM

Contract fuel arrangements are a hot topic in the FBO industry and a widening avenue for cutting costs for aircraft operators. AIN asked readers for their opinions about whether contract fuel brokers were worth the investment in time and energy. The question was, “What steps must you take to use your contract fuel program, how much time does this require and how much money do you figure you save?”

For those on either side of the counter who have not yet been approached by a contract fuel broker, it works this way: the broker serves as a middleman, promising fuel discounts to aircraft operators and a steady flow of new customers to FBOs. By fattening a list of aircraft operators on one side of his ledger and FBOs on the other, the broker makes his network that much more appealing to both constituencies.

For each transaction, the broker pockets a portion of the discount as a fee for bringing the two together. In some cases, the contract fuel provider also offers other services such as flight planning, billing and so on.

For an operator, the attraction is being able to look at the list of FBOs in the network and make trip arrangements to stop at as many as possible. The FBO wants to see defining evidence that it was the broker that brought the aircraft to his ramp. So how well does the system work?

For Boeing 737 pilot Ray Roberts, it works well, with some caveats. He wrote, “If you work with a company that offers contract fuel, flight planning and other items you might request, it takes very little time to use them for their contract fuel, planned in advance. The savings [can exceed] $1 per gallon of jet fuel. [But to avoid the extra cost] make use of the contract fuel and do your own flight planning, filing and weather checks. Some pilots get lazy and want to call and let the companies do their flight plan filing and customs preps. [That runs] the cost up to the point that your savings on fuel are almost lost.”

Falcon 900EX captain Mitch Vuernick of Cigna Corporate Aviation at Windsor Locks, Conn., is bullish on fuel savings realized through contract arrangements. He wrote, “On one of our week-long coast-to-coast trips last month, the crew saved more than $5,000 on the price paid versus the posted price at the FBOs we visited. This required about 30 to 45 minutes’ worth of phone calls and fuel purchasing planning to get the job done, searching the Web sites for Colt, UVAir and the CAA [Corporate Aviation Association, a non-profit contract fuel program]. We always find the CAA’s prices to be the best of any program’s.

“We also call the FBOs and get prices ahead of time so we can tanker through an unresponsive FBO or those monopolies with outrageous prices. We save more than $500,000 over the course of a year. We track this on each flight we complete.”

Vuernick doesn’t ignore “unresponsive” FBOs that don’t participate in contract programs but nevertheless offer needed services. He continued, “We do have an unwritten fairness policy that if we are going to be spending some time at an FBO and its prices are not competitive, we will buy a token amount since we are using the facility.”

Reconciling Price and Services

Joseph Monia, a Learjet pilot, has another view. He wrote, “Money and time savings–sometimes the two don’t match. I would suggest that if you undertake a fuel savings program you first check out the places that you have to go to get the savings and the inconvenience that poor service has on your continued flight.” He described such a fuel stop where his aircraft was parked unnecessarily far from the terminal, requiring his passengers to walk across a frigid, windy ramp to use the facilities. “The ground crew person would have made a good hood ornament for a ’52 Caddy,” he continued.

As an alternative to fuel savings using unsuitable FBOs, Monia suggests, “If you are a frequent visitor to FBOs that give excellent service, speak with the management about fuel savings. You might not save the same amount as you would with a contract service, but the other services you receive can make up for ineptness, such as putting jet-A in a flushing john on your airplane.”

Easy Application Procedures

Reader Bob Bordes of Tidewater doesn’t find the time spent on contract fuel to be a burden. He wrote, “The initial application will take an hour, and once your credit is verified it is simple to use a contract fuel program. Some require preauthorization, which can sometimes be done by cellphone after arrival at the facility. Checking out which FBOs use which program can take the most time before a trip, but the savings are usually worth it. I would estimate that using contract fuel saves us at least 20 percent on average for transient fuel purchased.”

Finally, Tom Lissner, chief pilot for an operation that fields a Boeing 737, a Citation 560 and a King Air 350, is pleased with his service. He wrote, “Our contract fuel program is simple and efficient. Scan the list of qualified FBOs and make a simple phone call for prearrangement. In some cases this is not even necessary. By doing so, we save between 25 and 35 percent on jet fuel. Works for us.”

As with any dynamic market situation, however, sellers react to new market forces with new tactics of their own. While aircraft operators understandably explore all avenues for deeper and deeper discounts to ease their fuel costs, there comes a point of diminishing return for the service providers.

They find their own ways to cope. For example, John Mason, director of FBO services for Jet Aviation/Avitat, West Palm Beach, Fla., told AIN recently that FBOs are reacting to contract fuel arrangements–and individual operators who are pushing for discounts–by increasing their posted prices.

The economic reality is that FBOs need to sustain a viable profit margin to stay in business. The size of that margin depends on their overhead expenses, which vary widely from location to location, and FBO to FBO on the same airport.

Savvy FBOs know how much it costs them to pump every gallon of fuel they sell, so determining what constitutes a reasonable profit margin is simple arithmetic. If the math doesn’t add up over time, then someone is going to change the formula.