Operators take another look at fuel tankering

 - October 18, 2006, 1:31 PM

Decades ago, AIN published one pilot’s mathematical formula for calculating the conditions that made fuel tankering viable. It was back when the first fanjets were entering the market and, for the first time, business jet pilots could choose where and when they bought fuel on the road.

For years afterward, whenever retail fuel prices surged, aircraft operators would write, asking the editor to reprint the formula. The erratic ups and downs of fuel prices following Hurricanes Katrina and Rita have resurrected the question of tankering.

Today, onboard computing provides much more detailed performance data for calculating how much fuel a jet burns to carry each pound of extra fuel. An accepted rule of thumb across the board is about a 3-percent penalty. (For one thing, temperature and density altitude can have a significantly measurable effect.) Carry 100 pounds of unneeded fuel and, on average, you’ll burn an extra three pounds.

But that doesn’t take into account less immediately tangible effects such as wear and tear on engines and landing gear from carrying the extra weight. It also doesn’t take into account the increased risk (admittedly, within operating manuals’ performance limits) should the aircraft lose an engine on takeoff or en route.

The other side of the coin involves–well, a lot of coin. When fuel prices can vary by $3 per gallon or more from FBO to FBO, it’s not difficult to derive significant savings from tankering fuel. For many flight department managers, however, saving six figures a year on fuel costs doesn’t cause the downtown bean counters to bat a green-shaded eye, any more than a junior executive would expect a gold star on his next monthly expense report because he shopped around for the lowest gas prices for his company car. It’s a truism that most companies’ accounting departments don’t pay much attention to the money that you don’t spend.

For smaller flight departments or individual operators, however, wild fluctuations in fuel prices from one stop to the next can eventually dictate paying more attention to evaluating when and where to top off the tanks and when to “go with what we’ve got.”

FBOs AddressFuel-price Changes

FBOs can look like either heroes or villains and, as usual, the whole story rarely comes to light. Start with the hero side of the equation: even after the hurricanes, a hypothetical FBO retains the same retail fuel price or raises it only minimally. Aircraft operators tank up gratefully, pausing to pass along their horror stories about how much more they were forced to pay at XYZ airport the day before.

The FBO manager might shake his head in empathy, wondering aloud how his competitors could sleep at night after taking advantage of such a tragic situation. In fact, that manager might have bought his current load of fuel at low wholesale prices and does not anticipate the need to replenish his off-the-beaten-path fuel farm for two or three months, long after he expects the current emotionally driven wave of high prices to recede.

As for the villains who raise their prices to the stratosphere–even the FBOs’ trade group, the National Air Transportation Association, admits that some of its members probably do practice what amounts to price gouging simply because they can. But “probably” is an important word. It can be difficult to determine with accuracy the difference between profiteering and prudent business practice. Sometimes it’s a fine line.

Operators Maintain a Delicate Balance

FBOs try to balance retail fuel costs with average wholesale costs. A certain amount of the calculation involves projecting future wholesale prices. When an FBO must replenish fuel supplies once or twice a week, it must pay out the temporary increases in wholesale rates. Most FBOs say they usually try to smooth the spikes, refraining from raising their prices immediately to match their increased costs penny for penny.

After the wholesale prices go back down, the FBO will then keep its retail prices on the high side long enough to make up for the lost margin. The FBO might also take that opportunity to adjust its revenue margin to offset increases in costs for utilities, insurance, employee salaries and benefits–all the creeping costs that bedevil any business, large or small. So even if an aircraft operator had access to the FBO’s balance sheets, it would be difficult if not impossible to determine whether the adjustments were fair and appropriate from a business perspective.

Most pilots understand that FBOs derive most if not all of their revenue from fuel sales, and few would argue that buying some courtesy fuel is the appropriate way to compensate the airport business for keeping the lights on. Even the once taboo practice of imposing handling charges on those who cannot or will not buy fuel has become more readily accepted, if grudgingly so.

The FBO industry has been active in educating pilots about its overhead costs and how they can vary drastically from location to location. To earn the same amount of profit from a gallon of fuel, one FBO might have to charge a lot more than its competitor at another airport with lower airport-imposed fees and overhead expenses. The only consistency in calculating what it costs an FBO to pump a gallon of fuel into a wing is that there is a universal lack of consistency.

In the end, there will always be those for whom tankering to save money makes sense and has enough of an effect on the bottom line to be worthwhile. For others, it simply isn’t worth it.

Time will tell whether the current splash of interest in tankering will have enough effect on FBOs’ bottom line to prompt them to adjust their strategy regarding fuel pricing and handling charges.