Fueling the GA Economy

Whether you’re operating a plane, train, or automobile, your fuel price undoubtedly varies somewhat from place to place. But in aviation, the difference can be staggering. At one airport, avgas might be in the $5 range, while a stone’s throw away it’s $8.

Mac McClellan recently opined that this has more to do with the retailer’s operating costs than anything else.

Consider at one extreme the airport that offers only self service fuel. The airport, if it is staffed at all, almost certainly has only one person there and only for at most eight hours a day. The operating costs that must be added to set the retail fuel price at an airport like that are small.

At the other end is a full service FBO that is fully staffed by several people for probably 16 or more hours a day. That FBO has a comfortable waiting room, pilot briefing services, food vending or more options, regularly cleaned restrooms, quickly available ground transportation and on and on. Since the only significant income left for FBOs is from fuel sales it’s easy to see how the cost of all of the staff and services must be added into the final retail price of fuel.

Neither type of fuel/FBO operation is intrinsically good or bad. It drives me crazy when I hear pilots blasting the fuel price at a big full service FBO without for a moment considering who pays the cost of the many services included in the fuel price. If you don’t want to pay for the FBO services, land at one of the thousands of airports that don’t offer those services.

Mac’s article interested me because on any given day I’m as likely to be flying a Cub or RV-6 as I am a Gulfstream or King Air. I regularly visit full-service FBOs and unattended rural airports in wide variety of airplanes, and to me his thesis just doesn’t ring true.

While I understand how more services result in higher prices, it doesn’t fully explain why the fuel price is three dollars per gallon higher in some airports than it is at another field just a few miles away. A company that provides more services should also have more sources of revenue. Isn’t that the whole reason they’re providing those services in the first place? McClellan’s big-city operator has higher ramp fees and service charges in order to help cover the cost of providing clean restrooms and waiting rooms.

In fact, I’d argue that the big FBO’s prices should actually be lower not higher. These retailers tend to see turbine airplanes which buy large quantities of fuel. The G-IV, for example, frequently takes on thousands of gallons in a single purchase. The cost of labor on a per-gallon basis is quite low when compared to airplanes that only take a few gallons at a time. While the Gulfstream take Jet-A rather than avgas, it’s all profit for the fixed base operator. Turbine aircraft pay for lav cleaning, potable water service, catering, deicing, dish washing, dry cleaning, and many other things. The hangar fees for both transient and based tenants are also sources of revenue — consistent ones at that.

Mac sees those as justification for higher fuel prices. I see the aircraft owner or operator paying the full cost of providing those services, and then some.

My point is that FBOs with many services also have many sources of revenue beyond fuel, and since large chain FBOs can leverage their buying power the same way any billion-dollar corporation does, you’d expect their prices to be lower, not higher. By McClellan’s logic, a WalMart Superstore should be sporting the highest prices in town since they provide far more products and services than a simple grocery store.

If the fuel price variations aren’t due to service level, then what’s behind it? Perhaps part of the problem is that airports with only one service provider have a monopoly on the market and can charge whatever they want, knowing pilots have no choice but to pay it. It’s like a remote desert town with only one gas station. The price is going to be high — and you will fork over the dough because there is simply no alternative.

The aforementioned WalMart Superstore has to compete with Target, Sam’s Club, countless grocery stores, and many other businesses. Sadly, airports don’t work that way, and as a result we all pay the price.

Even with two FBOs, some markets are saturated enough that the fixed base operator doesn’t really face competition in the normal sense. John Wayne Airport is like that. There are two places you can find fuel, service, and parking at SNA: Atlantic Aviation and Signature Flight Support. Neither one of them could possibly handle all the business traffic in and out of the airport alone, so is there really much of a sense of competition between them? Perhaps for the highest margin customer: frequent visitors with large thirsty airplanes like a Global Express or Gulfstream, or high volume operators like JetSuite or NetJets. But for the other 80% of general aviation? No.

I don’t begrudge retailers profiting from their significant investment. Running an FBO requires major capital infusions and serves a small market even in the best of times. But I still don’t see how it justifies a 60% difference in the price of fuel. Inordinately high fuel prices damage the entire aviation ecosystem by discouraging light general aviation customers, decreasing GA’s utility, and driving prices upward for those who remain.

Look around. We’re turning into Europe — and where GA is concerned, that’s not a good thing.

  8 comments for “Fueling the GA Economy

  1. Juan
    July 16, 2014 at 10:26 am

    Wonder if you can repost or I repost this article on an economic blog… Some of those who read may know solutions where everyone wins, GA, the retailer FBO etc… We are all aviation enthusiast and not necessarily savvy about micro or macro economics.

    • July 16, 2014 at 11:10 am

      Hello Juan — feel free to do that. I’d be interested to see the opinion from someone who’s focus is economics. Unfortunately, aviation is filled with so much regulation that it doesn’t operate like other industries. If you wanted to open an FBO, it wouldn’t be as easy as just showing up, renting a space, and hanging out your shingle.

  2. July 16, 2014 at 1:33 pm

    I couldn’t agree more. Fuel at my home airport of Columbus, OH (KCMH) is $7.30 and $7.33 at the two FBOs I can choose from. I can fly .3 in my RV-8 and pay $6.04 for self-serve at a county airport. It just doesn’t make sense to me. I would think they would want to promote business, not drive it away. If these guys figured out that the little guy needs love too, we might see more activity at some of these bigger places.

    • July 16, 2014 at 6:26 pm

      Those numbers are breathtaking, Brent. Makes me wonder how anyone can afford to fly a twin anymore. A C-421 Golden Eagle will take around 200 gallons for a long range flight. That’s over $1,400! Even on shorter flights, you’re looking at nearly a thousand bucks every time you pull up in front of the fuel island!

      You can at least take comfort in the relative economy of your RV-8. With balanced fuel injectors, you can get incredible efficiency out of those aircraft. A friend used to run his RV-7 way lean-of-peak when he wasn’t in a hurry. He got 120 knots TAS on 3.9 gph.

      If there’s any upside to the high prices, I suppose it would be the ease of justifying that extra landing and 0.3 on the Hobbs. 🙂

  3. Kevin
    July 16, 2014 at 9:44 pm

    The disparity in SoCal is crazy. I paid $4.85 at Encore in Chino just last week and my home base is charging $7.65 at Atlantic. 0.2 Hobbs.

    • July 16, 2014 at 11:15 pm

      Encore and Threshold seem to be pretty competitive. I’ve seen their trucks prowling around the hangar rows, trying to poach business from one another. Might explain the reasonable price….

  4. David Vancina
    July 21, 2014 at 6:15 pm

    Prices are not determined by the seller’s costs. They are detemined by the buyer’s willingness to pay. Nothing else matters.

    • July 21, 2014 at 7:02 pm

      In a normal situation I’d agree with you. Supply and demand. Unfortunately, the market in question is distorted by the weight of countless agencies, authorities, and other such bureaucracies.

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