Pilotage: The price of fuel

June 1, 2009

Mark Twombly is the AOPA Airport Support Network volunteer at Page Field in Florida.

Last month I wondered why general aviation isn’t flying more now that the price of fuel has dropped back down from its recent highs. I heard from many pilots with their answer to the question. They are flying less because the price of avgas in their area has not declined commensurately with the price of a barrel of crude, as it has where I live and fly.

Most said they still are paying well in excess of $4 a gallon for avgas. Some are into the $5 and $6 range. At the time I wrote the column, full-service avgas at my home field, Page Field (FMY) in Fort Myers, Florida, was $3.13 a gallon. We also have a self-serve avgas facility, where I can pump my own fuel at 50 cents less per gallon. Of course, transients can save 50 cents a gallon by using the self-serve, too. You’ll find it on the southeast ramp off the approach end of Runway 31.

Last month I paid $2.63 a gallon at the self-serve pump. As I write, self-serve is now up 27 cents a gallon to $2.90, and full-serve is $3.40 a gallon.

Typically, you find cheaper fuel at small, rural airports, where the markup is small-town friendly. Page Field is not rural, nor small. Until 1983 it was the area’s airline airport, with regular Boeing 727 arrivals and departures. Today it is a designated reliever airport with some 300 based aircraft, a lot of transient business jet traffic, and around 78,000 operations annually.

Why is avgas comparatively less at Page Field? The answer is a simple addition exercise involving the wholesale price of the fuel, plus markup, plus taxes.

Let’s start with taxes. Like everyone in the country, I pay a federal tax of $0.194 per gallon of avgas. I also pay a $0.00191-per-gallon Superfund/Oil Spill fee. Florida has its hand out, too: $0.00048 for the Coastal Protection Trust, $0.01905 for the Inland Protection Trust, a $0.00119 Water Quality tax, and a $0.069 Aviation Special Fuels tax. Total federal and state taxes: $0.28563 per gallon of avgas.

Next is the wholesale price. Our fuel provider is Avfuel, and airport management confirmed my observation that Avfuel is much more price competitive than the airport’s previous supplier, a major oil company. When the airport switched to Avfuel on January 1, 2008, the price dropped, and it has stayed low relative to the competition.

Finally, the markup. At Page Field it is $0.93 per gallon for full-serve avgas, and $0.43 per gallon for self-serve. Based tenants can buy it from the truck for 20 cents less per gallon than full-serve.

The airport is owned, managed, and operated by the county’s port authority, which is ruled by an elected board—the county commission. The port authority staffs and manages the only FBO on the field. If you want to buy fuel, lease a hangar or tie-down spot, or rent an office on the airport, you do business with the port authority. They make the rules, and one of the rules is that when it comes to selling fuel and leasing hangar, tie-down, and office space, no competition is allowed. They decree, enforce, and enjoy a monopoly. They say it’s the only way the airport can be financially self-sufficient.

Based on my experience this much is true: The policies and processes that determine such things as fuel prices and hangar rental rates are transparent. The port authority staff must propose those fees to an independent management advisory committee, and then get formal approval from the board. The public has an opportunity to comment and perhaps influence those fees.

The port authority also has a clearly stated policy on how it sets the retail price of fuel. That policy is spelled out in a Rates & Fees schedule, updated each fiscal year and available to the public for the asking.

The current Rates & Fees schedule says that the port authority adds a “contribution margin” to the price it pays for a gallon of avgas to determine the retail price. That contribution margin is the markup mentioned earlier. Whether it is called markup or profit margin, it is returned to the airport to cover the costs of staffing, operating, and developing the airport.

If I gas up today at the self-serve tank at Page Field, for each gallon I pump I will pay $2.18437 for the fuel itself, a $0.43 contribution margin to the port authority, and $0.28563 in federal and state taxes. Grand total: $2.90 per gallon.

So, how come some of you are paying more than me for avgas? Your avgas taxes may be higher, the wholesale price of fuel may be higher, but my guess is the “contribution margin”—the markup—is much higher.

If your airport has one or more private FBOs, they may be paying the airport authority a fuel flowage fee plus a percentage of gross income for the privilege of doing business on the field. They have to add their profit margin on top of that. The FBO may not be lowering its price even as the wholesale price drops because flying activity is down and they are pumping less fuel. To maintain profitability they have to increase their margins. That means retail prices decrease only slightly at best, and at worst go up even as wholesale prices decline.

What can be done about it? Get involved. Whatever success or difficulty you’ll have in participating in and influencing airport policies comes down to communication. If you are communicating with the decision-makers at your airport, you at least have a chance of making a difference.

E-mail the author at mrtwombly@gmail.com.