Airport Management Guide for Providing Aircraft Fueling Services (2019) / Chapter Skim
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Pages 81-112
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From page 81... ...
Fuel System Improvements and Feasibility P A R T 3 83 Chapter 7 Fuel System Improvements and Funding 83 7.1 Demand Forecasts and Projected Sales Revenue 90 7.2 Proposed Fuel Products and Services 92 7.3 Needed Improvements, Facilities, and Equipment 94 7.4 Funding Sources and Cost Estimates 98 7.5 Uncertainties and Disruptive Risks 99 7.6 References 100 Chapter 8 Feasibility Evaluations 100 8.1 What is a Feasibility Study? 102 8.2 Setting Goals for Fueling Operations 103 8.3 Income and Expenses Baseline 106 8.4 Amortized Capital Costs 108 8.5 Financial Statements and Pro Formas 109 8.6 Return on Investment 111 8.7 System Compatibility 111 8.8 Organizational Readiness 112 8.9 Report to Decision-Makers Part 3 of the management guide provides a basis to determine capacity requirements for an airport fuel system to either build a new fuel facility or improve an existing fuel facility.
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From page 83... ...
83 7.1 Demand Forecasts and Projected Sales Revenue 7.2 Proposed Fuel Products and Services 7.3 Needed Improvements, Facilities, and Equipment 7.4 Funding Sources and Cost Estimates 7.5 Uncertainties and Disruptive Risks 7.6 References Part 3 of the management guide deals with planning and feasibility evaluations for fuel system improvements. The tables in this chapter can be downloaded from Appendix B at the TRB website as Excel worksheets and customized for specific airports.
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From page 84... ...
84 Airport Management Guide for Providing Aircraft Fueling Services Existing Demand for Avgas and Jet A If an airport already operates the fueling services, fuel sales records are available. Chapter 4 of this management guide describes record-keeping of fuel sales for Avgas and Jet A in terms of gallons sold, delivered cost, markups, and net revenues.
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From page 85... ...
Fuel System Improvements and Funding 85 Documented declines in general aviation, particularly in the single-engine piston aircraft segment, suggest that growth in Avgas fuel sales at a particular airport are driven primarily by changes in market share. At the local level, these changes can result in meaningful gains or losses in fuel sales.
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From page 86... ...
86 Airport Management Guide for Providing Aircraft Fueling Services – Sale or purchase of individual aircraft based at the airport; and – Increased airport activity attributable to charters, flight schools, or maintenance and repair services; • Frequency and value of fuel purchases by transient aircraft, including – Retail purchases; – Contract fuel transactions; and – Discounted fuel for volume purchases, buying clubs, or pre-arranged rates; • Delivered fuel costs and airport pricing strategy, such as – Changes in the cost of delivered product; � Costs for product at the refinery terminal, � Transportation costs, � Elimination or sharing of partial load fees, – Reduced airport margins to attract price sensitive customers; and – Low-price leadership at nearby airports; • Other efforts to expand airport market share, including – Special promotions or events; – Marketing and advertising; – Additional services to pilots and passengers; – Hangar promotions; – Reductions in airport rates and charges; – Addition of Customs and Border Protection facilities; and – Early availability of alternate fuels; • New activity generators in the area, such as – Arrival of Fortune 500 headquarters; – Special sporting or entertainment events; and – Development of destination facilities such as casinos, resorts, or convention centers. When preparing forecasts of airport activity or fuel sales, these potential catalysts of change should be considered.
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From page 87... ...
Fuel System Improvements and Funding 87 Fuel Sales Forecasts After reviewing the historical trends (if available) and evaluating potential catalysts for change, it is possible to make a fuel forecasts for the next 3 to 5 years as part of a business planning cycle, beginning with existing demand and estimating future growth or decline.
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From page 88... ...
88 Airport Management Guide for Providing Aircraft Fueling Services * Available as an Excel worksheet in Appendix B
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From page 89... ...
Table 7-5. Example of fuel revenue estimates for full-service Avgas and self-service Avgas.*
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From page 90... ...
90 Airport Management Guide for Providing Aircraft Fueling Services associated with the sale but does not factor in any operating and maintenance costs or debt service associated with an airport's fueling operations. In this example, a fuel operation that sells approximately 40% at the self-service pump yields an average gross margin of 84 cents per gallon before operating costs and capital investments.
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From page 91... ...
Fuel System Improvements and Funding 91 • Airport can sell fuel at a lower price and attract price sensitive customers, • Self-service is preferred by pilots who wish to fuel their own aircraft, • Airports have lower labor requirements and operating costs for self-service, • Self-service is available beyond normal business hours, • No fuel trucks are required, and • Self-service is economical for small quantity fuel sales. Full-Service Avgas Full-service Avgas caters to the less price sensitive general aviation pilot who is willing to pay for fueling services.
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From page 92... ...
92 Airport Management Guide for Providing Aircraft Fueling Services • Full-service fueling can lead to additional requests from the customer, and • Full-service Jet A sales tend to result in higher profit margins than Avgas full-service. Aircraft requiring Jet A fuel tend to be larger and pilots tend to purchase more fuel in a single fuel buy.
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From page 93... ...
Fuel System Improvements and Funding 93 is unusable.2 Based on this research, a standard size tank is 12,000 gallons. The usable capacity is 9,600 gallons, leaving 12.5% expansion and a 900-gallon capacity for the bottom unusable fuel, assuming a full delivery of 8,000 gallons.
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From page 94... ...
94 Airport Management Guide for Providing Aircraft Fueling Services and full-service fueling systems. There is much overlap in self-service or full-service fueling systems and both systems can be scaled to fuel demand.
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From page 95... ...
Fuel System Improvements and Funding 95 costs. As the design comes into fruition, the planning estimate is fine-tuned to a more detailed project cost estimate.
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From page 96... ...
96 Airport Management Guide for Providing Aircraft Fueling Services As planners develop this estimate, they use conservative pricing strategies and assign heavy contingencies. This can provide a buffer to account for the following circumstances: • Additional design details requiring higher construction costs, • Unexpected design complexity, • Uncertainty as to when the construction will take place, and • Planning for future construction costs instead of current construction costs.
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From page 97... ...
Fuel System Improvements and Funding 97 • State grant, • FBO financing, • Airport financing, • Private donors and corporations, and • Fuel suppliers. Federal Funding Prior to 2003, Airport Improvement Program (AIP)
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From page 98... ...
98 Airport Management Guide for Providing Aircraft Fueling Services of the sponsor. Many states offer financial assistance to sponsors by covering some portion of the 10% match on the AIP grant.
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From page 99... ...
Fuel System Improvements and Funding 99 7.6 References FAA. Airport Improvement Program Handbook, Order 5100.38D.
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From page 100... ...
100 8.1 What is a Feasibility Study? 8.2 Setting Goals for Fueling Operations 8.3 Income and Expenses Baseline 8.4 Amortized Capital Costs 8.5 Financial Statements and Pro Formas 8.6 Return on Investment 8.7 System Compatibility 8.8 Organizational Readiness 8.9 Report to Decision-Makers Chapter 7 described the important planning steps that would proceed the construction of an airport fueling system.
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From page 101... ...
Feasibility Evaluations 101 establishing a knowledge base about fuel customers and local competition. Chapter 7 discusses how to plan for fuel facilities and prepare a project description sufficient to examine the financial feasibility of the project.
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From page 102... ...
102 Airport Management Guide for Providing Aircraft Fueling Services 8.2 Setting Goals for Fueling Operations Whether the FBO is operated by an airport or private enterprise, fueling operations can be a key driver of revenues and a magnet for customers. Before attempting any type of feasibility evaluation, it is important to consider the many possible goals of the airport's fueling operation.
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From page 103... ...
Feasibility Evaluations 103 • High delivered costs for Avgas, particularly when a partial load of fuel is ordered; and • Low-price leadership at other airports that set a floor for fuel prices and tend to dampen fuel margins at airports that wish to remain competitive with a nearby low-price fuel provider. For many fuel operators, it is hard to get a handle on the direct and indirect costs for fuel and improvements to fueling facilities, primarily because at smaller airports, the fueling operation is but one of several services offered and staffed by the same personnel.
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From page 104... ...
104 Airport Management Guide for Providing Aircraft Fueling Services explicitly to fueling operations only, and easier to look at all airport services as a single operating unit and investigate the contribution of fueling to the airport's bottom line. 8.3.1 Operating Revenue Table 8-1 shows an example of revenue accounts an airport might use.
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From page 105... ...
Feasibility Evaluations 105 Operating Expenses Month 1 Month 2 Month 3 Total for Year Previous Year Percent Change Cost of Fuel Delivered Cost of Jet A Delivered Cost of Avgas Cost of Other Aviation Supplies Aircraft Oil Deicing Fluids Pilot Supplies Other Line Supplies Fees Credit Card Processing Fees Other Finance Charges Employees Employee Salaries Employee Health Insurance Training Uniforms Equipment Small Equipment Purchases (expensed) Equipment Rental or Lease Software and Licenses Maintenance Equipment Maintenance Hangar Maintenance Maintenance Labor Equipment Fuel and Oil Utilities Fuel Farm Utilities Hangar Utilities Other Airport Utilities Insurance Fuel Farm Hangar Liability Pollution Workers Compensation Marketing, Advertising, and Website Other Expenses Total Direct Operating Expenses Startup Costs Administrative Overhead Allocation Total Operating Expenses *
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From page 106... ...
106 Airport Management Guide for Providing Aircraft Fueling Services and customize. Of note are three cost accounts that appear at the end of the spreadsheet and include: • Costs for marketing, advertising, and maintaining the airport website; • A line item for startup costs that are associated with a new or expanded fueling operation;3 and • A line item for administrative overhead allocation.4 8.3.3 Gross Operating Profit or Loss Net operating profit or loss is equal to total operating costs subtracted from total operating income as shown in Table 8-3.
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From page 107... ...
Feasibility Evaluations 107 Local government and airport authority funding is highlighted as they are key inputs to a feasibility analysis. 8.4.2 Amortization Amortization of capital expenditures makes it possible to set goals for annual repayment of local funding contributions over the useful life of an asset.
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From page 108... ...
108 Airport Management Guide for Providing Aircraft Fueling Services over the life of the project. Capital projects that are expensed or that have annual amortization in this way can become part of an annual profit-and-loss statement.
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From page 109... ...
Feasibility Evaluations 109 8.6 Return on Investment When airport sponsors decide to add a new fueling operation, acquire an existing fueling operation, or upgrade components of the fueling facilities, inevitably the question arises: will the investment pay for itself? This section presents ways to examine whether an investment in fueling facilities or equipment will pay for itself over its useful life.
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From page 110... ...
110 Airport Management Guide for Providing Aircraft Fueling Services profits from fuel sales. Table 8-8 presents a set of assumptions about the cost and funding of a self-service Avgas unit and annual operating expenses.
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From page 111... ...
Feasibility Evaluations 111 • There may be economies of scale to be achieved if demand also exists for self-service Jet A, as both units could be constructed and managed simultaneously. It is possible to project fuel sales and operating expenses into the future to test how breakeven points will shift.
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From page 112... ...
112 Airport Management Guide for Providing Aircraft Fueling Services 8.9 Report to Decision-Makers Since the airport sponsor will review most proposed capital projects, airport staff will prepare a summary of the feasibility study. This summary would include the following suggested elements to explain and justify the project: • Goals of the airport fuel program and how this project fits into the airport's business plan; • Description of the proposed fuel project; • Justification of the project in terms of demand, competitive position, or improved approach to management of fueling operations; • Estimated cost of the project and sources of funding; • Financial impacts of the project; • Anticipated changes in levels of activity at the airport; • Potential challenges for implementation of the project; • Project sensitivity to risk; • Recommendations from the airport manager; and • Schedule for design, construction, and readiness for public use.
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