Fueling on the Fast Track
By Michelle Garetson/p>
By Richard Rowe
All photos and graphics are courtesy of Swissport North America.
Independent service provider Swissport Fueling has thrived under new ownership and is now demonstrating its true growth potential, writes Richard Rowe
If ever a company has received a new lease of life, it is Swissport Fueling. Once a neglected arm of its previous owners, the organization has flourished since its purchase by Swissport International in 1999.
While much of the energy and investment in the company's old DynAir days was channeled into the larger ground handling business, the arrival of Swissport precipitated a sea change in thinking: for the first time in nearly 40 years, the fueling division received unequivocal corporate commitment to grow the business and sufficient financial buy-in to develop in parallel with its ground handling big brother.
Understandably, having operated as caged birds for so long, senior management at Swissport Fueling relish spreading their wings in the new environment. "It is only since the Swiss bought us that we have been given the opportunity to do something with the business and that is exactly what we have done," says Tom Comeau, President, Swissport Fueling. "I think their trust and faith in us was well-placed."
Today, Swissport Fueling may still be considered a separate entity, but one that has been welcomed into the family rather than treated as a distant stepchild. The division is a wholly owned subsidiary of Swissport North America, which also comprises a major ground handling arm, Swissport USA, and a cargo handling division, Swissport CFE. The whole North American operation, in turn, is governed by Zurich-based, Swissport International.
Swissport's sole fueling division may only be in one market, but it has chosen well. If a company wants to be big in fueling, it really has to be present in the U.S.; with some 26 billion gallons of fuel delivered into aircraft each year (from a worldwide total of 64 billion), the U.S. accounts for roughly 44 percent of the world market.
Around 85 percent of that market is currently served by a handful of large third-party players - ASIG Ogden Allied, GlobeGround and AGI - with the remaining market controlled by smaller FBOs around the country and airline self-fueling operations.
Since the takeover in 1999, the company has grown from something close to a boutique operation into a much larger and more aggressive competitor. Swissport Fueling now has a countrywide network of 11 stations (see map on page 28) and a market share of around 8 percent. The company is on target this year to handle roughly 2.58 billion gallons and fuel 538,740 flights. On time performance to date is an enviable 99.98 percent.
"I think in the past, we were perceived as a good, efficient operation but one that needed to grow before we could make the most of other opportunities," believes Comeau.
The arrival of its Swiss parents and the backing that came with it has helped change that perception. Swissport has since opened a major new station at Boston, while this year has seen significant new operations begin at both Seattle and Washington Dulles.
Business growth has been premised on the understanding that fueling is a very different discipline to conventional ground handling activities, and therefore one that plays by different rules.
For one, it is a highly specialized area. The responsibility involved in receiving, storing, and supplying fuel is enormous and considerable expertise is required to perform all the necessary quality assurance checks and fuel testing, even before the product is pumped to the airport and dispensed into individual aircraft. Training and time invested in people is commensurate with that responsibility.
The available market is also very different. A significant amount of jet fuel delivery is accomplished through airline consortia, which means that restrictions such as those faced in ground handling are not significant. Opportunities for specialist companies have existed ever since the 1960s when the oil companies stepped out of the business and the airlines brought in independent companies to operate fuel systems on their behalf.
Today, Swissport's largest into-plane customer is America West and the company handles millions of gallons a year for the carrier at Phoenix alone. Other large into-plane customers include Southwest and a host of U.S. major and international carriers from Delta, United, and Continental to Air Canada, British Airways, and Lufthansa.
Seven of Swissport's 11 stations involve Maintenance and Operation (M&O) contracts where the company provides complete fuel system management as well as into-plane fueling, mostly on behalf of airline consortia at each station.
By far the largest station is Phoenix SkyHarbor, where the old DynAir first pioneered the use of fixed hydrant carts — now almost the industry standard across the U.S. The Phoenix station also involves the management of a complete hydrant fueling system from a 16 million gallon off-airport storage system, a four million gallon on-site tank farm storage system and an 11-mile, intra-state pipeline and pumping system that delivers fuel from the Central Phoenix terminal to the airport itself.
"We work with a consortium of airlines known as the Arizona Fueling Facilities Corporation," explains Jim Vescio, General Manager. "We also provide approximately 90 percent of into-plane fueling here."
Although itself the subject of a recent acquisition, Swissport Fueling has spent the last couple of years growing steadily through the conventional bid process rather than acquisitions of its own. While positive, the flip side is that such a strategy is dependent on when bids come out, which tends to be few and far between.
"That said, we have won our share of the bids that have come out," says Comeau. "We hope to continue growing the business in North America through the bid process and we are now anxiously waiting on another couple of bids to come out."
Comeau sees plenty of additional airports he would like to get into, but concedes that realistically the chances of entry are slim. Fuel system operators at international gateways such as JFK have invariably been in place for decades and airlines, or consortia of airlines, do not switch fuel supplier lightly in such cases. Fueling is a different world to the 60-day termination clauses of the ground handling market. "We have targets, but we also have to respond to everyone," says Comeau. "So, it's more of a shotgun blast than a rifle shot approach."
The full package M&O/into-plane contract is Comeau's preference, but is not always possible. Bids tend to be separate, and if an incumbent fueler already provides M&O services, it is strategically and financially better placed to also pick up into-plane work.
Comeau points to Boston Logan as a good example. "Boston has one of the most modern and expensive systems ever built and we were brought in by the airlines to oversee its construction," he explains. "Today, we maintain and operate the system on behalf of the airlines and have since got into the into-plane side of the business there."
Such recognition bodes well, says Comeau, and suggests that the airline community thinks highly of the company's technical ability. It is also an opportunity to develop a genuine competitive edge. "After all, everyone's role is to put clean, dry fuel into an airplane and there are plenty that can do that. So, if the customer has a perception that you have the technical ability to run their fuel system, clearly you have the technical ability to run their into-plane as well."
For competitive edge, also read entrepreneurial thinking, Comeau is acutely aware that in a service business like fueling an airport location is only as good as its local manager. "You can have the best systems and programs," he says, "but if you don't have a good manager then you will not prosper."
As such, management continues to seek out those with technical ability as well as an entrepreneurial attitude. "We are looking for an entrepreneurial engineer if that's not an oxymoron," jokes Comeau. "If a manager does not see an opportunity at his airport, I'm certainly not going to see it."
Pumping Up the Volume
This kind of creative approach, plus the relative stability of fueling as a function, has helped over the last 18 months. The slowing economy and immediate aftermath of 9/11 saw Swissport Fueling suffer like any other service provider, but it could have been much worse. Ever contrary, Southwest Airlines, a major customer, added flights a few days after September 11, while the likes of America West are now back to around 95 percent of flights.
"Our volumes are pretty much where they were and we have actually added customers and locations even since 9/11," explains Comeau.
But the fact remains that the market has changed over the last year and service providers have to be quick witted if they are to manage escalating business costs on the one hand and customers that, quite simply, can't pay for it on the other.
"The first and foremost thing in the minds of any buyer is, as always, safety, followed by home office support and better pricing," explains Comeau. "Barring safety issues, they are looking at what they can hold off on."
With airlines looking for service providers to roll back prices where possible, suppliers have to come up with some original thinking when discussing contracts. "We have to be very specific in terms of what we are going to do with the money and show that, on a per gallon basis, customers are paying less than, say, three years ago," says Comeau.
"But we are certainly one of the top service providers in terms of [minimum] delays, which makes it easier to do business. If you have a delay and accident free environment and offer a fair price, then airlines are a lot more receptive."
Comeau is also keen to use the company's technical know-how to explore additional sources of revenue. Although still in its infancy, one plan is to sell Swissport's expertise on a consultancy basis to the corporate aviation dependent airports that are dotted around Swissport's current mainline stations. Each have their own fueling systems, operated by the corporate operators or local FBOs.
It's a sound plan, believes Comeau. "Such airports
don't have anywhere near our expertise in terms of fuel quality and fuel systems
maintenance. We have people who flat out know what they are doing, so why not
operate on an annual contract basis and audit the airport to help ensure that
their fuel is clean and dry?"
Such a plan also has the added benefit of reducing costs for current customers by providing greater utilization of personnel. "In today's environment, you have to look for other ways to reach the same bottom line," he adds.
The future is all about building on the momentum gained over the last three years and developing that all-important critical mass. "This is a business that feeds on itself in that the bigger you are the more opportunities become available to you."
For now, Comeau does not rule out growth through acquisition, but only certain kinds. Interestingly, the Swissport boss sees many future opportunities, particularly on a pure bid basis, lying outside the US. "Our desire is to expand all over the world in an orderly fashion," he confirms.
Although agonizingly slow, more international airlines are looking to go down the US route and take fueling operations out of the hands of oil companies and bring in independent fuel operators. Swissport Fueling has already responded to several bid requests in Europe and the Middle East.
"We can do the job as well as if not better than an oil company and for a lot less money. This is how we earn our living. Oil companies are in the business of moving products, while we are in the business of serving the customer."
Clearly, Comeau is enthusiastic about the opportunities
that lie ahead and revels in the fact that fueling now has the ear of its Swiss
parent. "We finally have a parent that says 'let's give it a shot'. We
are paying them back for that faith."