Key success factors part 3 ($TA)
Now we go to our second success factor, fuel margins or in other words rational competition. First a brief description of the competition.
There are five nation wide truckstop chains (Travelcenters, Petro, Flying J, Pilot and Loves) operated by three entities (Petro was acquired by TravelCenters of America, Flying J by Pilot). All have the same basic model with the exception of Flying J that also had oil midstream assets. TA seems to have the largest truck maintenance operations and may have the most deals with fleets. There are approximately 6,000 truck stops in the US. The largest players are Pilot Corp. with over 300 locations, Flying J with 270, TravelCenters of America (TA) with 164 plus Petro division with 69, Loves with 140, and then the thousands of other smaller ones.
My main concern is that the truckstop industry had a recent gas price war. Anecdotal evidence suggests that fuel margins historically averaged 10% , equivalent to $26 c/gallon today, over the last 25 years within a downward trend. Fuel gross margin must exceed 10 c/gallon for a retailer to profit on fuel sales. That is until the summer of 2006, when Pilot teaming up with Marathon started to put pressure on gas prices selling it for cost or below for about 6 to 8 months. Flying J in his pursue for growth accelerated this trend and became its principal casualty. It went bankrupt and is being bought by Pilot.
Is this good news for the industry? For sure, and for several reasons:
- Flying Js bankruptcy has accelerated the consolidation trend in this industry. Fewer players, fewer misunderstandings
- The undo of cross subsidies consequence of vertical integration seems clear: TA’s connection with HPT, Pilot replacing Marathon with a financial partner, Exxon selling off its retail operations, Flying J separating its midstream assets
- Eliminated the main instigator of the price war
- Memories of the destructive price war and its casualties will be remembered for some time
This should help rationalize pricing and provide greater impetus for profitable fuel margins. Travelcenters fuel margins improved recently and it is way on track to cash flow breakeven at the slightest volume recovery. Travelcenter’s fuel margin is a key metric to follow
Following post, circumstantial evidence