Saturday, April 21, 2018

Analysis: 800-pound gorilla arrives, Pilot and Flying J merger complete


Friday, July 9, 2010
by JACK HUMPHREVILLE

Pilot Flying J will have twice the number of fueling lanes as TravelCenters of America and its sister company, Petro Stopping Centers, and four times the number of fuel lanes as Love’s Travel Stops and Country Stores.
Pilot Flying J will have twice the number of fueling lanes as TravelCenters of America and its sister company, Petro Stopping Centers, and four times the number of fuel lanes as Love’s Travel Stops and Country Stores.

On June 30, after almost a year of waiting, Pilot and Flying J completed the merger of their two truck stop operations, creating a network of more than 550 interstate locations in 43 states and six provinces in Canada, employing over 20,000 people, selling an estimated 4 billion gallons of diesel fuel a year. 

Pilot Flying J will dominate the over-the-road sales of diesel fuel to long-haul trucking fleets. The 800 pound gorilla will have twice the number of fueling lanes as TravelCenters of America and its sister company, Petro Stopping Centers, and four times the number of fuel lanes as Love’s Travel Stops and Country Stores. And while its combined share of the fueling lanes is about 22 percent to 23 percent according to data supplied by The Trucker’s Friend (www.truckstops.com), its market share of “the over the road sale of diesel to long haul fleets by national travel center operators” exceeds 50 percent, according to two knowledgeable industry participants.     

An integral part of this transaction was the Consent Agreement with the Federal Trade Commission that was necessary to overcome the government’s concerns that the merger “may substantially lessen competition in the relevant market by, among other things: (a) eliminating actual, direct, and substantial competition between Pilot and Flying J; and (b) increasing the likelihood that Pilot will exercise market power unilaterally.”

http://www.ftc.gov/os/caselist/0910125/index.shtm

As a result, Pilot Flying J agreed to sell 26 locations (20 Pilots and 6 Flying Js) to family owned Love’s for an undisclosed amount. For Love’s, this is an important transaction in that it expands their operations to 38 states and increases the number of fuel lanes by almost 13 percent according to data supplied by The Trucker’s Friend (www.truckstops.com). This will allow them to compete for the business of long haul fleets. 

There is some question as to the relative quality of the locations that Pilot Flying J is divesting since the divested locations have fewer fuel lanes than the average location.  For example, in Brunswick, Georgia, the retained Flying J is a modern facility with a large parking area and easy access while the divested location on the east side of I-95 is a small cluttered operation with substantially less curb appeal.

However, one industry participant questioned whether the divestitures had any real impact, noting that the number of fuel lanes that Pilot Flying J was divesting was about 3 percent of the total, hardly enough to make a difference, especially given Pilot’s “Wal-Mart like” purchasing power and financial muscle.

Another industry participant, amazed that the transaction was allowed given the Obama administration’s anti business attitude, said, “Pilot must have some very well placed friends in Washington.”

The ultimate success of Pilot Flying J depends on a number of factors that are beyond the control of industry participants such as the economy and the margin per gallon. 

However, there are a number of factors that are within the control of Pilot Flying J, the key being how the two very different cultures work together, especially given the economy and the higher level of debt that Pilot Flying J incurred to complete this transaction. 

At the same time, Pilot Flying J needs to be very careful of exercising its Wal-Mart like market power since the FTC and a number of industry participants will be watching to make sure that the 800 pound gorilla behaves. 

Every day, the average Flying J location generates over 1,900 transactions, of which 266 are for diesel fuel, 611 for gasoline, 363 for restaurants, and 1,657 for C-Stores. And these customers, primarily America’s long haul truckers, will be the first people to notice any deterioration or improvement in the services.  And they will vote with their feet and wallets.

Jack Humphreville can be contacted to comment on this article at news@thetrucker.com. He is also affiliated with Recycler Classifieds (www.recycler.com).

Video Sponsors