AAFES fuel profits down, despite record prices
July 16, 2008
With gas sold by the Army and Air Force Exchange Service in Europe ranging from $4.32 to $5.65 a gallon, the exchange ought to be making money hand over fist just like the big oil companies, right? Think again.
Though record oil prices have been a boon for Exxon and Shell, U.S. fuel retailers — especially mom-and-pops and other stations not connected to oil companies — have generally seen their profits dwindle.
AAFES has not been able to buck that trend.
Compared to a year ago, AAFES worldwide fuel sales for the month of May saw a decline in gross profits — profits before expenses — of $1.6 million, according to Judd Anstey, a spokesman for the exchange. Last May, the exchange made a gross profit of $11.2 million off fuel sales; this May, gross profits declined to $9.6 million.
In Europe the drop in gross profits from fuel sales has been even more dramatic, falling from $5 million before expenses in May 2007 to $3.2 million this May — a 36 percent plunge.
The profit slump is attributed to the fact that fewer gallons are being sold, according to Anstey and Lt. Col. David Konop, an exchange spokesman in Europe. The exchange still makes about the same amount of money off each gallon sold as it did a year ago.
High fuel prices and a weak U.S. economy are blamed for the decline in motoring in the U.S., according to the U.S. Energy Information Administration. But in Europe, an ever-dwindling U.S. presence is also partly responsible for the downturn.
In the communities of Würzburg, Hanau and Darmstadt, Germany, for example, fuel sales have dropped off by more than half from a year ago. In May 2007, the AAFES stations in those communities together sold roughly 250,000 gallons of fuel; this May about 110,000. That will tail off to zero gallons by the end of August, when those communities, and AAFES gas stations, close.
But fuel sales are down in enduring communities as well. The station in Baumholder, Germany — from where the 2nd Brigade Combat Team deployed to Iraq earlier this year — sold nearly 353,000 fewer gallons this May than last, an 82 percent crash, according to AAFES sales data. Lakenheath, England’s sales dropped from 244,800 gallons in May 2007 to 227,137 gallons this May.
Only a handful of communities, including Stuttgart, Schweinfurt, Bamberg, Garmisch and rapidly expanding Grafenwöhr, all in Germany, along with Lajes Field in Portugal’s Azores, and RAF Croughton in the United Kingdom, sold more fuel this May than last.
Overall, the exchange’s stations sold 693,314 fewer gallons this May than they did a year ago, according to Konop.
While dramatic, the downturn in sales hasn’t yet hurt the exchange’s 2008 sales goals — profits from which go to build and improve stores and to military quality of life programs.
"AAFES earnings (which are provided to the military community for Morale, Welfare and Recreation programs or capital improvements), as projected for FY08, are in line with the command’s Annual Financial Plan," Anstey wrote in an e-mail.
The exchange has no plans to try to boost fuel sales through incentives or to change its pricing policies to make up for weakening demand.
"The reduction in gallons sold is the result of factors outside of the exchange’s control," Anstey wrote. For various reasons — such as high prices and typically unfavorable exchange rates — people are driving less or are switching to more fuel-efficient vehicles, according to Anstey.
The Navy Exchange, which uses a different method to set fuel prices, has seen gross profits either remain flat or rise, despite a reduction in the number of gallons sold this year compared to three years ago, according to NEX officials.
While AAFES’ pricing formula results in an average of more than 80 cents being added to fuel costs in Europe, NEX sets fuel prices by adding 15 percent to what it pays — a method that produces higher per-gallon returns as prices climb.