Pilot Flying J probe lifts hopes of dwindling rivals

Walter F. Roche Jr. | The Tennessean

When Knoxville, Tenn.-based Pilot Travel Centers, already the biggest in the business, moved to buy out its largest truck stop rival, a small group of independent operators and their suppliers pleaded with the Federal Trade Commission to block the deal. It was to no avail.

Now, four years later, with Pilot even larger but caught in the swirl of a federal criminal investigation, the leaders of a dwindling band of independents are holding out hope the FTC will reopen the case.

"I can't touch what they (Pilot) are giving their customers," said Jan Van Westrop, who runs The Tennessean, a travel center in Cornersville, Tenn. (The travel center has no relationship to The Tennessean newspaper.)

Since the April 15 federal raid by FBI and IRS agents on Pilot Flying J's headquarters, company CEO and Cleveland Browns owner Jimmy Haslam III, who is the brother of Tennessee Gov. Bill Haslam, has held somber news conferences trying to reassure his customers and the public about the integrity of his company.

Van Westrop said that while he can compete with Pilot, which operates as Pilot Flying J, on food and other goods, Pilot, the largest buyer of diesel fuel in the country, is simply too big for him to be able to compete with on diesel.

He said the street price or the price at his pumps often may be the same as at nearby Pilot outlets, but the actual price being paid, especially by Pilot's large trucking customers, is nearly always less.

"I have to charge 8 cents more a gallon than Pilot just to break even," he said.

"There's no way we can compete," said Yash Singh at the Super Truck and Travel in Cookeville, Tenn., another independent.

Singh and other independents cited a number of factors that give Pilot an edge, including the rebates, which court records show are at the heart of the ongoing federal investigation. Singh can keep a close eye on the competition. A Pilot outlet is right next door.

Tom Ingram, spokesman for Pilot, made no apologies for the company's growth.

"Pilot Flying J respects its competitors but is extremely proud of their growth over recent years, which allows them to provide better service on a day-to-day basis to America's trucking companies and their drivers," Ingram said.

A 120-page FBI affidavit filed in federal court following a widely publicized April 15 raid on Pilot's headquarters spelled out an alleged scheme in which Pilot sales executives systematically reduced rebates promised to unsuspecting trucking companies across the country.

At the Pilot Travel Center in Nashville on Wednesday, Tim Osborne used his Comdata card to fuel up with more than 200 gallons of diesel. He hauls gasoline to Kroger outlets.

Osborne said he also uses a Pilot rewards card to build up points to get discounts on items sold at the travel centers, but the points can't be used on fuel purchases.

Consolidation in fuel card business

Interviews with independent truck stop operators show Pilot's edge is not limited to diesel fuel and the rebate program.

The 2010 purchase of Flying J, which merged the two largest travel center firms in the country, has been followed by the continued expansion of Pilot's stake in the fuel card business. T-Chek, TCH and EFS, or Electronic Funds Source, are all now affiliated with Pilot Flying J.

Only Brentwood-based Comdata has a bigger share of the fuel card market. And Comdata doesn't own a nationwide chain of truck stops.

The fuel cards, used by trucking firms big and small, are much like but different than gasoline credit cards used by the general public. They are used to fuel the trucks that transport goods across the country, all the while serving as a reliable industry data source on such things as fuel pricing.

The cards are powerful collectors of data, tracking miles driven, the identity of the driver along with the price paid for fuel.

Records at the Federal Trade Commission show representatives of the independent truck stop operators warned not only of the potential monopoly that would be created by the merger of the travel center business, but also of the consolidation in fuel card business.

"When they own more fuel card companies," said Marsha Bird of the North American Truck Stop Network, "they are going to push more of the drivers into their stations. The independents are being squeezed out."

Bird's organization was one of those to file an objection to the Pilot Flying J merger citing concerns not only about a monopoly, but the potential access to critical data in a highly competitive market.

"There are only two or three other fuel card companies left in the business," said Burt Newman of Brentwood-based Professional Transportation Partners.

Like Bird's organization, Newman's firm objected to Pilot's purchase of Flying J putting added emphasis on the fuel card business.

Lawyers for Newman's firm argued that with control of the fuel card business, Pilot Flying J would be in a "unique position" to use the fuel card data to the detriment of independent operators.

Ambest, another representative of the independent operators, cited similar concerns and termed inadequate the FTC order for a so-called limited firewall between the combined firm's fuel card and some travel center operations.

The advantage Pilot has had since the merger has been noted by one of Pilot's chief competitors, TravelCenters of America.

"We are unable to determine the full extent and effect the combined Pilot Flying J may have on our financial position, results of operations or competitive position, although we expect the combination may significantly alter the competitive conditions in the travel center industry," TravelCenters stated in a recent filing with the Securities and Exchange Commission.

In another filing, TravelCenters pointed directly to the threat from fuel cards.

"Most of our trucking customers transact business with us by use of fuel cards, which are issued by third-party fuel card companies. The fuel card industry has only a few significant participants. Competition, or lack thereof, among fuel card companies may result in future increases in our transaction fee expenses or working capital requirements or both," the May 7 filing states.

Michael Broyles, also with the North American Truck Stop Network, said he and his colleagues have been closely watching the developments in the federal investigation and are hoping the FTC is watching, too.

"If the FTC would just take a second look, that would be a plus," he said.