2006 FBO Survey

 - October 11, 2006, 9:05 AM

Fifteen years ago, one of my first assignments for AIN was to travel to the NATA Convention in Las Vegas. (You are now reading one of my last assignments.) The schedule called for me to arrive in Glitter Gulch on Friday, April 5, 1991, for the final day of the convention. Editor-in-chief Jim Holahan supplied me with a list of names of industry people to try to contact and a general overview of what AIN was looking for in the way of an industry snapshot.

This was a daunting prospect for a reporter whose primary view of the FBO industry was shaped by my experiences as a light airplane owner and pilot. My report to Holahan contained this sage observation: “It was tough to arrive at NATA on the last day and attempt to educate myself about the industry while finding out what was ‘new.’ That’s difficult when you don’t know too much about what’s old.”

I recently unearthed that four-page, single-spaced report to AIN that I wrote a decade-and-a-half ago, shortly after the first Gulf War. Looking at what was on NATA attendees’ minds back then provides some eye-opening perspective on what holds people’s attention this year. Here are some of my comments to Holahan, measured against the intervening 15 years of experience reporting on that industry in a monthly column. As the French say, “Plus ca change, plus c’est la meme chose.” (The more things change, the more they remain the same.)

From my report:

“I visited several fuel suppliers for their impressions on the future of fuel prices. The collective response was one big shrug of the shoulders after another. If there was a grand plan among any of the oil companies as far as pricing goes, they weren’t sharing it with me.”

That could have been written 15 days ago just as easily as 15 years ago. In between, oil companies largely sat out the dot-com boom times, struggling through as one of the few industry sectors not to prosper wildly through the 1990s. A scramble of mergers has consolidated what used to be a widely diverse industry to about half the number of players. As recent earnings reports have shown, the petroleum industry is now making up for lost time.

Talking Points Remain the Same
As my report to Holahan continued, I listed a series of talking points that jumped out to a rank amateur as keystones of the future building blocks.

I wrote:

“Generally speaking, there are some consistent subjects that seem to concern everyone in the airplane gas station business; be they large or small, specialized or general, supplier or deliverer, money people or airplane people, growth oriented or hanging on.”

Among the first of those subjects was wholesale fuel pricing. Back then, FBOs were uncertain about the future of fuel prices due to the recently waged Gulf War. This year, the most immediate concern stems from the aftereffects of Hurricanes Katrina and Rita. In 1991, as today, fuel prices were said to depend at least somewhat on the ups and downs of the general economy. With the stock market on an upswing, there is less pressure on oil companies to lower fuel prices, particularly retail sales of jet-A to business-aviation customers.

The next-most-important issue on the minds of FBO executives in 1991 was consolidation, “the anthem everyone was singing,” as I wrote in my report. But it meant something different 15 years ago. Back then, NATA was predicting that airports with five FBOs would soon have only two or three, and those with two or three would soon be down to one. That has proved not to be the case, despite an intervening down cycle as deep as any that business aviation has ever suffered. The number of FBOs has remained steady, and in fact, many top-tier bizav airports have seen more facilities rather than fewer.

Today, however, the word consolidation has a new meaning. Private equity financing has discovered the business-aviation service industry over the past five years or so. Administrators of these large sources of investment dollars view FBOs and maintenance shops as “fragmented” and ripe for the economy of scale and buying/ pricing leverage that single ownership can bring.

Investment houses such as CapStreet and The Carlyle Group have their collective eyes on acquiring independent FBOs in lucrative markets. Their shopping forays have increased the salability of certain independent FBOs that operate in attractive market segments–usually larger cities with high traffic levels.

Service was the next talking point that generated buzz in 1991–and is also on many operators’ lips half a decade into the new millennium. In my report to Holahan, I noted that NATA Convention attendees had the attitude that they ought to “leave prices [at least profit margins] alone and increase the level of service.” One veteran FBO executive said pilots were “fear driven” and would rather pay higher fuel prices than risk glitches in service that could jeopardize the smooth completion of a trip.

Again, the perception of “service” as an issue has changed. Back in 1991, the first training programs for line technicians were being developed, starting with Exxon and a video showing a well-meaning but slow-witted lineman who needed only a standardized training program to instill in him a perfect service mentality.

Today, while safety is emphasized at the forefront of any and all line-service training, the issue of hospitality standards is also front-of-brain for FBO executives. The most successful FBOs incorporate hotel-style training and orientation into their new-hire programs. One prominent FBO in the Northeast has sent key personnel to Disney for professional training seminars on how to make sure their ramp is among the “happiest places on Earth.”

On the safety initiative, NATA has assumed the mantle of responsibility with its Safety First program for line personnel (with a new, sister program targeting charter aircraft operations). Line personnel who undergo the Safety First training regime are awarded graduation certificates and uniform patches identifying them as having passed the course. In addition, FBOs whose line staff has collectively passed the Safety First training regime are awarded certification as a qualified facility–and receive placards and window decals to that effect.

The ultimate aim of the Safety First initiative is not only to make ramps and hangars safer places, but to demonstrate lower loss figures to insurance companies, resulting in more favorable rates for participating businesses. The safety incentive blends with the economic driver to make Safety First a winner on both sides of the ledger, stimulating better quality service and providing higher overall profit margins through lower insurance premiums.

Tackling Environmental Factors

Fifteen years ago, EPA restrictions meant new regulations on underground fuel storage tanks and the specter of a ban on unleaded aviation gasoline. Today, the EPA touches FBO operations in myriad ways. Not only does the agency oversee efforts to reduce groundwater contamination from underground tanks, but it also keeps its eye on contamination from other sources such as de-icing fluid and even wash-water runoff.

As increasing pressure from state and local governments targets airports regarding noise issues, it is interesting to note that, in 1991, then-Atlantic Aviation president Mack Graham expressed hope that recently passed federal legislation would standardize noise requirements nationally, thwarting local efforts to take anti-noise legislation into their own hands. That legislation, the airport noise and capacity act, has held fast in many cases leading up to the present, but has also seen the levee breached in some instances, such as at Naples, Fla., and Van Nuys, Calif.

Some other 15-year-old observations on the FBO industry are also eerily true today. For example, in 1991 I wrote, “Diversification: like an investor seeking to render his portfolio ‘recession proof,’ so too are some FBOs trying to diversify and protect themselves…hoping to ride the crests and lees of the wavy aviation marketplace. The trick is to anticipate which areas of concentration complement each other. For example, when aircraft sales drop, charter and maintenance services increase.”

Some Issues Remain Unsettled
I also reported to Holahan that interest in how best to negotiate (and renegotiate) airport leases was strong at the NATA Convention, as was the issue of real estate and the FBO. I wrote, “Some say that the real estate equity of

the FBO is an under-utilized resource.” For those in 2006 who are actively seeking to reverse the traditional FBO business plan, this is an ongoing truism. Bundling the lion’s share of all profits into fuel sales becomes tougher and tougher as wholesale prices rise and increases in overhead (salaries, benefits, insurance, airport fees) squeeze profit margins ever further.

Among the more interesting observations to emerge from the 1991 NATA meeting was a conversation I had with then-Butler Aviation (now Signature) president Bill Boisture. Butler was in the midst of an experiment at its New York La Guardia Airport facility, in which so-called “menu pricing” was being floated as a fix for the FBO’s low capture ratio (the percentage of aircraft operators who visit and buy fuel versus those who stop but don’t buy).

As I wrote in 1991: “Butler espouses paying for each service performed and points to European FBOs that have adopted this strategy. Butler has tried it out at La Guardia and the program has met with stiff resistance…FBOs are very sensitive on the subject of pilots who use the facilities and don’t buy fuel or otherwise contribute to the coffers. The concept of so called ‘menu pricing’ is one of the big questions that will have to be answered over the coming months.”

After 15 years of keeping a weather eye on this corner of aviation, like everyone else, I’m still awaiting the final verdict on that one.

Check out the complete '2006 FBO Survey' (PDF)

Check out the complete '2006 FBO Survey Results' (PDF)