FBO Survey 2003: North America

 - January 21, 2008, 6:54 AM

Starting this year, AIN is conducting its North American FBO survey annually, having run the program every other year for the past 25 years. Now pilots can take more timely advantage of their colleagues’ ratings of the service facilities that keep business aviation flying. What makes the AIN survey uniquely useful is that it is just that–a survey.

Numbered survey forms are mailed to close to 15,000 pilots, flight department managers and dispatchers asking for their input on all the FBOs they’ve done business with in the past year. The average respondent rated more than 23 FBOs in the following four categories: service, passenger amenities, pilot amenities and facilities. The results are tallied and averaged, with the ratings reduced to a series of colored dots, red for highest, then–in descending order–green, blue, yellow and black.

The FBO industry has undergone some dynamic changes in the past few years. Unprecedented levels of building and upgrading started during the booming economic times of a few years ago. Many of those programs are reaching fruition. Also, continued low interest rates have stimulated building and upgrades even in the face of today’s challenging economic conditions.

Additionally, the strengthening of trade organizations such as the National Air Transportation Association has helped the industry better organize itself. Standardized training programs for line-service technicians and customer-service representatives have improved safety and generated more consistent service. The training programs and standards also provide the FBO industry ammunition when it comes time to fight ever-increasing insurance rates.

There are certainly serious challenges, and insurance is one of the largest. Uncertainty looms over security requirements that might be introduced by the Transportation Security Administration. Impending war with Iraq has caused a spike in wholesale fuel prices–expected to be short-lived, but a stressor nonetheless.

With all that, the FBO service business is holding its own and is making most pilots and passengers happy most of the time. Comparing the results of this year’s AIN North American FBO Survey with those of the past few years leads to only one of two possible conclusions. Either pilots have become kinder and gentler in their outlook toward FBOs, or the service industry is getting better at handling business aviation.

Evaluating Facilities

Pilots and other flight department personnel were instructed to evaluate only those FBOs where they had done business in the 12 months before the survey form was mailed (late November last year). In all four categories rated (line service, passenger amenities, pilot amenities and facilities), 15 FBOs achieved coveted all-red scores–that is, the aggregate of their evaluations was at least 7.75 (out of a possible 9) in all four categories. Last year there were only 10 “all red” FBOs. In 2000 there were but four.

For this year’s survey, an additional eight FBOs–though they fell short of a red rating in one category–still achieved a 7.75-or-better average rating overall. Remarkably, there are six elite FBOs in this year’s survey that pilots rated 8 (out of a possible 9) or better in all four categories. Last year only three FBOs established that distinction. In 2000 not one FBO achieved that plateau of excellence.

That’s the top end. On the other end of the scale, the lowest any single FBO was rated was a solid mid-yellow score–a warning, to be sure, but not nearly as bad as the several black-rated FBOs AIN used to see. Gone, for the most part, are the horror stories of untrained line techs, inadequate equipment and unsafe ramp areas. There are still complaints about inefficiency and the occasional bad attitude on the part of a customer-service representative, but the overwhelming impression is one of consistent levels of service.

High Prices, Ramp Fees
Fuel prices and ramp/service fees continue to be a lightning rod for pilots’ criticism of the FBOs they frequent. A few months ago on the NBAA Air Mail Internet forum, a chief pilot on a Challenger wrote the following:

“I’m not sure we are obliged to purchase anything at any FBO. Let us not forget, we are the customer. Sure, I won’t mind not using the crew car or eating the counter candy if a purchase isn’t made, but to feel bad about pulling up to the front door, hmmmm, I doubt it. I don’t want to sound too repetitive here, but provide a decent service and the customers will eventually respond.”

The writer summarized the thoughts and feelings of a substantial number of business jet pilots and operators. Many believe that some FBOs are gouging aircraft operators at every opportunity. It’s hard to tell who is in the majority, but the preceding message drew some rebuttal from an opposing faction of pilots, including the following:

“Stopping at an FBO, using their telephones, sitting in their chairs and not buying anything is not good business. I like to think I’m doing my small part to keep them open for the next time I show up. You wrote, ‘Let us not forget, we are the customer.’ Customers buy things. Otherwise they’re not customers, right? I think I have a lot of company in my camp.”

Overhead Costs
It would be hard to make the case that all FBOs have hearts of gold and place their customers’ satisfaction above the profit motive. Conversely, it’s unrealistic to expect the same service, facilities and prices at FBOs nationwide. You may be able to park your car safely in a lot in Appleton, Wis., for as long as you like for free, but no one expects to do that in downtown Chicago or Manhattan.

What’s poorly understood is the wide discrepancy in overhead costs among FBOs across North America. How much it costs an FBO to open its doors every morning can vary significantly with local real-estate values and the attitude of the local airport authority, city, county and state government toward the airport or general aviation. The monthly cost to the FBO reflecting that attitude can be substantial.

In some situations, all the government entities listed above may recognize great value to the community in having a premium FBO on an airport. It may be that one or more local businesses depend on air transportation to prosper and provide jobs and tax revenue. Or the local airport and FBO could be a gateway for wealthy tourists. Subsidizing an FBO can be a good investment for a city, county or state.

At the other extreme is the case of an airport authority or local government that sees the FBO either as an accident waiting to happen, a noise factory, a nuisance that impedes airline service or as a cash cow to fill local coffers, and sometimes all of the above. Unfortunately, there are far greater municipal bragging rights associated with the level of airline service at the local airport than with any known measure of general aviation activity.

Consider These, Please

The following is a partial list of FBOs’ expenses that may or may not be subsidized by local government:

• Rent–Some “landlords” charge top dollar and may find loopholes in leases to raise rents without notice; others provide the real estate at no charge to the FBO. Most are somewhere in between.

• Construction–When you lease the turf under your feet from an airport rather than owning it outright, it can be exceedingly difficult to get a construction loan. For that reason, finance charges are typically much higher than those for most businesses. The same applies to loans for refurbishing or maintaining highly specialized buildings that sit on leased property. Some airport authorities help an FBO assure the lender that a construction project on their airport is a good bet. Others don’t.

• Taxes–State, county and local taxes vary widely from airport to airport. Some FBOs operate tax free.

• Fuel-flowage fees–Some FBOs pay substantial per-gallon fees. Others pay nothing.

• Utilities access–This includes water, electric, sewage and wastewater runoff. Whether or not a town, county or state will pay to run power, water and sewer lines for a new business is up to the discretion of the budget writers. Some will pay to bring services to an FBO’s front door. Others will require the FBO to foot the bill, which can be substantial since many airports place the general aviation leasehold area in the farflung corners of the airport property. Also, hangars can require vast amounts of water for fire-suppression systems. The FBO must be able to demonstrate that it not only has the water available in the event of a fire, but that it can capture and treat the runoff so that it doesn’t pollute the groundwater supply.

• Landing fees–Many aircraft operators assume the landing fee goes to the FBO. In most cases, the FBO is responsible for collecting the fee and remitting it to the appropriate local authority. TAC Air at Bradley International Airport in Windsor Locks, Conn., for example, posts a sign at the counter explaining to customers that the airport gets the landing fee.

• Parking fees–Most often, parking fees go to the FBO, but not always. The ramp may be part of the FBO’s leasehold, or it could fall under the jurisdiction of the airport authority. For the FBO, there are pros and cons to both arrangements. The operator has no control over what is or is not charged to park on a municipally owned ramp, but at the same time the airport is responsible for lighting, paving, plowing, maintaining and insuring the area.

• Legal fees–In many cases, FBOs need to fight a constant legal battle just to remain on the airport. Also, negotiating leases can be an ongoing process. The longer the term of the lease, the less pressure is on the FBO. Typical leases run for 20 or 30 years. Renewal negotiations start several years before the end of the lease term and usually involve facility improvements. One pitfall here is that a lease renegotiated during boom times can have provisions that can cripple an FBO’s operating margin at the first cyclical downturn.

• Percentage of revenues–From the cash-cow school of looking at the local FBO, some airport authorities negotiate a piece of the action into their lease agreement with the FBO.

That’s a partial list of how operating overhead can vary greatly from one airport to another–sometimes within the same state or near the same large city. And FBOs provide two products for their customers–service and fuel. Unfortunately, they usually charge for only one. The traditional business model for an FBO is to derive the lion’s share of profits from fuel sales. If those profits have to offset steep overhead, fuel prices will be higher, profit margins will be lower, or both, making it hard for an FBO in a hostile political environment to compete with others that have sweetheart deals.

Many FBOs are reluctant to reveal to customers their disagreements with their landlords. They don’t want to rock the boat. Still, some FBOs display placards showing how much of the posted fuel price does not stay in their bank accounts.
Lest pilots forget some of the other fixed costs for fixed base operators, remember these monthly bills: heat/air conditioning; insurance; labor costs and benefits for line techs and customer service reps; recurrent training; runway/taxiway/ramp maintenance and plowing; ground vehicle maintenance; weather service/Internet provider/cable TV; crew cars, shuttle buses and drivers; lobby amenities such as coffee and popcorn; cleaning and building maintenance; and administrative costs.

More insidious is the problem of the “well meaning amateur.” A time-honored tradition in the FBO industry is the wealthy individual who becomes enamored with the romance of aviation and wants into the business. Often, such people are convinced they can do it better, and for less, than the competition. Also, they are often in control of a family of companies with high profit margins. For them, an FBO with low profit margins–or even losing annual receipts–could represent a tax advantage to the overall business portfolio.

In the short term, these FBOs are great for aircraft operators. They often build elegant facilities and usually charge low fuel prices. The downside is that they may not last through the first economic downturn. In the meantime, pilots who have grown accustomed to the low prices and high levels of service may tend to measure all FBOs against those high standards.

Those who are able to provide top levels of service, keep prices reasonable and still stay open are almost always dedicated to their businesses and actually enjoy keeping a 24/7 work schedule. They bear the weight of the world of business aviation on their capable shoulders, and usually at profit margins that make their accountants reach for the Alka Seltzer.