NBAA Convention News

Is the FBO Business Model Broken?

 - October 25, 2014, 9:45 PM

The days when FBOs made their profits solely on fuel sale margins are long gone and the industry needs to implement either a full service or á la carte fee structure, much like U.S. passenger airlines have done in recent years. That’s the message from John Enticknap, co-founder of the Aviation Business Strategies Group, a company that provides consulting services to FBOs.

Enticknap addressed a seminar at NBAA 2014, dealing with the FBO business. He said that falling fuel prices, fuel discounting, squeezed gross margins on fuel, more fuel brokers, escalating FBO overhead for insurance and employee health care, increased fuel tankering by corporate operators, more fuel-efficient and longer-range new aircraft and a static amount of business flying, both in past years and forecasted in the future means FBOs must look at other revenue streams to stay in business.

“The business model is changing whether you like it or not,” he told his audience, adding that FBOs can no long afford to “give away” perks and services, such as coffee, ice, newspapers, conference facilities and crew cars. “Is there another service industry that gives away so much stuff?” he asked, noting the industry trend to offer more and more inducements over the last 40 years. “Have we done this to ourselves?”

Enticknap encouraged FBO managers to derive “an income stream from each and every person” coming into their facility. “Never let anyone get out the door without paying,” he said. “Make sure every airplane that comes onto your ramp contributes to your revenues.” He suggested ramp fees on par with the monetary value of an aircraft’s hourly fuel burn for customers not purchasing fuel, noting that only one in three transient customers purchases fuel and that corporate flight departments now obtain 60 to 70 percent of fuel from their own fuel farms. And he advised FBOs that rent space to “hangar queens” to get rid of them, unless they fly a minimum number of hours.

Enticknap claimed that fewer FBOs are aligning with a specific fuel brand. Instead, they are trying to differentiate themselves by providing excellent customer service and facilities, a challenge becoming increasingly difficult in an age of declining revenue.

While there may be resistance to imposing more fees, because “no FBO wants to be the first,” he said, most customers understand the need for fees and the practice is economically sound. Citing the airlines’ experience, Enticknap said, “Delta just made a profit of $800 million. It also charged $800 million in fees over the period. Seen many empty [commercial] airplanes these days?”