FBO Chain Profile: The Chain with No Name

 - September 13, 2006, 8:07 AM

This chain has no name but owns 22 FBOs, is backed by a large investment firm and continues to seek opportunities to build or buy more. A look at the “Business Services Industry” section of majority owner Allied Capital’s Web site reveals a logo and link to Mercury Air Group/Mercury Air Centers. Allied Capital owns 17 Mercury Air Centers FBOs, but the link doesn’t lead to a page about only those FBOs. Nor does the site offer a direct link to information about Corporate Wings, a three-FBO member of Allied Capital’s no-name chain. And viewers won’t see a link to I-X Jet Center or FirstAir, both stand-alone brands in the Allied Capital stable. The Mercury link on the Allied Capital Web site goes directly to www.fuelondemand.com, the central Web site for Allied Capital’s 22 FBOs.

Fuel On Demand (FOD) is an incentive fuel-discount program devised by the brains behind Allied Capital’s FBO chain, Kenneth Ricci, part owner of the chain and founder of fractional share company Flight Options. Ricci, a type-rated jet pilot, started Corporate Wings as a charter/management company in 1980 then bought an FBO at Cuyahoga County Airport near Cleveland, now the FBO chain’s headquarters. Ricci launched used-jet fractional share company Flight Options in the late 1990s and sold it to Raytheon in 2002.

After expiration of a non-compete agreement, Ricci, who had been a member of the board of directors of Mercury Air Centers, joined the company as CEO. The new job included an agreement that Mercury would also become the parent company of Ricci’s Corporate Wings FBOs, according to Richard Michaels, the chain’s vice president of marketing. Cleveland-based I-X Jet Center, named after the nearby International Exposition Center convention facility, joined the chain in December.

While it’s atypical for a chain of FBOs not to share a single brand and identity, this is part of the Allied Capital chain’s strategy. “We are putting together an organization of first-class expertly run FBOs,” said Michaels. “It doesn’t nec-essarily add value to call all the FBOs by the same name.” Michaels cited the Marriott hotel chain as an example of different brands owned by one company, with each brand offering varying levels of service. The Marriott Hotels brand signifies a much higher level of service than the company’s Courtyard brand, for example. “There might be an instance where it lessens the value if you combine different FBOs that have different capabilities and different facilities,” he explained.

Instead of branding all of the FBOs under the Mercury or Corporate Wings names, Allied Capital wants to create a framework for the expansion of the FOD program, starting with the 22 FBOs and expanding to non-owned FBOs. “Once you do business with us in one location through Fuel On Demand,” he said, “that is the common thread recognized throughout the FBO chain.” And the value of having a chain is in creating an incentive for operators to use FBOs in the chain with differentiating programs such as FOD.

“More than likely,” Michaels said, “the current names will stay in place, and as we add locations, we will evaluate and decide if it is strong enough to stand on its own or if [changing] the name makes sense.”

Spreading out Fixed Costs

The Allied Capital chain announced
the FOD program at last year’s NBAA Convention. The idea was to motivate customers to use other facilities in the chain and encourage users to pay for increasingly sophisticated FBO facilities. Pilots hate ramp or facility fees, but, as Ricci noted, 90 percent of an FBO’s costs are fixed, yet fuel sales revenues are variable, swinging up and down with the flow of traffic. Ricci wanted to devise
a way to smooth the mismatch between steady fixed costs and variable revenue, and FOD does just that, motivating cust-omers to prepay for use of the facility, which covers fixed costs, in exchange for hefty discounts on fuel.

There are three ways to participate in FOD and obtain discounted fuel that costs $0.25 per gallon more than the wholesale price. Hangar tenants at Allied Capital FBOs can pay higher rent in exchange for FOD participation. Operators who plan to use Allied Capital FBOs can pay for an annual FOD agreement. And any operator can buy a “pack” of 12 visits, essentially prepaying the facility fee in exchange for less expensive fuel at any Allied Capital FBO.

Michaels described the FOD program as “fuel-farm pricing whether you have one airplane or 50.” At the price that FOD customers can buy fuel, he explained, it makes sense to top off whenever possible. “We have created, because of the way Fuel On Demand works, home-price fuel at any of our locations.”

For customers who aren’t sure FOD makes sense for them, Allied Capital FBOs offer a less-expensive trial period so they don’t have to commit to buying a full 12-pack, the normal minimum pre-paid facility fee package. The 12-pack fee varies with airplane size and the airport where the FBO is located. Four levels cover turboprops and light, medium and heavy jets. FOD pricing is more expensive, for example, at Allied Capital’s Mercury Air Centers base in Los Angeles because of the high costs of operating at LAX.

Visitors to Allied Capital FBOs don’t have to participate in FOD, but if they don’t they will pay a facility fee and retail price for fuel when they use one of the FBOs. FOD members can buy as much jet-A as they want, but usually the breakeven point is at about 125 gallons. In other words, if the customer buys less than 125 gallons of fuel, it’s not worth it to use up a facility fee “pack,” and the customer might as well pay the facility fee and retail fuel price.

According to Ricci, the Fuel On Demand FBOs do not participate in any third-party fuel-discount programs. He hopes to sign non-owned FBOs to participate in the FOD program, but they would have to agree not to honor any third-party discount programs, which could be a difficult sell to FBOs used to working with contract fuel companies. “Third-party programs are good only for the third party,” said Michaels. “That’s a middleman approach. We’d rather pass on the savings to the customer.”

Pilots Rate the Chain with No Name

The Allied Capital FBO chain has an interesting mix of big-city and secondary market facilities. The company owns six FBOs in California, a large number for one chain. In June, Allied Capital won the bidding to build an FBO at Baltimore/ Washington International Thurgood Marshall Airport (BWI), which is currently served by a Signature Flight Support facility. As soon as construction begins, the FBO will open for business in temporary facilities. Of the 22 Allied Capital FBOs, seven are the sole FBO at their airports and five face two more competitors.

In AIN’s 2006 FBO Survey, eight Allied Capital FBOs received enough votes to
be included in the published rankings. Two FBOs ranked higher than their competitors: at LAX, Mercury Air Centers scored 6.587 versus Landmark’s 6.013. And at Nashville, Tenn., pilots rated the Mercury FBO at 7.569 versus Signature’s 6.982. The Allied Capital FBO with the lowest AIN FBO Survey score was a sole-facility Mercury Air Centers at Jackson, Miss., which received 5.907. The rest of the company’s scores were average.

The AIN FBO Survey received no negative comments about any Allied Capital FBOs. We did find one negative comment in an Internet forum, in which a corporate pilot complained in March that during two visits to Corporate Wings in Charleston, S.C. (CHS), he encountered “discourteous [customer service] staff and inexperienced line personnel.” The pilot added that only one of four linepeople “knew how to attach a single-point fuel nozzle” and “how to work
the lav service cart.” The pilot said he brought the problems to the attention
of the manager and was told that they would be looked into.

When we asked this pilot whether he had been back to that FBO, he told AIN that “a subsequent visit to Corporate Wings [CHS] showed a remarkable improvement in line service, but the customer service desk still had a serious attitude problem. Incidentally, we have had similar problems at JZI with Mercury [the company’s other Charleston-area FBO].”

Pilot comments on airport database AirNav’s Web site echoed some of the negatives of the above critic, but in a more recent time frame. On June 29 one writer complained about having to wait 75 minutes for fuel when “I was the only plane on the ramp.” Another pilot on June 9 complained that the customer service rep couldn’t find his fuel order or receipt anywhere so he didn’t know how many gallons he had purchased.

Fuel Prices the Top Concern

Despite such examples, there are many more positive comments on AirNav about Allied Capital FBOs than negative. At CHS, an MU-2 pilot was happy that the FBO personnel knew how to tow his airplane. “The lineman who directed me to parking knew the quirks of towing and fueling an MU-2, something I don’t often encounter. Their fuel may not be cheap, but their service is great.”

A Beechjet 400A captain waxed ecstatic about Mercury Air Centers PDK in Atlanta. “No matter the time of day I arrive, all the folks there–from the line people to the counter gals–exhibit ample amounts of enthusiasm and competency.”

A frequent thread in pilots’ comments about Allied Capital FBOs is about high fuel prices and having to pay facility fees. One of the advantages of the FOD program, Michaels explained, is that it makes the customer service reps’ jobs easier. They don’t have to negotiate fuel discounts, consult with managers to try to give a customer a break on fuel or deal with third-party discount programs. All Allied Capital FBO chain customer-service representatives are trained to explain the economics of the FOD program and help customers see the benefits. Each FBO features a large plasma tv that constantly shows the fuel price, 12-pack FOD cost for each aircraft size level and how much operators can save on fuel by joining. “If a chief pilot can work out a weight-and-balance,” said Michaels, “he can easily calculate what his savings are today on Fuel On Demand.”

Michaels said that the chain is aware of complaints about its fuel prices. “We do, like any big company, have our share of comments,” he said. “We are on the upper end of the pricing chart. But most clients would like their Gulfstream handled by competent people [who are] paid a little more. We employ some of the finest talent in the industry, have some of the finest facilities and have a reputation for first-rate, safe, courteous service.”

Allied Capital is spending more than $20 million on FBO construction projects, including the new BWI facility and renovations and upgrades at FBOs in
Los Angeles, Tulsa, Okla.; Dallas; Santa Barbara, Calif.; and Atlanta (PDK).