As business aviation continued its slow rebound in 2014, there were indications that the industry has left the bottom of the trough in the rearview mirror and is slowly recovering. According to industry data provider Argus, the good news is that business aircraft flights in the U.S. and Canada recorded a 14th consecutive monthly increase in January. However, that activity varies significantly by sector: turboprops and large-cabin jets saw gains, while light and midsize jets experienced slight declines. “Most FBO operators I’ve been talking with are facing the fact that we have a slow recovery,” said Stephen Dennis, president of FBO industry consultancy Aviation Resource Group International (ARGI). “They’re still seeing some improvement driven by the oil cost reduction, and many of the FBOs have picked up more margin.”
That assessment corresponds with the growing sense of optimism for this year conveyed by an annual survey of more than 200 FBO operators by the Aviation Business Strategies Group (ABSG). More than 60 percent of the survey respondents anticipated gains of at least 2.5 percent this year. “In our 2014 survey, the majority of respondents predicted at least a breakeven marketplace, with only about 40 percent projecting more fuel sales volume,” noted ABSG partner Ron Jackson. Of those surveyed, 18 percent responded that they expect fuel sales to rise by 5 to 8 percent this year, a healthy improvement on the 10 percent who looked for such gains last year.
The Consolidation Kettle Continues To Bubble
While the pace of FBO industry consolidation slowed during the recession, it is heating up again as the economy stabilizes and business grows. “It’s still not as good as it was in 2006 and ’07, but business is stable so I think people are realizing they made it through a downturn,” said Dan Bucaro, president and CEO of Landmark Aviation, which added 23 locations to its network over the past year (18 of those through its purchase of the Ross Aviation chain). They don’t want to struggle through another downturn, “so there are more locations out there for sale.”
The primary reasons driving each FBO operator to sell differ from location to location and owner to owner, according to Signature Flight Support president and COO Maria Sastre. “Some of them are ready to retire, and don’t have an obvious successor,” she said, adding that the recent improvements in the market might have spurred others to consider whether now is a good time to sell. One longtime FBO owner who sold recently told AIN that had he known the economic downturn would last so long, he would have sold years earlier. “Clients of ours have told us they did miss the golden opportunity of 2006-2007, and they regret not having done something at that time,” said Dennis. A further consideration is whether owners have received offers in the past, as the seeds for such deals tend to be planted years in advance.
There are approximately 3,000 FBOs in the U.S., a number Dennis believes is too large. “I don’t think there is enough market activity to support all the FBOs we have out there,” he told AIN. “We’re at the point where in the next three to five years we’ll see another 10- to 20-percent consolidation of the industry.” This math suggests several hundred FBOs will vanish, either through acquisition by the major chains or, for FBOs at smaller airports, by their rival independent locations. While the major chains will continue to grow, Dennis believes that process will slow as the available locations at the nation’s top 100 airports are exhausted. Landmark’s Bucaro echoes that sentiment. “We’re not interested in the number of dots we have on the map. We’re interested in making sure that the locations we add to our network really add value to our customers, and so that they are really relevant in what we do,” he said.
In this year’s FBO survey, AIN asked readers how they view the consolidation trend: nearly half the respondents were undecided as to whether a move from individually owned locations to those owned by chains is good or bad, while hundreds of comments supported the arguments for each side. While some characterized the consistency a chain provides as a plus, others viewed chains as lacking the personality a one-off location can offer. Regardless, Dennis believes the day of the independently owned FBO is far from over. “There’s still going to be a huge number of FBOs out there that are not part of the domain of the primary networks.” The recent rise of upper-tier “membership” networks of affiliated FBOs that emphasize service levels is one way such locations look to remain competitive. Such groups require member facilities to uphold defined levels of customer service as a condition of membership. Indeed, customer service remains key: 90 percent of survey respondents indicated it is their top consideration in selecting a facility. While the FBO chains offer loyalty and reward programs to attract and retain their customers, less than 7 percent of our survey respondents listed it as one of their most important factors in choosing a service provider.