FBOs Feel the Labor Pinch

 - October 3, 2022, 8:11 AM
Photo: Matt Thurber

In the post-Covid pandemic environment, private aviation has surged as those with the means to avoid the airlines—with their close personal contact and still-diminished schedules—have done so. While that has led to record traffic for most FBOs, factors such as rising fuel prices, inflation, and a tight labor market have put pressure on their payrolls and margins. These factors also have stressed the ability of companies to maintain staffing amid increasing work tempos.

Disruptions from Covid and the geopolitical fallout from the Russian invasion of Ukraine sent the retail price of jet-A soaring to record heights earlier this year, hitting more than $14 per gallon in the northeast in April. Brent crude reached a peak on March 8 of $127.98 per barrel, an 87.5 percent increase from the previous year, according to Oil Price Information Service (OPIS).

While the jump in fuel price is pinching already narrow margins for FBOs, executives point to an even larger concern. At a recent FBO industry gathering, attendees were asked to identify the greatest challenge they are currently facing, and staffing was far and away the most mentioned.

The problem has been endemic to the service industry of late, a lingering effect of the changes in the workforce wrought by the Covid pandemic. It has led businesses such as restaurants to curtail their hours and, in some cases, even days of operation as they tried to fill out their staff. Many FBOs are currently in the same situation with vacancies in their customer service and line service staff.

AIN spoke with the general manager of an FBO in a large city that has eight vacant full-time positions. To make up the difference, management and supervisors have had to fill in as much as possible. “We try to close an hour or so earlier in the day, especially if we do not have anything on the schedule,” he said, adding the front desk is not staffed at the traditional hours like it used to be. “On the slower weekends we’ll have a CSR come in an hour or two later and/or leave an hour or two earlier, and sometimes we’ll use a single staffer where traditionally we’ve had multiple staff members there.”

Competition for entry-level workers is high, and climbing wages are forcing FBOs to raise pay rates for employees at every level in order to retain top talent.
Competition for entry-level workers is high, and climbing wages are forcing FBOs to raise pay rates for employees at every level in order to retain top talent.

FBOs are encountering a new situation in terms of compensation, where other competitors for workers—particularly young entry-level workers such as fast-food restaurants—have had to increase their wages to attract enough staff to operate at their normal hours.

“If you look across the entire spectrum of entry-level jobs, pre-Covid there used to be a fairly different differential between the person applying at a [fast-food restaurant] versus a person applying at an FBO,” explained Douglas Wilson, president and senior partner of industry consultancy FBO Partners. “Maybe the fast food restaurant was minimum wage but the FBO offered a dollar or two above minimum wage and so it was a differential significant enough to result in slightly higher candidates. Some entry-level jobs have increased significantly so now a fast-food job may be much closer to what the FBO is offering.”

With food industry worker prices on the rise to as much as $18 an hour in some areas, Wilson noted many FBOs have had to increase their opening salaries to maintain that same differential. That has presented another set of considerations since those increases have a cascading effect on the normal FBO salary escalation schedule.

“You can’t really hire a person and start them higher than your existing staff who may not have caught up. So there also has had to be an increase in existing employee wages to keep that differential of experience,” said Wilson. “When you do a budgeting perspective and raise the entire staff by $1, that’s $2,000 a head I’m raising that rate over the course of a year. Now multiply that by FBOs that have 20 to 30 employees and now you have not only a labor matter with respect to hiring people but keeping your existing employees on par with inflation, which hit 9.1 percent for June year-over-year.”

An informal survey showed that locations have had to increase their payroll by 15 to 40 percent to satisfy those demands.

In terms of recruitment, some FBO managers have noted difficulties in attracting suitable candidates. One midwestern FBO reported seeing a 40 percent no-show rate for candidates in interviews.

Some FBO executives attributed that rate to state unemployment laws requiring a person to simply show that they applied to a certain number of jobs in a given period. As for those who do show up, another manager suggested that more people are job-hopping, trying to find new careers, and are not really worried if something doesn’t work out.

Employee referral bonuses have become a near-standard in the industry, to be paid out if a new hire lasts for a predetermined period of time. Another traditional pipeline of FBO workers was aircraft maintenance schools. “The A&P schools were always great, but it seems recently though that the airlines are snatching those students up faster,” said Scott Helms, general manager at Leading Edge Jet Center/SkyServiceUS, an FBO in Seattle. “They were already hiring them before they had their A&P license, so that’s been a struggle.”

“FBOs are finding new ways to constantly compete for talent,” said Sam Scanlon, managing partner of industry recruitment firm JSFirm. “So much that we added a section to the site where job seekers can search by 'perks'—for example, sign-on bonus, flex schedule, etc. Job seekers understand it’s competitive and they know they can find the position that they want, in an area that they want.”

Line-service Recruitment a Challenge

The recruitment problem seems more acute on the line-service side, according to Dan Rutherford, manager of marketing and business development for Canadian aviation services provider FastAir. “Particularly on the line, on the fuel trucks outside, that’s where the turnover has been in the past,” he noted. “We have an extreme climate, hot and very cold outside, so it’s tough to find that person, and they are taking more training than they used to.”

For a line-service position, that training involves an investment from the company in terms of time and expense. Scott Capehart, general manager of Aero-One Aviation at Alabama’s Dothan Regional Airport, noted, “If you are going through all the training programs, NATA Safety 1st, your own in-house training program, and anything else that might be out there, it's not that it takes a long time to learn how to fuel an airplane, it’s that it takes a long time for them to see everything they need to see. You can only gain that with experience and some places are faster than others.”

As an example, Capehart noted that FBOs at locations such as bustling Teterboro Airport will have more exposure to large-cabin business jets such as Gulfstreams and their line technicians will thus become comfortable handling them more quickly than at his location. By contrast, his FBO sees a higher percentage of military aircraft. On average, it takes six months of training to produce a fully-skilled line-service technician.

“To release somebody out with a fuel truck and do those things, it does take time,” said Rutherford. “Just to get it right and to have confidence that somebody is going to push a $30 million airplane into the right spot and not hit a few things on the way. It’s a trust issue.”

Some locations have gone to incredible lengths to fill positions. Helms noted that he took the extraordinary step of offering a relocation package to a line-service supervisor he had worked with in the past. While such packages are commonly offered to general managers, they are unusual for line staff.

“That’s a person I want working at my FBO,” he said, “and the costs to train and retain employees are so high, it was worth the cost to get somebody moved across the country that I knew was going to be here for a number of years.”

Given the amount of training involved, Wilson suggests that the line-service position needs to receive more recognition. “The mainstream news is talking about the pilot shortage and the mechanic shortage, but line service is not seen as that same sort of professional role,” he said. “Until our industry starts turning the corner and looks at this as a skilled position, we’re probably going to face very similar situations of just simply competing for labor using starting wages or signing or retention bonuses.”

To improve that situation, he suggested the industry enact standardized training policies that would make a certain level of skills portable. Wilson cited as examples deicing or tow training and certification, noting, "If I’m going from one FBO to another, [we could] recognize it in that way perhaps that is a starting point.”

Compensation, Culture, and Flexibility

While attracting new workers is a concern, so too is keeping the ones that they have, said Rutherford, referring to discussions during an industry meeting he recently attended. “In the FBO world, the three things that came up were compensation, culture, and flexibility in employing this incoming and current workforce. And all of them have to be addressed.”

He noted that management needs to be cognizant when a worker says they are unable to work on a weekend. “It becomes a longer conversation that you’ve got to be willing to flex, and if you can now get a Saturday morning and a Sunday evening from them it’s a win,” he told AIN. “Absolutely, it's way more work for me now than it was because I’m having a lot of conversations to figure out who can give me what shift. But if I don’t, I’ll lose them.”

Aero-One Aviation's Capehart noted, “From our perspective as an FBO, I think we have done a pretty good job retaining our employees.” In addition to increasing salaries by approximately 30 percent over the past several years, the company has also instituted a 401K matching program, 100 percent paid insurance for workers with buy-in for family members at their expense, and an end-of-year profit sharing bonus.

That bonus pool is determined by several factors, including fuel sales and industry recognition from sources such as AIN’s annual FBO Survey. If an employee does something negative that ends up costing the company money, that cost would be deducted from the pool.

“What that does is given them ownership in the company,” said Capehart. “You’re not going to have as much waste, whether that’s energy usage or people tearing up equipment. Things like that cost a lot of companies money.”

In terms of culture, Rutherford noted that “people want to have a fun, rewarding, enjoyable work experience and they want to have clarity on how they are progressing. Again, it's more work for leaders who aren’t used to doing that,” he said. “It’s celebrating the little wins and birthdays, probably things that are good practices anyhow, but they’ve become essential now because [workers] will go somewhere where they do have that kind of fun environment.”

Gaining the experience needed to work around expensive jets can take about six months but that also depends on how busy the airport is and the kinds of business jet traffic it handles.
Gaining the experience needed to work around expensive jets can take about six months but that also depends on how busy the airport is and the kinds of business jet traffic it handles.

Paying the Piper

Given these labor pressures, service providers will eventually need to pass those costs along to their customers, and with fueling being an FBO’s top revenue stream, aircraft operators will see it in their invoices. “I would say to expect fuel prices to continue to go up, and even when customers see or read news reports that the cost of a barrel of crude has gone down, FBOs will need to maintain a higher margin than they did previously until there is equilibrium between revenue and expenses,” said Wilson. “The fuel prices will begin to trickle down but not at the rate they went up.”

But FBOs may not have all that much flexibility in raising their margins from the amount added on to price per gallon of fuel sold. They must use that margin to account for staffing, insurance, rent, utilities, and infrastructure development. “We have noticed a steep decline on margin due to competition and the price of the commodity rising,” noted Helms.

For some clients, the FBO is virtually prevented from raising their margins. With high-traffic customers, many locations may offer a cost-plus pricing deal for their fuel purchases. Under that model, the FBO will sign a long-term arrangement with a major fleet operator or tenant that will guarantee they will only pay a fixed margin over the wholesale cost of the fuel.

The customer costs may rise depending on fuel prices such as in the recent price run-up, but the FBO cannot change the margin it charges above that without renegotiating with the client. Many service providers are loathe to change that rate for fear of losing that customer. “The margins in those contracts are inflexible and often low,” said Wilson. “Nobody signs up for a cost-plus $3 a gallon.”

For the normal retail-minus customers, the FBO has a little more wiggle room. As they start from a higher price, they can change their margin to offer price breaks on volume discounts, but they can also increase it at will if necessary.

While the FBO industry traditionally changes its fuel pricing on Tuesday mornings, due to the recent market volatility Helms has found himself forced at times to change it more frequently. "That may be changing from load to load today as prices are jumping that quickly," he told AIN. "It absolutely can be with the trucking supply—there have been freight add-on fees midweek which from time to time do need to be passed along midweek."

“I think that is the challenge that everybody is pushing back against,” said Rutherford. “Right now private and corporate aviation is red-hot and the current airline mess is only making it hotter. There are a lot of first-time people coming into the private flying market, and FBOs are stretched but are handling it now. If costs continue to rise because of all these pressures, that’s something we’re going to have to try to absorb. I don’t know how the market will respond to those increased costs.”

“I’m a private pilot myself, so I feel for the pilots and flight departments on this one,” said Helms. “When you are getting an invoice from an FBO on a transient basis, you don’t like being nickeled and dimed, and [FBOs] are adding additional fees and things on there.”

He noted that cost-plus customers could soon start seeing additional fees on their invoices as well. One idea Helms is considering is a flat “living wage” fee added onto each invoice to help offset the burgeoning employee costs and passed along directly to the staff. Such a concept has already been instituted in many Seattle restaurants with an extra fee added to each dining check.