Get Ready for A New FBO Business Model...2014/01/17 · Get Ready for A New FBO Biz Model • Let’s start by understanding how FBOs make their money –Traditionally, it’s the

Get Ready for

A New FBO Business Model

PRESENTED BY:

Aviation Business Strategies Group

John Enticknap & Ron Jackson

Schedulers & Dispatchers Conference | New Orleans, LA | January 14-17, 2014

Friday, January 17| 10:30 a.m. to 11:45 a.m.

Get Ready for A New FBO Biz Model

• Used to be….

– Fuel prices were fairly stable

– Flight departments could plan/budget fuel costs

– Aircraft weren’t as fuel efficient

– FBOs could depend on at least courtesy loads from transient

customers

– Ramp fees were unheard of

– FBO insurance rates, pre 9-11, were predictable/reasonable

– FBO life was good. These were the ‘salad days’

‘The times they are a chang’n’

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• And then…oil prices went crazy


Oil Prices –www.PlainsAllAmerican.com

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• And then…Insurance rates went crazy

– Post 9-11 War Risk Insurance for FBOs went ballistic

– Today, it’s not uncommon to find FBOs paying $1,000 per day

for insurance

• And then…

– Aircraft became more fuel efficient

– Change in operators fuel buying habits

– Fuel brokers have reduced FBO margins

– Regulatory costs escalate

– Employee costs increase

– Airports want higher flowage fees, shorter term leases



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• Plus change in flight departments fuel purchasing habits

– Pre-negotiated fuel purchasing with a Contract Fuel Provider

– Calling ahead for best discounts available

– Changing plans to get the best overall fuel purchase cost

• And savvy flight planning

– Utilizing fuel tankering models

– Pre-established fueling points

– Better ATC routing for weather and flight planning to minimize

fuel costs

– The purchase of more fuel efficient aircraft


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• Not surprisingly, FBO Operators are feeling Squeezed in the

middle…


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• Let’s start by understanding how FBOs make their money

– Traditionally, it’s the margin added to the cost of a gal

– Used to be $2 per gal was an accepted margin

– Now it averages well below $1.60

– But then there’s the Posted Price Myth

– Practically no one buys fuel at the posted price

– Purchasers expect and get discounts off the posted Jet

A price

This Begs the Question: How long can this go on?

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• So let’s do the math:

– On a 200 gal sale at $1.50 per gal margin, based on a

normal discount off the posted price, the gross margin

would normally be $300

– However, a broker has pre-bought the fuel at a

discounted $1.25 per gal.

– The FBO obliges, thinking they’ll miss the sale otherwise

– Now the GM is $250 before expenses

‘Begs the Question: How long can this go on?


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That’s $250 GM Minus Expenses

• Labor

• Insurance

• Fuel truck lease

• Airport flowage fee

• Airport property lease

• Utilities

• Building Maintenance

• Equipment Maintenance

• Facility equipment & fixtures

• Bank loan, capital improvements

• Crew Cars

• Security

Minus Expected ‘Free’ Stuff

• Coffee

• Ice

• Newspapers

• Cookies

• Popcorn

• Bottled Water

• Soda

• Weather

Service

• Misc.

Estimated Net Margin on a 200 gallon sale = $120

(Expenses= .65 per gallon cost)


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• However, many FBOs operate on even smaller margins, as low as $1.00

• And what about the reluctant customer, the one that doesn’t purchase fuel but still utilizes the FBOs infrastructure? Is he cost free?

• Costs still go on for this customer…

– Manpower to meet, greet and marshal the aircraft in and out

– Insurance costs for having an aircraft on the ramp, crew and passengers on the FBO property

– Facility costs including utilities, use of restrooms, public areas, lounges, flight planning areas, coffee, popcorn, cookies, wi fi, crew cars, etc.


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Is there another service

industry that gives away so much?

Is there another industry segment where

customers expect a lot of free stuff?

Have we done this to ourselves?

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• Change started when FBOs began charging a ramp fee

• Some FBOs have started charging a Facilities Fee

• As the airlines look for other revenue streams, such as bag

fees…isle seat fees…fees for more room in coach seats…

will the FBO industry follow suit?

• It’s become a serious situation and a lot is at stake

• No FBO wants to be the first, but change is in the wind…

Is it time for a change?

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• While the U.S. FBO industry has been content with a

business model that dates back more than 50 year; Europe,

Middle East and most of the rest of the world have a

different FBO business model…

• They use an ‘a la carte’ method of charging

• First of all, they don’t mark up or add margin to the cost of

fuel. In most cases, the FBO is not part of the fuel income

stream…

• Sound good so far?

• But wait, there’s more!!!

Time to take off the blinders…A World Perspective!

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Next they unbundle the various services

• You want ice for your galley? Cha-Ching $$$

• You want hot coffee? Cha-Ching $$$

• You want Lav Service or APU? Cha-Ching…Cha-Ching$$$

• Oh, you want your bags unloaded….

• Perhaps a ride to the terminal….

• Towing and tie down did you say????

Cha-Ching….Cha-Ching…Cha-Ching $$$$


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And the list goes on…


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• Marshalling

• Handling

• Parking

• Ramp

• Ramp transportation

• Over the Road transportation

• Baggage Handling

• GPU

• Lavatory Service

• Customs/Visa

• A handling fee for collecting navigation fees

• A handling fee for collecting landing and over-flight fees

• Lounge Fees

• Catering

• Crew Cars

• Weather Data

• Connect to Wi Fi


• No FBO wants to be the first!

• Likely a phased in approach is coming

• We look for a possible two-prong pricing strategy

• Remember when gas stations had two prices?

– Self Serve

– Full Service

• Here’s what this might look like….

Are we there yet?

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FULL SERVICE PRICING

You pay the Full Service Posted Price,

and get the other services all included!

A LA CARTE PRICING

Basic fuel service for one lower price.

Whether discount off posted or contract fuel.

If the operator wants other services, they pay for ice, coffee,

papers, lounge, transportation, ground handling, etc.

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As Consultants to the FBO Industry

We advise our clients as follows:

Don’t Give it Away!

Don’t give away all your other services unless you get the ‘right’ fuel sale that protects your margins.

More fuel sold, more ‘free’ services.

No fuel sale? Sorry, customer MUST contribute to your revenue somehow

Can you imagine reading a sign: No Public Restrooms

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Summary • No one can predict the future of the FBO business accurately

• However, we believe high fuel prices are here to stay which, and, out of necessity, will cause changes to way we do business

• Flight departments will continue to find ways to save fuel costs

• Fuel brokers will continue to erode FBO margins

• Online web sites are now broadcasting contract fuel prices

• FBOs are caught between a rock and a hard place

• It’s how we prepare ourselves for this change that’s important.

Get Ready for

A New FBO Business Model

PRESENTED BY:

Aviation Business Strategies Group

John Enticknap & Ron Jackson

Schedulers & Dispatchers Conference | New Orleans, LA | January 14-17, 2014

Friday, January 17| 10:30 a.m. to 11:45 a.m.

Q & A

Documents

Get Ready for A New FBO Business Model...2014/01/17 · Get Ready for A New FBO Biz Model • Let’s start by understanding how FBOs make their money –Traditionally, it’s the