FBOs See Change in the Business

Wisconsin’s largest full-service fixed base operation, Wisconsin Aviation, recently celebrated its 30th anniversary. Company founder and president Jeff Baum relates that there were far more FBOs that offered a wide variety of services 25 years ago than there are today.

“Today, you see much more specialized businesses such as aircraft management and sales, charter operations, maintenance organizations, etc … once upon a time you did all of that.

“Now with the tremendous number of jet aircraft coming in at some locations, it’s easier to sustain yourself on one aspect of the business alone.”

Comments Kim Showalter of Showalter Flying Service at Orlando Executive Airport, “Twenty-five years back is sort of a break point for us … it was probably three or four years before when we started getting out of some of the other traditional FBO businesses — we sold our charter and maintenance departments, our flight school — and vestiges of some of those sales are still here on this airport.

“At the time we made the decision to sell, our insurance was $400 per day. That went up to $1,000 per day a few years ago … for us it was a good decision.”

Looking towards the future, John Mason, director of FBO services at Banyan Air Service in Fort Lauderdale says the industry will see more consolidation among FBOs, and fewer and fewer stand-alone operations. “I think the FBO chains will continue to grow and compete.

“Also, a lot of the fuel companies are getting out of the FBO business; there has been some major consolidation where Exxon is out, BP is fading, Chevron is out, and World Fuel is getting very aggressive.”

Lease negotiations

Banyan currently has one location but is ready to break ground on a new operation at Opa Locka Executive Airport. Mason, who has been in the FBO business since 1978, says there is a trend to go with 20-year leases, and the airport then assumes ownership of FBO assets.

“With financing now, it’s harder and harder to justify that investment over 20 years,” he relates. “A lot of FBOs try to do future improvements to get lease extensions.”

Lease length is critical, says Showalter. “We want to have enough time to actually pay off whatever debt we incurred to build something and then have enough time to reap the rewards from it.”

Baum says the issue with lease length is primarily dependent on the size of the airport. “Large and small airports have gone in diametrically opposed directions,” he comments. “At your big airports, many people feel their real estate is incredibly valuable and they’re certainly trying to get more revenue and shorten the terms of the lease; they are more demanding of the FBO.

“There’s no question that there’s been a trend towards that, and a trend toward not really looking at the long-term value of an FBO. On the flip-side, sometimes the smaller airports are much more willing to work with an FBO.”

Fuel pricing, marketing

Says Mason, “Right now with everyone struggling with jet-A and 100LL going through the roof, there’s a lot of shopping going on. Most of the calls I get on a daily basis are for fuel deals; there’s a lot more competition on price.”

People are also becoming more educated on fuel pricing with websites that are dedicated to delivering such information.

Showalter agrees, stating, “Our fuel pricing is as much driven by our competition off the field as it is our need to be competitive on our own field. Operators can now get on Twitter, Facebook ... any number of Web services and see the price for a given location.”

Baum says there’s been great change in the industry because there are so many fewer FBOs than there were 25 years ago. “On many airports, you have less competition than in the past,” he explains. “I think there is less competition in that regard, and I think FBOs work better together than they once did.

“When I got into the business, there were a lot of real cutthroat practices between competing FBOs to get a particular customer; I think FBOs are much more respectful of other businesses today.”

With regard to co-marketing with fuel vendors, “There is much less of that now than there was,” says Baum. “It used to be that there was more support from fuel companies than I think you get today.”

Remarks Mason, “The economic dips help us and during spikes the phones are ringing off the hook with people trying to reduce their costs; I probably talk to my customers now more than I ever have.”

Looking ahead, Baum thinks there will be fewer FBOs and more chains or mini-chains. “As far as our business model, I think it will have to continue to evolve,” he adds. “Certainly the Internet and the ability to conduct virtual meetings is going to start eroding some of the trips we’ve seen.

“People still want to fly and the airlines continue to be our best friend by offering terrible service; I think that’s going to continue.”