Reconsidering How FBOs Operate

Changes in the fixed base operator sector may warrant a change in the typical business model. For years, the FBO industry has generally adopted the same model: heavy discounts or giveaways in exchange for the revenues that come with the accompanying...

If an FBO wants to discount fuel prices to tenants, it should be based upon a sliding scale that ‘kicks in’ when the customer actually reaches the volumes that they promised when they negotiated the lease and fuel deal.

Better yet, charge full price and subsequently discount money back to them once they reach a certain purchase plateau. This scenario can result in the pleasant surprise of the customer making an effort to reach that magic point where they get a discount or get money back.

Cost of fuel = tankering
In today’s marketplace, new aircraft are getting more fuel-efficient, and aircraft operators are getting more savvy in their fuel buying habits. The cost of fuel has created a tankering environment which creates additional challenges to FBOs with the loss of the higher margin transient fuel sales.

This was certainly one of the driving forces behind the implementation of facilities fees by many operators. (Be careful about calling them ramp fees.) However, most FBOs will waive the facilities fee if the customer buys a certain amount of fuel. There are several potential problems with this model.

Whether or not the customer buys fuel, they are still using the FBO’s facilities, flushing the toilet, watching the new flat-screen TV, eating the popcorn, using the crew car, and the list goes on. Why have FBOs adopted the philosophy that as long as the customer buys fuel, they can use the facility for free? The FBO still has the same cost of operating and maintaining the facilities — and incurs additional liabilities and expenses when refueling the aircraft.

In addition, it is probably fair to say that most FBOs not only will waive the facilities fee if a certain volume of fuel is purchased, but will also discount the price of that fuel. Just like with the office and hangar rent example above, the FBO is facing the dreaded “double whammy” in lost revenues.

Facilities fees should be imposed on transient aircraft whether or not they buy fuel. The fee is for what the pilot gets when they use the FBO ramps, bathrooms, heated or air conditioned lobbies, flight planning facilities, various “free” amenities, and so on. If they get fuel, they should have to pay extra (and by extra, I mean full retail less any volume discount).

The FBO industry is a service industry that happens to offer a commodity. For too many years, the focus has been on the commodity and less on the service.

The FBO of the future could easily be one that generates the majority of its revenues from sources other than the sale of fuel. There is already evidence that a focus on real estate is making headway, with several aviation-only real estate interests out there.

In fact, there is some evidence that it might make more sense for some FBOs to focus on those other revenue sources, and simply sell fuel on more of an into-plane basis. In other words, the customer buys fuel at cost, plus a fixed or per gallon fee to pump it into the aircraft. This allows the FBO to better address the costs and risks associated with providing that fuel, without worrying about the costs associated with paying the electric bill, airport rent, or customer service personnel.

Cost factors
The cost of fuel does not vary significantly from one FBO to another, so why does the price of fuel to the customer? Some would argue that it is associated with the greed of the FBO owner. However, I would argue that it is associated with the cost to build, operate, and maintain the operation in certain locations.

The current system of rolling virtually all of the revenue requirements of an FBO into the sale of fuel creates the necessity for outrageous prices that drive many customers to buy the minimum amount necessary to get them from point A to point B safely.

Most corporate operators choose an FBO not because of the price of fuel, but either because they do not have a choice (there is only one FBO on the airport) or because of the facilities and services of the FBO. Why not capitalize on this selection criteria?

If an FBO builds new facilities or offers greater services or amenities, would it not be easier to justify an increase in a facility fee than in the price of fuel?

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