When the Airport Eyes the Fuel

While the transition to an airport-run FBO may be beneficial, it is not for everyone; and more importantly, it is not as easy as it looks.


Some airports, it seems, are choosing to get into the FBO business. It appears to be a trend that is being explored more and more by airport management throughout the industry, and not just at the smaller general aviation airports. While the transition to an airport-run FBO may be beneficial, it is not for everyone; and more importantly, it is not as easy as it looks.

A few of the reasons given by airports that have chosen to get into the business of being the fixed base operator:
- fuel prices are too high;
- poor service levels;
- a desire to gain more control of business activities at the airport; and
- to generate additional revenue in an effort to become more financially self-sufficient.

The common misconception of airports -- when it comes to their FBOs -- is that everything is driven by price. That is, if you have the lowest fuel price, you will have the most and happiest customers. As such, airports may jump into the FBO business with a plan to cut fuel prices to increase volumes. However, price is secondary to the most "important" customers at an FBO. By important, we are not only referring to the corporate operators, but to all those customers that actually buy fuel and spend money at the FBO.

IDENTIFYING THE CUSTOMER
What many FBOs discover when they try to implement the "low cost" business model is that the people that complain the most buy the least. Price is not really the issue, but rather their right to utilize the airport's and FBO's facilities at little or no cost. Many of these so-called customers would still find a way to complain if the fuel was free.

Service is the key in the FBO industry, and quality service comes at a price. There is a reason that some of the larger and more recognized FBOs tend to have higher fuel prices: their cost of operation is usually higher due to money spent on customer amenities, employee training, and quality facilities. Good service and nice facilities come at a price, and more often than not that cost must be covered within the cost of the fuel.

STUDY THE POTENTIAL
As noted, there are various reasons that an airport decides to get into the FBO business, although complaints from users and tenants about high fuel prices and poor service are the most common.

An airport considering getting into the FBO business should start by doing a market and feasibility study. The study should probably be done by an outside, objective party, but can be completed by in-house resources. The initial study should be preliminary -- not a full-blown business plan -- and should accomplish a number of specific goals, including:

- What are the real opportunities and threats of operating an airport-run FBO in your market?
- What can the airport do that a privately run business cannot?
- Is the community supportive of the airport, and how would an airport-run FBO impact that relationship?
- Are there any political issues (noise, etc.) that may impact the decision?
- What is the real "net" revenue potential? (Don't forget to subtract existing revenues from rents and fuel flowage fees.)
- What are the risks to the airport?
- What are the start-up and ongoing operational costs of an airport-run facility?
- Does the airport lose any marketing synergies by not having an FBO?
- Can existing airport management and staff be utilized?
- Can the FBO be incorporated into the airport operations or will it be a stand-alone entity?
- Can administrative functions be incorporated into existing airport activities?
- How do we deal with services beyond line service and aircraft storage?
- How will this impact the relationship with other tenants?
- Can pricing decisions be made at a lower management level, or do they require senior management/board approval?

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