Adapting to the Downturn

Feb. 13, 2009
FBOS adjust as sales fall, security regs are proposed, and corporates hit by 'perception'

With increasing public scrutiny of corporate flight departments, coupled with plummeting fuel sales and a weakened economy, activity at fixed base operations nationwide is down, and the business is changing. Moreover, general aviation has been targeted by proposed Transportation Security Administration security regulations feared by the industry as not only expensive but ineffective. Nevertheless, customer service remains paramount to maintaining market share and managing an increasingly unpredictable business environment.

From a business standpoint, the signs of a sluggish economy have become progressively evident. The National Business Aviation Association (NBAA) has canceled this year’s Asian business aviation conference (ABACE), and has shortened its light aircraft show by a day. At NBAA’s annual trade show last October, despite hosting the event’s largest ever static display, Showalter Flying Service, located at Orlando Executive Airport, saw a 25 percent decline in fuel sales from the NBAA show held there in 2006. The business was down every month except October in 2008 compared with the year before, says chairman Bob Showalter.

Showalter Flying Service has divested itself over the years; once a full-service FBO, now primarily a fuel and hangar provider, housing tenants that offer additional services.

A transient center surrounded by three neighboring airports, the Showalter family business is a nearly 64-year-old operation.

The FBO manages four aircraft under contract, and each owner has reduced flying. Showalter attributes recent “lousy business levels” to last year’s record-high fuel prices, the recent economic downturn, and a damaged public image of business aviation.

Showalter was able to maintain market share, managing about 68 percent of the airport’s market, yet volume has gone down significantly. “The fallout has further sharpened in the last 60 days,” says Showalter. “We are watching our dollars in every category.” Company sales were down 13-18 percent month to month compared with last year until November saw a 28 percent drop, and December, 36 percent.

Relates Showalter: “Those are huge numbers. I think now we fine-tune our performance, practice smart operations, and hope the business doesn’t descend further. If it does, the next thing we have to do is cut hours and services.” The company’s number of employees is currently down 10 percent from last year.

A Business in flux
The reduction in business flight activity has affected all profit centers, from fuel to charter, explains John Wraga Jr., executive director of the Independent Fixed Base Operators Association (IFBOA). Wraga has more than 30 years of aviation experience; more than 20 years in FBO management, nine years of airport management, and five years consulting FBOs.

The goals of the IFBOA are to give FBOs the resources and buying power to compete in the marketplace, and to help ensure a community focus, flexibility, and the autonomy of a local business operator, explains Wraga. A grassroots operation, the association began just over two years ago and had just shy of 400 members in 2007.

According to Wraga, member businesses are down 23 percent on average, and everybody is cutting back on costs. “The business is changing, and that change will last awhile,” says Wraga. “We are telling our members to adapt; not hunker down or get defensive, but adapt to the business.”

In Orlando, fuel sales have been hit hardest at Showalter, with other services down as well. With less flight hours, businesses are seeing a decline in service numbers across the board.

Pat Epps, president of 48-year-old Epps Aviation, based in Atlanta, GA, says the economic recession has fuel sales down 16-25 percent from 2007. Fuel dropped some 17 percent during the last four months, which probably means fuel was down 25-50 percent earlier in ‘08, relates Epps.

Charter operations have been hit even harder at Epps, and aircraft sales began to dry up last October and continued through December.

Regarding employment, Epps says now is not the time to hire pilots, though he would continue to hire technicians. “If necessary, of course we would be prepared to cut back on hours; but we don’t anticipate having to do that at the moment,” explains Epps. He also says the business has no plans to build or expand, but even if space allowed expansion for Epps, he would delay any new construction for at least six months.

Wraga stresses the importance of sticking with direct marketing, tracking customers who want to go within 25 miles of an FBO’s location. Developing loyalty with the customer base by offering good service and attractive rewards programs may help insolate the business somewhat, says Wraga. “Member customers are under the same pressures we are; our businesses must reach out and talk to everybody while also focusing on adapting to new business conditions.”

Damage control
Showalter’s biggest concern for the industry is the suddenly perceived political incorrectness of corporate aviation. With flight departments shutting down and CEO’s hiding their planes behind hangar doors, it’s no surprise that “these are very difficult times,” says Showalter. “It’s very difficult to be subjected to the pandering and incessant negative sound bytes of the mainstream media.”

“There is plenty of value in what we do, and we need to trumpet that,” explains Showalter. “Most people don’t realize that companies that operate airplanes make a better return on investment. It’s productivity, it’s flexibility; it allows large companies to operate in small towns while maintaining a management function that works well.”

Wraga and IFBOA agree: “The attitude towards corporate flight departments is changing this business the most; the automakers took ridicule and punishment without justifying their use of private aircraft when they should have defended a great productivity tool.”

Now, even corporate stockholders are saying their customers are questioning the use of corporate aircraft, and flight departments are receiving more scrutiny than ever seen before, relates Wraga.

Adds Showalter, “We have all been a bit stunned by the changing business conditions seen in the last couple months; but we have to get going and turn it around. The speed at which we became politically unacceptable is really astounding. Our biggest challenge is to improve our industry’s public image. That will improve two things: business levels and security regulations.”

Controversial regulations
TSA’s proposed Large Aircraft Security Program (LASP) is receiving increased opposition from the general aviation (GA) community, which is apprehensive about the suggested effectiveness of the program.

The rule would require operators of aircraft above 12,500-pound maximum takeoff weight to ensure that flight crews have undergone criminal history checks and that passengers have been matched against the terrorist watch list.

Showalter, a member of NBAA’s security council, says the group has been working with TSA for two years, yet “TSA has proven they are not listening to us. The whole idea that a private plane and a private company is as open to a terrorist attack as an airline passenger jet is nonsensical.”

“If you want to fly a 100,000 pound-plus converted airliner, which could actually do some major damage, maybe you should have a U.S. Marshall on board; but to say that about a CJ3 or a King Air 350 just doesn’t make sense.”

Epps agrees, stating that “the [proposal] is completely off-base and TSA has no concept of our business. This is a great privacy imposition; TSA is doing nothing but creating unnecessary bureaucracy which will accomplish nothing on a security measure.”

Epps believes the program needs to be completely done away with, and that the biggest threat to general aviation is regulatory.