Key For Success In 2014 Will Be Higher Margins On Static Volume

Aviation Business Strategies Group (ABSG) said during a presentation at the NBAA Schedulers and Dispatchers Conference that the 2014 outlook for FBOs remains mixed. ABSG Principals John Enticknap and Ron Jackson, fuel sales in the FBO industry will remain relatively flat in 2014 with only half the marketplace seeing a relatively small increase in fuel sales volume.

“Overall, there is a sense of status quo for 2014 with a majority of those surveyed predicting at least a breakeven marketplace”, said Jackson. “On the positive side, more than 40 percent predicted an increase in fuel sales volume with 20 percent of those surveyed projecting an increase of more than five percent. However, nearly 50 percent of those surveyed indicated the US economy is still not headed in the right direction.”

“The FBO Industry is currently operating in a very static marketplace,” Enticknap told a group of FBO industry leaders attending the National Business Aviation Association’s (NBAA) Schedule and Dispatchers (S&D) Conference.  “Results of our annual FBO industry survey indicate a market that is yet to catch traction. Although there is increased optimism for 2014, nearly half the FBOs surveyed did not see an increase in business during 2013.”

According to ABSG, the outlook for 2014 remains mixed. “Overall, there is a sense of status quo for 2014 with a majority of those surveyed predicting at least a breakeven marketplace”, Jackson said.  “On the positive side, more than 40 percent predicted an increase in fuel sales volume with 20 percent of those surveyed projecting an increase of more than five percent. However, nearly 50 percent of those surveyed indicated the US economy is still not headed in the right direction.”

“Last year we said any FBO attaining a six percent increase in fuel sales would make them a star,” Enticknap explained. “More than 20 percent of those surveyed reached or surpassed this target in 2013. For 2014, we’re raising this high water mark to eight percent as nearly 10 percent of those surveyed indicated they would surpass this mark.”

A review of flight hours flown by general aviation/business aircraft in 2013, a key statistic linked to potential fuel sales, supports the findings of the ABSG FBO Survey. “According to some of the industry statistics we have reviewed, flight hours for 2013 were mostly flat for the past year, rising only 1.8% percent from a year ago,” Enticknap said. “The growth is in the FAA Part 135 category while the Part 91 flying fell .4 percent. Fractional ownership flying was down significantly due the demise of Avantair, which distorted the numbers somewhat.”

Positioning 2013 as a watershed year, ABSG has observed a new trend in the marketplace where FBOs are tightening their control on their fuel margins while charging for services that were previously included in fuel purchases.

“Because of a strong push from flight departments, charter and factional operators towards a utilized alternate fuel purchasing strategy, FBOs may be forced to change the way they deliver and charge for services” Enticknap said. “On one end, FBOs are faced with higher cost of fuel which drives up the base price. At the other end is the more savvy aircraft operator trying to drive down the posted price. Caught in the middle is the FBO margin, being squeezed like a lemon in a juice press.” According to Jackson, several FBOs surveyed indicated that although fuel volumes remained fairly static in 2013, and in some cases even decreased, they were able to maximize fuel pricing which resulted in increased net income.

At the NBAA S&D Conference, Enticknap and Jackson presented a session titled Get Ready for New FBO Business Model. During this session, they shared with attendees a global perspective on how FBO services are delivered in other countries including the European market where services are unbundled from the cost of fuel which is traditionally sold at lower into-plane rates. To help FBOs transition from a one-price-for-fuel-covers-all-services business environment, Enticknap and Jackson propose a two-pronged pricing strategy.

“Many remember the days of the automobile full-service and self-service gas station,” Enticknap said. “What we are proposing is a two-tier pricing strategy featuring full service pricing and a la carte pricing. The aircraft owner or operator has their choice. Pay a higher price for fuel and receive free or discounted ancillary services, or pay a lower, basic price, whether discounted off of posted or contract fuel pricing,  and pay a fee for ancillary services such as ice, coffee, newspapers, lounge, ground handling, baggage handling, etc.”

FMI: www.ABSGgroup.com