Karen Walker/ATLANTA
SOMETHING OF A revolution is happening in the fixed-base operator (FBO) industry, the highway-service system of general aviation (GA) in North America.
Across the USA, hundreds of FBOs - from the most basic to the highly sophisticated - are faced with the same dilemma: how to become more profitable? It is not a question, which comes with easy or obvious answers, but the need to survive is forcing many operators to make hard-nosed, controversial changes in the way they do business.
Traditionally, the FBO has been a service station for private and corporate aircraft, providing fuel and passenger handling. At the basic level, at a small FBO used mostly by private flyers, passenger handling can mean merely a public telephone, lavatory and vending machine. At the more sophisticated, corporate, end of the spectrum, it means everything from the provision of ice, coffee and conference equipment, to arranging ground transport and secretarial services. Tradition has also dictated that there be no charge for any of these services. Instead, the FBO has profited from other sources, chiefly fuel sales, but also from aircraft sales and other activities, which occur at the airport.
Some recent events, however, have squeezed FBO profitability and they are making operators re-assess their sources of income.
The underlying problem has been the decline of the GA industry. For many FBOs, the very recent signs of hope and resurgence have come too late - many of the smaller airports have closed over the past ten years, and still more are on the brink. For those, which remain there are all kinds of new problems to be faced. New environmental regulations insist, that many FBOs undertake clean-up operations, while recent US Federal Aviation Administration rules on airport security, mean that many FBOs have to install new fences and identification systems. All these factors increase costs for the FBO.
Conversely, the FBO's sources of income have diminished. The retail price of aviation fuel has been among the most stable of commodities in the USA, meaning that the cost of a gallon of fuel, excluding taxes, has declined in real dollars over the past ten years. In addition, sales of new aircraft through FBOs have been drastically reduced by the deep recession in the GA industry.
Recent optimistic outlooks by GA aircraft manufacturers, which are re-opening production lines in the light of the 1994 Revitalisation Act and introducing new aircraft types, are not all good news for the FBO. Many manufacturers are selling directly from the factory, so cutting the FBO out of the sales loop. Modern aircraft are also more fuel efficient and can be flown further without refueling.
Faced with these difficulties, a policy known as fuel unbundling has been adopted by some FBOs over recent months. It means that customers who turn up and purchase fuel continue to get the FBO's other services free. If, however, they do not buy fuel, then a handling charge is imposed. The largest FBO chain in the USA, Signature Flight Support, introduced a handling charge in April, and several individual operators, such as Showalter Flying Services of Orlando, Florida, have introduced fuel unbundling. The scheme is not universally liked by users and some FBO continue to regard it with suspicion.
According to James Coyne, president of the US National Air Transportation Association (NATA), fuel unbundling was the subject of a "very lively" discussion at the association's most recent convention in April. "Most of the corporations recognise that it is in their interest to make a fuel purchase at a facility, so there was a degree of co-operation between the users and the FBOs, but we have some members who are very opposed to it," says Coyne.
He points out that it is not a system, which suits all FBOs. "Not all FBOs have the same market dynamics. For example, where there is a significant number of based aircraft, that is a lot of corporations nearby, many of these types of FBOs are more anxious about the fuel unbundling strategy because they don't want to put anything in place that may jeopardise custom. But most FBOs don't have a very high number of based corporate aircraft. The marketplace does understand, in general, that this sort of thing will happen based on the realities of economics."
Robert Showalter, chairman of Showalter Flying Services, is more upfront about these economic realities. "Would your corner gas station vacuum out your car while they gave you a cup of coffee to drink, even if you weren't filling up your car today?" he asks. Showalter's fuel-unbundling policy was started in December 1994, although it exempts short-stay or drop-and-go aircraft.
FUEL-SALES COMPARISONS
Comparing fuel sales from the few months before the new policy was started with the few months after, Showalter says that 67% of transient piston-aircraft owners and 76% of turbine-aircraft flyers purchased fuel after December compared with 53% and 72% before. Total revenue from handling charges for the first four months was just $1,391 - representing only 3.7% of the 2,817k, arriving transient aircraft, and indicating that the policy does encourage users to purchase fuel. While jet-fuel sales were up by 13%, however, avgas sales were down by 7.7%.
There were 20 customer complaints, ten of, which were still not satisfied after a personal explanation from a manager, and four customers say that they will not return. On the positive side, Showalter says that he has received at least 15 comments of "it's about time" from other customers.
Showalter says that increasing the price of fuel is not an option because it is too much of a "top-of-the-mind" issue. "This consumer price consciousness prevents the FBO from passing on its non-product cost increases - such as insurance, labour, healthcare, rent and equipment - to the consumer in the form of a fuel-price-margin increase," says Showalter, who believes that fuel unbundling will spread.
"Is a fee by some name the only answer to the survival of a number of FBOs in this country?" he asks. "My crystal ball is not that clear. But I do feel that we are seeing more than a passing fad with these fees. They are, in my opinion, the trend and the future for private aviation. The good news is that for an insignificant increase in the total cost of ownership of an aircraft, the return will be more FBOs at the outlying airports, where they might otherwise have vanished and better FBOs at the busier airports, where they will have a bit of an easier time reaching profitability."
Signature, which operates a chain of 35 "flight-support operations" says, that results of its fuel unbundling have been "very favourable" so far. The handling charge is waived if visitors buy a minimum amount of fuel and Signature has increased its fuel discounts to ensure that regular customers see a benefit. The move has been financially successful, with fuel volumes up and handling charges generating significant revenue - some of which goes to fund the increased discounts.
Marketing Chief Walter Boyne says that the charge was necessary because about 40% of Signature's customers were not buying fuel. He attributes this to the development of alternative sources of fuel for customers, including fuel farms operated by corporate flight-departments, and more fuel-efficient aircraft, which are able to "tanker" through without buying fuel. "It was no longer prudent to depend on fuel to compensate for our services," he says.
Showalter notes that, since his company's policy of fuel unbundling began, his team has been trying even harder to please the customer, something, which NATA is keen for FBOs to keep in mind, despite their current difficulties.
"The FBO business is far from homogenous," says NATA president Coyne. "There are people who are very excited about the future and are changing to become more customer orientated. There are also many FBOs that have become frozen in time because they have a different vision. The new, more business-like, marketing-savvy way of operating an FBO is more difficult for them."
Over the past 12 months, NATA has started training sessions for fixed-base operators and is providing marketing materials to help them become more customer-service-minded. "Some people using FBOs only want to build their hours and become commercial pilots. Other people are millionaires. It takes a very savvy flight school or FBO to handle these very different sorts of people, and their expectations of service," says Coyne.
GROUNDS FOR OPTIMISM
Coyne sees reason for optimism in the FBO industry, not least in the political shift, which has put Republicans in the majority in Congress. The new chairman of the Government's aviation committee has indicated a 180° turn in policy, according to Coyne, by asking for NATA's advice on how regulations for FBOs could be reduced. Already, an air-pollution-control law, introduced by California in 1994 and reducing the numbers of GA aircraft, which could operate in the area, has been reversed.
NATA also sees the Revitalisation Act of 1994, which limits the product liability of GA aircraft manufacturers, as a helpful Bill which should eventually provide more customers for FBOs, especially the smaller operations. As a direct result of 1994's statute of repose, a Bill is expected to be passed, in late 1995, or early 1996. This will specifically help FBOs by limiting the liabilities of resellers of aircraft and provide FBOs with protection from ground-injury suits.
Business-aircraft timesharing and chartering are also becoming part of many larger FBOs' services (see box, P29). "There is a very healthy and exciting growth in this area, and it's expanding the pie for everybody," says Coyne. "It's bringing in new people, who otherwise might not have got into GA, and giving a shot in the arm for FBOs."
Source: Flight International
