Preparing for a New Business Reality: Unbundled Services, Tiered Pricing

Learn from the European FBO Business Model

As we roll into August, the FBO Industry is still on its ear, as one FBO owner put it, “waiting for the other shoe to drop!”

That other shoe could be a fall resurgence of the COVID-19 pandemic that continues to keep businesses from fully throttling up and calling back workers to a full-time capacity.

In an informal phone survey of a handful of FBOs spread across the United States, we found a few pockets of renewed flying activity. Some operators reported fuel gallons being pumped, both Jet A and avgas, approaching 50 to 70 percent of pre-COVID-19 volume. An encouraging sign to be sure.

No one really knows what the new normal for the FBO industry will be. Now is a good time to examine your current business model and make adjustments to keep your revenue stream as consistent as possible.

With this in mind, we suggest FBOs take a closer look at the European FBO business model in which services are unbundled. At our NATA FBO Success Seminars, we have stressed that every aircraft operator that taxis onto your ramp must contribute to your revenue stream whether or not they purchase fuel.

Now more than ever, FBO owners and operators should be practicing this. The tradition of giving away services in exchange for selling fuel based on volume, in our opinion, is an antiquated FBO business model. Even before the COVID-19 slowdown, FBO operators have worked on smaller and smaller margins, which have been squeezed by higher costs of doing business, such as labor and insurance rates, not to mention third-party fuel programs.

Although ramp fees and facility fees are quite normal in our industry, many FBOs waive these fees with fuel purchases. Perhaps it is time to keep these fees intact as more and more aircraft operators are taking less fuel due to airframe and powerplant efficiencies and the practice of tankering fuel from a home base.

As we all know, gone are the days of $2 gross fuel margins and selling fuel at the posted price. With all the customer and fuel broker pressures to discount fuel, gross fuel margins can go as low as $1.25 to $1.40 per gallon. With contract fueling, some FBO fuel margins drop even lower to less than $1 per gallon.

However, many ancillary services are still being given away regardless of the selling price of a gallon of fuel. Aircraft operators expect baggage to be loaded and unloaded by the FBO. They expect trash service and galley service with ice and coffee for free. They may even expect free GPU and lavatory services as well as free towing, parking, tie downs and aircraft placement for departure. They also expect concierge services including arranging taxi, limo and rental car logistics. Under the European model, these services come with a fee.

Then there are the clean restrooms, free water and soft drinks, popcorn, and snack bar. Many FBO facilities offer a variety of crew lounges, rest areas, quiet rooms, computers, printers, Wi-Fi, copying, fax, flight planning, crew cars, and the list goes on.

What aircraft operators don’t realize is when FBO margins get squeezed, something has to give. Facilities fall into disrepair. Customer service declines. Dissatisfaction and disputes follow. No one wins in this scenario. Truly, it is time for a change.

The New FBO Business Reality

What we are proposing, in order to get a new business model rolling, is to initiate a three-tier system that allows aircraft operators a choice and thus flexibility to meet their operational needs.

Tier One: Full-Service Pricing
Pay the full-service posted price, and get all the services thrown in.

Tier Two: Basic Fuel Service with à la Carte Pricing
Pay a discount off a posted or a contract fuel price. Then pay for all the ancillary services requested. If no ancillary services are requested, then also pay a facilities fee.

Tier Three: No Fuel Purchase
Pay a ramp fee, facilities fee and à la carte pricing for ancillary services requested.

As we say in our NATA FBO success seminar, don’t give your services away. Be cognizant of what traditionally free FBO services actually cost.

Also, look to initiate new services that you can charge for, such as sanitizing aircraft interiors.

Please leave any comments you have about this blog post below. If you have any questions, please give us a call or send us an email: jenticknap@bellsouth.net, 404-867-5518; ronjacksongroup@gmail.com, 972-979-6566.

ABOUT THE BLOGGERS:

John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and is an IS-BAH Accredited auditor. Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and customer service training. Visit the biography page or absggroup.com for more background.

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