Note: Join John and Ron at NBAA Schedulers & Dispatchers Conference. Full details.
Many FBOs have gone out of business by lowering their prices during prolonged periods of time. Yes, FBOs need to be price-competitive, but they must maintain healthy margins and find other ways to compete through differentiation.
One of the best ways we find to differentiate one FBO from another is to offer an outstanding and memorable customer service experience. This is a fundamental shift in the FBO industry away from a price-sensitive business model to one based on providing exceptional customer service.
More and more FBOs are taking customer service training very seriously. Just as FBOs don’t tolerate mishaps on the ramp, they are becoming more conscious of eliminating miscues with the way they deliver customer service.
Research indicates that loyal customers don’t stop doing business with a company solely because of price, but rather because of a poor customer service experience. However, most will return if you recognize and fix the problem.
One of the ways to improve the customer service experience is to standardize training and look for ways to motivate employees in a way where they take ownership of problems when they arise. An example of a standardized training system is the Don't Forget the Cheese! customer service training program written specifically for the FBO industry.
About the bloggers:
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s B&CA Digest. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518, www.absggroup.com
Ron Jackson
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. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s B&CA Digest titled: The FBO Connection. Ron@thejacksongroup.biz, Ph: 972-979-6566, www.absggroup.com
For most FBOs, employees must learn to multitask. In evaluating FBOs that are consistently successful, we find employees do many different job functions that result in not only a more efficient operation but it actually helps employee morale and adds to the customer service experience. As we like to say, a happy employee, a happy customer.
The result can be a very contagious working environment that gets noticed by the customer. Plus, cross training makes all employees more valuable and better motivated.
Here are some ideas:
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s B&CA Digest. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518, www.absggroup.com
Ron Jackson
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. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a certified journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s B&CA Digest titled: The FBO Connection. Ron@thejacksongroup.biz, Ph: 972-979-6566, www.absggroup.com
As FBO operators and managers, one of the most important tasks to keep in mind is maximizing your profit position.
In order to accomplish this, we rely on a standardized fuel pricing method. We think it is fair to say most FBOs use either cost-plus pricing or mark-up pricing. Cost-plus means you want to make a certain “plus” above your cost. For example, your cost today is approximately $2.25 per gallon and you want to make $1.50 per gallon. Therefore, simple math puts the selling price at $3.75 resulting in a profit of 40 percent on sales.
For a mark-up pricing example where you want to make $1.35 per gallon, your selling price would be $3.60 per gallon, or just short of a 60 percent mark-up on cost.
Both of these methods are common in the manufacturing business arena. The variance in these two methods lies in the difference between margin and mark-up. This can be a lengthy discussion, but suffice it to say, a thorough understanding of your costs of operation to include labor, facilities, other income, overhead, etc., affects what margin you use to show a profit. This, in turn, allows you to calculate what mark-up percentage you must use to get to the intended profit level.
We discuss these fuel pricing methods in greater detail at our NATA FBO Success Seminar, which is scheduled for March 9-10 at the Sands Expo and Convention Center in Las Vegas.
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s B&CA Digest. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518, www.absggroup.com
Ron Jackson
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. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a certified journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s B&CA Digest titled: The FBO Connection. Ron@thejacksongroup.biz, Ph: 972-979-6566, www.absggroup.com
As the price of auto gas falls almost daily, we wonder how the corresponding drop in Jet A fuel might affect the FBO business.
Just four weeks ago, OPEC indicated they would stabilize a barrel of oil at $60. Currently, a barrel of oil is hovering around $54. Comparatively, at the beginning of 2014, index pricing for Jet A was around $3 per gallon. In December we saw roughly $1.60 per gallon resulting in a $1.40 swing.
This begs the question: Will aircraft operators take advantage of lower fuel prices and start flying more resulting in more gallons being pumped at FBO locations?
Based on our research and other industry discovery work, the answer is no, at least not in the short term.
For the most part, flight departments, with FBOs following suit, have adapted over the past few years to what we call the new normal. While operators have right-sized their aircraft fleet and supporting flight crew personnel, FBOs have resized and streamlined their operations to meet the corresponding demand.
That’s not to say the industry will not benefit in the long term by lower fuel prices. Certainly, if lower fuel prices persist and the result is a more robust economy, aircraft operators will make the necessary adjustments by adding capacity and flight scheduling flexibility.
But let’s not get ahead of ourselves. Just as it took months, even years, to get where we are now, the effects of an economic recovery on businesses operating aircraft will be slow to take place.
In the next few weeks, we will conduct our Annual FBO Industry Survey, which examines both past years’ performance as well as a look at current trends and predictions for 2015. In addition, we will probe FBO owners and operators to get a feel for their confidence in the economy going forward.
In the meantime, lower fuel prices will give us at least a temporary reason to be optimistic. However, we can expect a continued sluggish market into the first quarter of 2015 with perpetual swings in fuel pricing and no appreciable increase in flight hours.
About the bloggers:
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s B&CA Digest. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518, www.absggroup.com
Ron Jackson
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. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a certified journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s B&CA Digest titled: The FBO Connection. Ron@thejacksongroup.biz, Ph: 972-979-6566, www.absggroup.com
We would like to welcome B&CA Digest readers to our blog, FBO Connection. Since our first blog post in 2011, the FBO Connection has been a source for discussion, ideas and general conversation on the FBO industry where you’ll find regular contributions from seasoned FBO professionals sprinkled with bits of wisdom and peppered occasionally with some hot topics. We like to call it “Sage Advice for the FBO Community.”
The content of the FBO Connection varies with each post and is written as a source of information for not only owners, operators, managers and supervisors but also for practically any FBO employee. In fact, we’ve received feedback from FBO operators who say they print our blogs and post them in the FBO for all employees to read. “It’s like taking a course in how to run a more successful FBO operation,” one regular reader commented.
With each blog post, we’ll peel back the onion to reveal what we consider to be seasoned FBO insider knowledge. Many topics fall out of our proprietary 10 Steps to Building a Profitable FBO, which forms the basis for our NATA FBO Success Seminar.
Included will be winning strategies and tactics you can put to use immediately and, over time, in the operation of your FBO. Subjects range from leases, minimum standards, reducing your cost of business and operating more efficiently to managing your fuel pricing/margins, finding “free money” hidden in your operation and competing on customer service, not price.
As we prepare for 2015, we’ll be busy blogging about upcoming events that affect the FBO industry. Here is a rundown on some of our forthcoming activities and educational opportunities:
We look forward to reaching out to you through this blog and connecting on everyday issues that affect the bottom line of your FBO operation. If we happen to hit on a subject you’d like to comment on, or if you want us to address a certain issue, please let us know by sending an email to John Enticknap at jenticknap@bellsouth.net or Ron Jackson at rjacksongroup@earthlink.net.
One thing is for certain, we’ll add a little spice to your FBO life and maybe some sage advice along the way.
About the bloggers:
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s B&CA Digest. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518, www.absggroup.com
Ron Jackson
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. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a certified journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s B&CA Digest titled: The FBO Connection. Ron@thejacksongroup.biz, Ph: 972-979-6566, www.absggroup.com
Welcome to our blog series on FBO Best Practices. With each blog post in this series, we’ll discuss “Best Practices” in running an efficient and effective FBO operation.
Best Practice #9: Charge for the free stuff. This is a simple reminder that every customer must contribute to your revenue stream, even the reluctant customer who doesn’t buy fuel.
The FBO business model that we’ve enjoyed for the past 50 plus years is dying a slow but inevitable death. If your FBO is still trying to exist on the margin charged on fuel sales, this is your wake up call.
In the “salad days” of our business, a healthy fuel gross margin of $2 per gallon or more would cover an FBO’s monthly expenses including the airport lease, insurance, facility upkeep and renovations, expansion, utilities, employee wages/compensation, fees and taxes, not to mention all the free stuff flight crews have come to expect.
But a $2 margin, normally factored into a posted price, is no longer realistic. No customer buys fuel at the posted price. It has been eroded over time by:
Note: An average sized FBO can have insurance costs as high as a $1,000 a day.
A Morphing Business Model
At the recent NBAA Conference held in Orlando, Florida on October 21-23, our company, Aviation Business Strategies Group (ABSG), was asked to facilitate one of our NATA FBO Success Seminar educational sessions titled: Get Ready for a New FBO Business Model.
A standing-room only crowd of aircraft operators and FBOs packed the session and took part in a lively follow-on discussion on how FBOs need to change the way they charge for services in order to continue providing first class facilities and great customer service.
The premise we presented is simple. As in the European FBO business model where services are unbundled, every aircraft operator that taxis onto your ramp must contribute to your revenue stream whether or not they purchase fuel.
Many FBOs have taken initial steps in this direction by imposing a ramp fee and/or a facilities fee. In general, these fees are normally waived if operators purchase a qualifying load of fuel.
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. 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 taxi, limo and rental car logistics.
Then there are the clean restrooms, free coffee, popcorn and snack bar. Many FBO facilities offer a variety of crew lounges, rest areas, quiet rooms, computers, printers, Wi-Fi, copy, fax, flight planning, crew cars, and the list goes on.
As mentioned, gone are the $2 gross fuel margin days and selling fuel at the posted price. With all the customer and fuel broker pressures to discount fuel, gross fuel margins can get as low as $1.25 to $1.40 per gallon with some FBOs dropping to less than a $1 per gallon discount on contract fueling.
What aircraft operators don’t realize is when margins get this low, something has to give. Facilities fall into disrepair, customer service declines, dissatisfaction and disputes follow. No one wins in this scenario.
The New FBO Business Model
Since no FBO wants to be the first to start charging for unbundled services, what we at ABSG propose is a three-tier system.
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 posted or a contract fuel price. Then pay for all the ancillary services requested. If no ancillary services, 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.
At our NATA FBO Success Seminar, we discuss these issues in depth as well as a comprehensive examination of FBO operations, marketing, training and best practices. The next NATA FBO Success Seminar is schedule for March 9-10, at the Sands Expo Center in Las Vegas.
Tell us what you think—we appreciate your comments and thoughts. Also Like us by clicking the link below.
Send us an email to Ron@thejacksongroup.biz or jenticknap@bellsouth.net and visit us online at www.ABSGgroup.com.
About the bloggers:
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s AC-U-KWIK Alerts. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518 www.absggroup.com
Ron Jackson
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. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a certified journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s AC-U-KWIK Alerts titled: The FBO Connection. Ron@thejacksongroup.biz Ph: 972-979-6566 www.absggroup.com
Welcome to our blog series on FBO Best Practices. With each blog post in this series, we’ll discuss “Best Practices” in running an efficient and effective FBO operation.
Best Practice #8: Planning, budgeting and sales forecasting. It’s not exciting; it’s not fun; but it’s essential to running a successful FBO operation.
Peter Drucker wrote, “The manager’s job is to keep his nose to the grindstone while lifting his eyes to the hills.”
We’re all guilty of focusing on the day-to-day grind and forget to look ahead and think, “what if?” Especially when the current business climate seems to be sucking us dry. Sometimes we need a little reality check.
Too often we seem to be obsessed with short-term results in our pursuit of business profit and management goals. If you have bankers, they want to see your monthly and quarterly results to make sure you can support your loan document covenants.
If you’re a public company, you have one eye on the stock market and the other on short-term forecasts. Then you have to listen to critical analysts. “Got to have positive monthly results,” they say.
Now is the time of the year most FBO operators are thinking about what’s going to happen next year. They dream of a 50 percent increase in retail fuel sales, a full maintenance shop, and the end to contract fueling. Now that’s a good dream! Right?
Reality Check
Not so fast. The order of the day is to do a realistic sales forecast that forms the basis for a rational budget. Too many businesses start the planning process based on how much money they are going to spend on budgeted line items. They basically warm over last year’s costs, adjusting here and there.
However, a solid sales forecast drives a solid budget. Base the sales forecast on company history, at least the past two years. Factor in the national and local economy, projected business aircraft flight hours, projected fuel costs, aviation and health insurance.
The fiscal budget is the short-term plan. Now, look to the hills and update the long-term plan. You might start with an examination of your airport lease agreement: Years left, rent increases, lease extension options, terms of extensions, requirement for major capital improvements. It just might be time to negotiate a lease extension.
Other items to review: Business expansion plans, new hangar funding, add to charter fleet, new tug and fuel truck, renovating the terminate building.
Problem is, all of these items compete for cash and capital resources. The trick is to provide a balance between producing current positive results and investing in the future.
This can lead to a confusing management exercise where FBOs find themselves switching between visionary goals, intense investment, “performance-oriented” goal setting and/or retrenchment. The larger firms can even find themselves changing management teams. Instead of keeping their nose to the grindstone, there is too much looking up.
Also, FBO owners must keep in mind that short-term strategies involving cost cuts may be short sighted and will not achieve short-term results or even meet long-term goals. Such as a 10 percent reduction in experienced labor, which can be self-defeating. We’ve even seen FBOs cut hangar rents below costs to attract new customers on the premise and promise of more fuel sales, which never come.
Our Recommendation
Here is a list of action items we recommend:
For longer-term planning, ask yourself these questions:
These are fundamental initiatives for current performance and future investment that should serve as a guide for the near future planning. The results should be more sustainable and the company should not have to sacrifice the future for short-term gain.
At our NATA FBO Success Seminar, we discuss these issues in depth as well as a comprehensive examination of FBO operations, marketing, training and best practices.
Tell us what you think—we appreciate your comments and thoughts. Also Like us by clicking the link below.
Send us an email to Ron@thejacksongroup.biz or jenticknap@bellsouth.net and visit us online at www.ABSGgroup.com.
About the bloggers:
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s AC-U-KWIK Alerts. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518 www.absggroup.com
Ron Jackson
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. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a certified journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s AC-U-KWIK Alerts titled: The FBO Connection. Ron@thejacksongroup.biz Ph: 972-979-6566 www.absggroup.com
Welcome to our blog series on FBO Best Practices. With each blog post in this series, we’ll discuss “Best Practices” in running an efficient and effective FBO operation.
Best Practice #7: Find the free money! From fuel hedging to lowering your credit card interest rates, there’s free money in any FBO operation just waiting to be found.
Wouldn’t it be nice if you could turn over the couch in the customer lounge and find thousands of dollars dropping to the floor instead of nickels?
With more than 35 years of experience in managing and operating FBOs, we’ve learned where to look to find literally thousands of dollars of hidden money that can add significantly to your bottom line.
In fact, we’ve found so much money for our FBO clients that this has become a very popular session we teach at the acclaimed NATA FBO Success Seminar.
Here are the top four places we tell our clients to look:
Let’s break each of these down.
Fuel Purchasing
Stockbrokers will tell you to never try to time the market. However, when purchasing Jet A fuel, timing and pricing information is critical.
One of the techniques we teach at our NATA seminars is fuel hedging. Without going into a lot of detail, this is basically a process of knowing how aviation fuel is priced in your region and when to make the fuel purchase.
You should start with your last fuel contract negotiation in which you established your index pricing formula. Moving forward, it is important to keep track of the weekly changes in the Platts pricing indexes. This information should be available from your fuel provider upon request. However, obtaining the Platts data on your own requires a subscription, which can be rather expensive.
In lieu of a Platts subscription, you may also keep track of the price of a barrel of oil through USA Today’s Money/Business section or go to IATA-Jet Fuel Price Monitor, which is a free website.
With this type of information, you can purchase your fuel when the pricing changes to your advantage.
Credit Card Interest Rates
We’re sure you’re aware that transactional interest rates for branded credit cards can range all over the place. However, if you are a savvy FBO operator, you’ve done your homework and have trained your CSR staff to ask the customer to pay for their fuel with the card that favors your FBO by offering the lowest rate for your particular fuel transaction.
In some cases, it could be the card issued by your branded fuel provider. The processing interest rate for these cards can be as low as zero percent. With numerous purchases of 100 gallons or more during a 12 month period, this practice alone could save the FBO a significant amount.
However, if the customer does not have the card issued by your banded fuel provider, have the CSR ask for the next most favorable card in terms of the processing rate charged to your FBO.
For cards that have high processing rates, call the card issuing company and ask that the rate be lowered when processing a transaction at your FBO. As a backup, be sure to have some metrics in hand regarding the amount of fuel volume/transactional volume that flows through your credit card system. This information can be used as leverage.
Insurance Premiums
We find that many FBO operators don’t realize they can take steps to help decrease monthly insurance premiums. With numerous FBOs paying as much as $1,000 a day in premiums, any savings on this line item can be significant.
For starters, we coach our clients to write a good insurance story, especially if the FBO is using an insurance company that doesn’t quite understand the FBO industry. A good insurance story should include some of these items:
It’s also a good idea to establish and maintain a strong working relationship with your aviation insurance broker.
Fuel Agreements
One of our most popular services we offer is helping FBOs negotiate a favorable fuel agreement. Whether it’s with their current fuel supplier or going out for bids, there are many provisions in every fuel agreement that are negotiable and can save the operator both in the short term as well as over the life of the agreement.
Here is just one example. Review and discuss with your potential supplier where your primary and secondary fuel supply terminals will be located geographically in relation to your FBO. The location will affect your transportation cost, which is a negotiable cost. Also, don’t just accept one transportation firm’s fee. There is competition with various carriers for fees, surcharges and timing of deliveries.
Free money may not be easy to find, but it’s there if you are willing to look. Be the savvy FBO operator and know your options.
Tell us what you think—we appreciate your comments and thoughts. Also Like us by clicking the link below.
Send us an email to Ron@thejacksongroup.biz or jenticknap@bellsouth.net and visit us online at www.ABSGgroup.com.
About the bloggers:
John Enticknap
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience and has served as president/CEO of Mercury Air Centers, a network of FBOs he grew from four facilities to 21 locations. He has international FBO experience including opening the Royal Aviation Terminal in Kuwait. John has held executive management positions with DynAir Fueling and CSX Becket Aviation and holds a Bachelor of Science in industrial management from Northeastern University. He teaches the acclaimed FBO Success Seminar for the National Aviation Transportation Association (NATA) and is an NATA certified safety auditor. John is the co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He also writes an industry blog titled FBO Connection for Penton‘s AC-U-KWIK Alerts. He is an active ATP and CFI rated pilot with more than 8,100 flight hours; certified in both fixed and rotary wing aircraft. jenticknap@bellsouth.net, Ph: 404-867-5518 www.absggroup.com
Ron Jackson
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. He has held management positions with Cessna Aircraft, Fairchild Aircraft and Bozell Advertising. Ron developed the strategic marketing communication plan and programs for Mercury Air Centers and consults with numerous FBOs in areas of marketing, promotions and customer service training. He is the author of Don’t Forget the Cheese! The Ultimate FBO Customer Service Experience. and co-author of the forthcoming book FBO Survival! Keeping Your Operation Lean, Mean & Profitable. He is a certified journalist and co-developed NATA’s acclaimed FBO Success Seminar Series. Ron writes an industry blog for Penton’s AC-U-KWIK Alerts titled: The FBO Connection. Ron@thejacksongroup.biz Ph: 972-979-6566 www.absggroup.com
“You hit home runs not by chance but by preparation.” – Roger Maris
Your fuel supply agreement is one of the most important contracts in operating a successful FBO. Your lease with the airport authority is what puts you in business, but your fuel supply agreement is what keeps you in business.
Because your fuel supplier agreement regularly comes up for renewal, do not just go out and get a “free” dinner with a fuel supplier and sign on the dotted line! If you want to know whether or not you have a competitive agreement, you’ll need to prepare, do some research and maybe invite several suppliers to submit proposals. As Roger Maris said, preparation will help you hit that home run.
There is a lot more to a fuel supplier relationship than just purchasing fuel. You are dealing with substantial costs that affect operating expenses and have an impact on your:
Yes, profit is great. That’s why you are in business. Don’t forget your fuel supplier is in business to make a profit too. You need balance in your agreement to ensure a winning contract for both parties.
In our NATA FBO Success Seminars, we teach a course about negotiating a favorable fuel supplier agreement. In this course, we also discuss how and when to buy aviation fuel. Here is an overview of some of the elements to address in a fuel supply agreement.
First, of course: What is the fuel going to cost? In order to answer this question we need to understand how world fuel markets work.
No doubt you hear all the time on the news what the price of crude oil is doing. As you know, it has been all over the place but mostly up, up, up — with an occasional downward correction. The price of crude drives jet fuel prices, but it is also affected by supply and demand, speculators, inventory, etc. So how do all the world buyers keep track?
The Platts Oilgram Price Report published daily by McGraw-Hill includes the Platts Jet Fuel Index. The fuel price indices are published worldwide with nine regional segments in the United States alone. There are also indices for Europe, Middle East and the Far East.
For general aviation, each week, the daily U.S. Jet A index prices are averaged. The change in the average price for the week generally is posted on a Tuesday, and your Jet A fuel price changes are calculated by the change in the average change for the week. You may purchase a subscription to this information from McGraw-Hill. (It is expensive.) A free source of Jet A pricing information and changes is the IATA web site, which maintains the Jet Fuel Price Monitor and Fuel Price Analysis.
Because jet fuel is priced based upon a Platts index, ask your potential supplier to quote a fuel price based upon a nearby index. For example, we can choose the Gulf Coast, New York, Los Angeles or another available index.
Given that the fuel supplier needs to make some money, it will quote a price based upon a Platts index, plus a differential (the supplier’s profit margin). Ask several suppliers to quote a price based on the same Platts fuel price index for a specific date, plus a differential. Now you can measure each quote on an apples-to-apples basis.
Say your business is doing $5 million per year in fuel sales, and you are paying anywhere from $125,000 to $185,000 per year in credit card fees that can range up to 4 percent or higher. How would you like to save $10,000, $20,000 or even $30,000 per year on these credit card expenses?
Believe it or not, you can realize this kind of savings when you negotiate your new fuel supplier agreement. Yes, you may negotiate the best arrangement for credit card fees paid vs. payment terms. We like to call this free money! This savings goes right down to your profit line.
In addition, did you know that until recently, you were paying on average $0.41 per transaction for each debit card transaction? This fee just dropped to $0.21 in July!
When you ask various suppliers for a fuel proposal, credit card fees and payment of due amounts are part of the competitive nature of your agreement. By getting better rates on your credit cards and educating your employees on the best card to use, you can save substantial money for this expense. Again, free money!
When you have to purchase a load of jet fuel, you either need to have cash in hand or, in short order, the cash to pay for the load. That’s $25,000 or more.
If you have collected your accounts receivable and reconciled your credit card payments, then you’re in pretty good shape. However, if it happens to be Friday, the payroll is due, and your insurance payment is due, then, all of sudden, you’re short on cash.
As part of your fuel supply agreement, you need to negotiate favorable credit terms. Of course you need to provide financial statements to support a credit line, which is no different than when you apply for credit from your local bank.
These are just a few of the terms that affect your profitability. You should also prepare to negotiate these other components that are part of a comprehensive fuel supply agreement:
All these issues affect the cost and benefit to you and your fuel supplier. As the FBO owner, you should evaluate proposals from various suppliers to get the best agreement. Remember Roger Maris. Preparation is the name of the game when working toward a balanced fuel supply agreement.
If you would like more information or assistance in developing a favorable fuel supplier agreement, please let me know. In addition, the National Air Transportation Association (NATA) is a great resource. We will be covering this subject in detail at the next NATA FBO Success Seminar: Fuel Summit 2011, Nov. 8-10, Atlanta.
We would like to hear from you. Give us your comments. You can call me at 404-867-5518, email me at jenticknap@bellsouth.net, or go to our web site for more information: www.absggroup.com.
John Enticknap founded Aviation Business Strategies Group in 2006 following a distinguished career in aviation fueling and FBO management, including as president of Mercury Air Centers. He is the author of 10 Steps to Building a Profitable FBO and developed NATA’s acclaimed FBO Success Seminar Series.
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