FBO Industry Forecast: Challenging Times Ahead

By John Enticknap and Ron Jackson, Aviation Business Strategies Group ABSGgroup.com

Based on our annual FBO Fuel Sales Survey, interviews with FBO owners and aircraft operators combined with an analysis of the oil market’s effect on the aviation fuel industry, we have put together the following forecast for the FBO industry for the rest of 2022.

In addition, we’ll take a quick peek at the first quarter of 2023.

In a nutshell, there are challenging times ahead.

Expect Oil and Jet A Fuel Prices to Continue to Spike and Retreat

The effects of geopolitical discord, international conflict and higher inflationary pressures have provided a backdrop of economic uncertainty regarding aviation fuel prices for the rest of 2022. This will result in a very rocky road ahead as upward price pressure continues on crude oil with WTI repeatedly pushing through the $100 per barrel threshold and spiking to as much as $130 per barrel before recently retreating. Until the war in Ukraine reaches some sort of conclusion and a realistic global view on oil demand is established, expect a continued up and down pricing cycle with occasional wild swings.

As a result, Jet A fuel prices will be irregular for most of the year and will generally follow the price of oil (as in the past). FBOs will need to be mindful of what is in their inventory and adjust their fuel margins regularly.

As of this writing, the National Average for Jet A is nearly $6 per gallon with 100 LL selling roughly 15 cents per gallon higher. 

Higher Inflation

As we progress through 2022, there is growing evidence that the rate of higher inflation is not transitory and will be with us for a while. Economic pressures such as rising wages and benefits, higher costs of consumer goods and services, higher prices for housing and sustained high energy costs all will result in one thing: look for the Federal Reserve to raise interest rates (at a minimum of 25 basis points) several times in 2022. Some forecasts call for at least seven rate hikes through March 2023.

FBOs looking to finance any capital improvements should look to lock in lower interest rates sooner rather than later.

Leveling Off of Business Aircraft Flight Hours

Since business aircraft flight hours started to rebound early last year from the dismal covid induced recession of 2020, there has been a steady increase in month-to-month flight activity as reported by TRAQPak from ARGUS. At some point, this flight activity should start to flatten out to approximate levels registered in the pre-covid days of 2019.

Another factor that could hinder or slow flight activity is the spiraling cost of aviation fuel. Because most corporate flight departments operate on yearly budget forecasts, higher fuel prices can possibly put a squeeze on these budgets and start to limit the amount of flight hours scheduled and/or logged.

FBO Industry Movements and Consolidations

A steady pace of FBO industry investments, movements and consolidations continued in 2021 with the private investment equity firm KKR purchasing Atlantic Aviation. Atlantic, in turn, purchased the Lynx Aviation network and, under a separate agreement, combined the Ross Aviation FBO locations into their network. Most recently, Signature Flight Support has reportedly entered into an agreement to purchase the FBO holdings of TAC Air’s 16 locations. This will add to Signature’s FBO footprint of more than 200 FBO locations worldwide.

 In addition, some smaller and emerging chains continue to add FBOs sporadically through the acquisition process.

Trend: FBO Selection Based on Safety and Health Standards

In the present and post Covid-19 environment, aircraft operators, particularly those flying internationally, will become more selective in choosing FBO service providers in favor of those with a minimum of at least a safety management system (SMS) and/or an IS-BAH registration designation. This is due in part to perceived health and safety measures in place. During the height of the Covid pandemic, many FBOs put in place standard operating procedures to deal with present and future global health concerns.

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.

SUBSCRIBE:

Subscribe to the AC-U-KWIK FBO Connection Newsletter    

© 2022 ABSG