“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.
At some point in our lives, we all need a little coaching to get through the task ahead of us.
I remember when my dad took the training wheels off my bike and encouraged me to keep the handlebars straight as he ran alongside on my first solo ride.
High school football and baseball coaches shaped the way I performed on the field and taught me valuable lessons about life along the way.
As a student pilot, my instructor coached me through turns and stalls and built up my confidence for the eventual solo flight.
After a couple of decades of developing marketing plans for companies such as Cessna and Fairchild Aircraft, I had the opportunity in the year 2000 to create a public relations campaign for the grand opening of a Mercury Air Center location in Burbank, Calif. My client was John Enticknap, who served as president of the 21-location FBO chain.
I didn’t have a lot of experience in the FBO business back then, but under John’s tutelage, I’ve been spending the last 11 years soaking up his vast knowledge of the FBO business.
When John and I discussed starting an FBO consulting business together, I knew I had a partner that had a lot to offer the FBO community. So in 2006, John laid the groundwork for Aviation Business Strategies Group by outlining his vision for the fledgling company.
He told me he wanted to start a business that would help aviation service companies, FBOs in particular, become more profitable. His vision was to provide an affordable resource to the FBO industry through sharing, teaching and coaching.
As a basis for the new business, I suggested we put together a list of initiatives that would help FBOs run their businesses better and ultimately become more profitable. There were several marketing projects that John and I worked on together for the Mercury Air Center chain that would make great white papers and teaching strategies.
The result was what we called 10 Steps to FBO Success. It was way more than “FBO Business 101.” It was the essence of years of real-life experience seeking solutions to problems that arise from operating an FBO.
One problem we attacked was the high cost of FBO insurance. After the Sept. 11, 2001, tragedy, insurance companies began dramatically raising FBOs’ premiums. Mercury’s insurance premiums for the 21 FBO locations were escalating exponentially.
We decided to create a strategy for lowering the insurance premiums by developing a better insurance story for the insurance brokers to evaluate. (This is one of the 10 Steps to FBO Success and a subject of one of the sessions we teach at the NATA-sponsored FBO Success Seminar.)
Under John’s coaching, I absorbed what insurance underwriters were looking for in terms of safety and security of all FBO operations. We took this information and built a comprehensive safety audit program. Part of this initiative raised awareness among FBO employees for the need for two wing walkers, especially for aircraft movements inside hangars.
We created some large banners and posters for display in the hangars and then conducted safety classes for employees on a regular basis. One of the banners exclaimed, “Don’t Get into a Tow Jam!” and a supporting poster listed all the steps to safely tow an aircraft.
As a result of this industry coaching initiative, hangar rash went way down, the level of safety went way up, and customers actually liked seeing the banners and posters as a reminder of how carefully the FBOs were treating their aircraft. And, by the way, insurance premiums started to come down.
The business coaching John gave me helped me in understanding what I needed to do to get my job done. It also helped FBO employees improve and FBO owners control insurance costs.
Over the past several years, business coaching has come to mean a lot of different things. What I’m talking about is not a personal life coach, which is different from what a savvy business coach can offer an FBO.
FBO owners, operators and managers can benefit from a little or a lot of FBO business coaching. The best candidates for such coaching services are:
Working with a coach is normal for many. Musicians, tennis players and golfers, to name a few, work regularly with coaches to improve their performances. In the mainstream population, hiring a personal trainer is not uncommon.
Business coaching can be found through various channels. Find a mentor in your business you can bounce ideas off of, attend seminars and workshops, or even hire a professional coach. The goal is to improve the way we manage and to seek solutions to problems that plague the efficiency of an FBO operation.
If you are interested in some seminars specifically for FBO owners, operators and managers, here are some opportunities:
On June 14, John will be a guest speaker at the annual convention for the Florida Aviation Trades Association (FATA) in Sarasota, Fla. Working pro bono, John will be teaching two sessions:
Those seminars are also part of the three-day FBO Success Seminar we will be teaching Nov. 8-10 in Atlanta during the NATA’s first FBO Fuel Summit.
If you can attend either or both of these seminars, I would encourage doing so. These are opportunities to get some good advice from a seasoned professional.
If you would like to share a teaching or coaching story, please email me at Ron@thejacksongroup.biz.
Ron Jackson is co-founder of ABSG and president of The Jackson Group, a public relations agency specializing in aviation and FBO marketing. He has held management positions with Cessna Aircraft and Bozell Advertising and is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese!, the Ultimate FBO Customer Service Experience.
While my business partner, John Enticknap, reveals in his blog posts the methods and tools used in building a more profitable FBO, I’ll be writing about the often overlooked but equally important process of building long-term profitable customer relationships.
My first blog on this subject, Part 1: Are You the Restaurant Owner? was published on Feb. 10.
The following is the second installment:
We’ve all seen Clint Eastwood’s Dirty Harry scene when he aims his seemingly empty .44 Magnum, “the most powerful handgun in the world,” in the face of the bank robber and taunts, “You’ve got to ask yourself one question: ‘Do I feel lucky?’ Well do ya, punk?”
FBOs shouldn’t have to feel lucky when putting together their marketing plans to attract new customers, yet during our NATA FBO Success Seminars, I often sense the frustration FBO owners and operators verbalize when we discuss this very subject.
Over the years, FBOs have tried all sorts of things to attract customers. Wine, steaks, bobblehead dolls, free this and free that. Sometimes they get lucky, but mostly they’re just shooting blanks!
Many FBOs, when facing seemingly stiff competition, have done the unthinkable to attract customers. They resort to lowering their price of fuel beyond reason. Yikes!
To be sure, an FBO should always manage its fuel price in order to be competitive and as a component to provide a customer value proposition (CVP). However, nothing good happens when you subjectively lower the price of fuel just to attract customers.
Besides messing up your profit margin when you arbitrarily lower your price of fuel, you ultimately attract the wrong customer.
Are there really wrong customers in this trusty world of general and business aviation? You bet your .44 Magnum there are.
In my first blog, I wrote that the lifeblood of any FBO is building loyal customer relationships. The success of these relationships can be measured in two ways:
When you randomly lower fuel prices you get neither long-term customers, nor profitable customers. What you get are bottom feeders, looking for the deal of the day. They tend to flit from one deal to the next. Sure, you may increase your fuel volume for a short period of time, but over the long haul, you’ll be scratching your head, wondering where these newfound customers went.
If you divide your available customer base into thirds, you’ll probably find the following:
So where should your focus be? Which piece of the pie do you want?
First of all, getting Loyal customers to leave their present FBO is probably not going to happen in the short term. You may flirt with them a little, but getting a loyal customer to try something new is very difficult. An FBO competitor would have to stub its toe pretty hard to get a loyal customer to leave.
(Note: If you currently have a core of loyal customers, make sure you don’t lose them. Remember why they came to your FBO in the first place, and do everything you can to take care of their needs, wants and desires. Be the restaurant owner.)
Second, more than likely, you’ll get most of your customers from the Somewhat Loyal group. If you are looking to expand your loyal customer base, go fishing in the green pond, not the Bottom Feeder pond.
So how do you attract these Somewhat Loyal customers to your FBO? Give them a sense of delivering a real customer value proposition (CVP). Done properly, the CVP is the right combination of clean and attractive facilities, fair fuel prices/fees, and good old-fashioned knock-your-socks-off customer service. (We’ll further explore the CVP in another blog post.)
Lastly, it’s critical you get the word out about your CVP. And the way to do that is to deliver it consistently to every customer with whom you have contact. Let them soak it up and remember it, and they will faithfully spread the word.
The general aviation industry is relatively small compared to other industries. Word-of-mouth is a very strong channel of communications, and if you are “lucky” enough to have a customer recommend your FBO to another potential customer, you’re on your way.
Someone once told me you create your own luck, that luck is really the result of working hard, of doing something right consistently over the long haul.
I think that’s pretty good advice.
Next Blog: Building Long-Term Profitable Customer Relationships, Part 3: Don't Forget the Cheese!
Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and CSR training. He is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese!, the ultimate FBO Customer Service Experience.
As part of the FBO Success Seminars we conduct for the National Air Transportation Association (NATA), we discuss how to attract the right kind of customers and how to keep them coming back.
While my business partner, John Enticknap, reveals in his blog posts the methods and tools used in building a more profitable FBO, I’ll be writing about the often overlooked but equally important process of building long-term profitable customer relationships.
The following is the first installment:
The lifeblood of any FBO is building loyal customer relationships. The success of these relationships can be measured in two ways:
Are they long-term, and are they profitable?
Studies on consumer behavior show a loyal customer:
In the end, the effort we put into building these kinds of relationships will pay high dividends year after year, so let’s examine the process.
Every FBO is unique in its approach to delivering its own brand of customer experience. You should have an idea of your company culture, which is the tone and demeanor by which your customer service is delivered.
Are you warm and fuzzy; cold and unapproachable; or somewhere in between?
Your customer service deliverables are the things you do every day to ensure a great customer service experience, including a provision for the safety and security of the customer and its aircraft.
And it’s not just having these policies and procedures in place. It’s how you choose to carry out the delivery to your customers. Thus, your corporate culture dictates how you deliver services to your customer.
Observe the workings of your favorite local restaurant — not the chains. If you frequent one particular restaurant, chances are the host or hostess knows your name, and the server knows your favorite drink and meal. “The usual, Mr. Jones?”
Chances are the owner or manager is on site and makes the rounds to the tables, checks on the quality of food and service, and personally thanks the customers for their loyalty.
And chances are you have a consistent dining experience and recommend the restaurant to your friends.
Another experience to draw from is when someone moves into your neighborhood. Chances are you or someone will recommend the following:
Never underestimate the power of recommendation. We do it all the time without really paying much attention to the impact it has on our lives and the decisions we make.
For most of us, when we recommend a product or service, it’s really a way of validating our own process of selection. We all think we make good choices, and having someone else follow our recommendation is affirmation — it boosts our ego, makes us feel good!
We recommend product and service providers because:
That’s how we should view and nurture every FBO customer relationship we cherish. Know each customer has the power to cast a vote, the power to recommend.
Building long-term customer relationships is a process. It’s an investment in time. It’s hands-on customer care and a commitment to understanding a customer’s needs, wants and desires.
At the end of the day, ask yourself, are you the restaurant owner? Have you made the rounds to the customer lounges, asked if everything is all right, thanked the customer for the business? Have you taken the time to check your FBO for cleanliness, listened to how your employees treat a customer and walked the flight line?
Lead by example. If your employees see you do this, then chances are they will also take ownership — ownership of the customer service experience — thus helping build long-term profitable customer relationships.
Ultimately, you should be able to go up to any customer and ask the question, “Would you recommend our FBO to other pilots, aircraft owners/operators, and schedulers and dispatchers?”
If the customer is hesitant to answer the question and doesn’t say yes right off the bat, you have some work to do.
Next Blog: Building Long-Term Profitable Customer Relationships, Part II: Do You Feel Lucky?
Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and CSR training. He is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese!, the ultimate FBO Customer Service Experience.
Ever since the Lone Ranger first loaded his trusty six-shooter with silver bullets, I’ve been intrigued with the idea of formulating a single straightforward solution for pricing fuel at FBO operations I’ve managed over the years.
This search for the silver bullet is a subject we discuss at our FBO Success Seminars, and FBO managers in attendance often voice their concerns about how to effectively price fuel. On one hand, they’re concerned about the bottom line. On the other hand, they don’t want to price themselves out of the market and lose valuable customers in the process.
Indeed, it’s a two-edge sword. The trick is to maximize both cutting edges. Let me explain.
FBO managers are no different than any other business manager that sells a service or product. The same rules apply. Every FBO sells fuel — both Jet A and 100LL are the same specifications from all the manufacturers — so trying to differentiate your business on product is almost impossible. Same goes for quality control: Either it’s done well, or you’re going to be out of business.
What you need to look at is maximizing your Customer Value Proposition (CVP) — the facilities, the delivery (customer service) and the selling price. We’ll discuss the delivery aspect in future blogs. For now, let’s concentrate on the one factor many managers forget, or do not consider enough, and that’s the pricing equation, which requires putting some effort into research and calculations.
So let’s do the math. There are generally four types of pricing:
Before we decide which type of pricing methodology we use, we need to determine our costs. We need to know what it costs to get the fuel truck with clean fuel to an aircraft on our ramp with a trained line service technician. (Let’s not get into a discussion here on fixed and variable costs. That’s another blog.)
Next, let’s look at our fuel cost from our supplier, including mark-ups over Platts (or rack price), plus transportation, plus fed taxes, plus flowage fees, plus state fees (not sales tax) and any other local fees. In today’s marketplace, that number is greater than $3 per gallon for Jet A.
Now we need to look at your cost of labor and overhead and covert the number to a per gallon rate.
After that exercise, let’s say we have our fuel cost at $3.10 and our cost of labor and overhead of $0.55 per gallon. So our cost is $3.65/gallon. (This example is for Jet A.)
But before we start talking about which pricing method to use, we need to do some research on your FBO marketplace. If we look at various publications and web sites, like acufuel.com, we can determine local and national fuel selling prices.
One current survey for national and regional pricing shows the following:
This translates to a national average selling price of $5.05. In addition, find out what the local posted fuel pricing is at your competitor FBO and within a 50-mile radius of your base.
The other research question you need to tackle is: What are the contract fuel selling prices in your local area? Once you have this data, then we can look how we put a retail price on the fuel.
One of the most important tasks we must keep in mind is maximizing our profit position. Profit is our friend. Profit is our goal.
In order to maximize our profit position, 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 is $3.65, and you want to make $1.00 per gallon. Selling price would be $4.65; a profit of 21.5 percent on sales.
Mark-up pricing, on the other hand, says you want to make $0.90 per gallon. Your selling price would be $4.55 or just short of a 25 percent mark-up on cost.
Both of these methods are common in the manufacturing business arena. The difference in these two methods lies in the difference in 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, which in turn, allows you to calculate what mark-up percentage you must use to get to the intended profit level.
We might suggest a demand pricing method. Service industries use this pricing methodology consisting of:
You start by knowing what goal you have for gallon sales for the month. Establish your competitive average sale price within the range of the market of, say, 50-100 miles. Look at your fuel sales, each day, each week, and adjust your pricing on a daily, monthly or discount-per-individual-sale basis to meet your goals at the end of the month. Keep in mind, of course, what your financial break-even point is so you don’t end up selling for below cost. Demand pricing models are very complex and are used by firms such as airlines, cruise lines, freight carriers and others who sell perishable services.
Competitive pricing comes into play with the contract fuel market. This trend has accelerated in the last couple of years. It has led to decreased margins on fuel sales. Has it increased your fuel sales to make up for the lost margin? That is always the claim from the contract fuel suppliers, which now include the major retail suppliers — a building dilemma for the FBO. At the FBO Success Seminars, we have a complete class on this important issue.
In the end, the Lone Ranger always prevailed and got his man. He did his homework, scouted the trail and, of course, he had his trusty six-shooter loaded with silver bullets.
For the FBO owner and manager, the silver bullet is knowledge. Know your customers, and know your business. It’s a thorough and detailed understanding of your FBO cost structure.
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.
We would like to welcome you to AC-U-KWIK’s FBO Connection, a source for discussion, ideas and general conversation on the FBO business. Here you’ll find weekly 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.”
When AC-U-KWIK approached myself and business partner Ron Jackson about writing a blog for their new, enhanced electronic AC-U-KWIK Alert newsletter, we both felt honored to be able to contribute to the AC-U-KWIK heritage as the definite industry resource for Fixed Base Operation information worldwide.
After 40-plus years of working in the aviation fueling and FBO industry, including as president of Mercury Air Centers’ 21-location network, I was eager to share my knowledge of the industry to the FBO community. This was the genesis for establishing our company, Aviation Business Strategies Group, as a means for sharing, teaching and consulting with FBOs to help them become more successful.
Besides sharing our FBO expertise and experiences in this blog, Ron and I regularly teach a seminar for the National Air Transportation Association (NATA).
Nearly three years ago, NATA approached us about teaching a seminar based on our proprietary 10 Steps to FBO Success. So in the fall of 2008, we taught our first seminar on-board a cruise ship as it sailed the Caribbean to the Bahamas. This first seminar has now evolved into NATA’s acclaimed FBO Success Seminar Series, and we have conducted several “dry land” seminars with the next one scheduled for Indianapolis in April.
For AC-U-KWIK’s FBO Connection Blog, we’ll touch upon many of the winning strategies we teach in our NATA Seminars and a whole lot more. Each week we’ll peel back the onion to reveal what we consider to be seasoned FBO insider knowledge — the legal kind — aimed at educating and motivating FBO managers, supervisors and employees. To that end, we hope we don’t disappoint.
Since my expertise is in FBO Operations, I’ll be blogging on a variety of topics that fall out of our 10 Steps to Building a Profitable FBO. 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 Managing Your Fuel Pricing and Margins to finding “free money” hidden in you operation — and I’m not talking about the nickels and dimes found in the lounge sofa.
Ron, who has a considerable aviation public relations and marketing background, will be blogging about:
In addition, we have developed an FBO Customer Service Training Program titled The Ultimate FBO Customer Service Experience: “Don’t Forget the Cheese!” This is not your entry-level customer service training curriculum, which teaches the basics like Introduction to General Aviation and The Basics of Airport Operations. Instead, we teach members of your organization common sense customer service and how to add value to each transaction by simply “Adding a Little Cheese!” Sound intriguing? Stay tuned as we feed you some interesting cheese nibbles along the way.
Lastly, we will invite some guest bloggers in various areas of expertise including:
Ron and I look forward to reaching out to you each week through this blog and connecting on everyday issues that affect the bottom line of your FBO operations. If we happen to hit on a subject that you’d like to comment on, or if you want us to address a certain issue, please let us know by sending an e-mail.
One thing is for certain, we’ll add a little spice to your FBO life and maybe some sage advice along the way.
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.
Ron Jackson is co-founder of Aviation Business Strategies Group and president of The Jackson Group, a PR agency specializing in FBO marketing and CSR training. He is the author of Mission Marketing: Creating Brand Value and co-author of Don’t Forget the Cheese!, the ultimate FBO Customer Service Experience.
COPYRIGHT © 2024. ALL RIGHTS RESERVED. INFORMA MARKETS, A TRADING DIVISION OF INFORMA PLC.
ACCESSIBILITY | PRIVACY POLICY | COOKIE POLICY | TERMS OF USE
