Aviation Business Journal Third Quarter 2011 - (Page 26)

About the time we can make the ends meet, somebody moves the ends. — Herbert Hoover A Changing FBO Business Model: You Can’t Give It Away By John L. Enticknap & Ron R. Jackson, Aviation Business Strategies Group or many years, the FBO Business Model in the United States has been fairly simple and straight forward: markup fuel to cover all the operational business expenses; the greater the margin, the better the profit. When fuel prices were fairly stable and the old inefficient heavy iron aircraft were commonly seen on ramps, this worked out pretty well. But as singer-songwriter Bob Dylan so poignantly penned, “The Times They Are a-Changin’.” From the last quarter of 2008 we’ve seen some real changes in our industry including political bashing and a prolonged recession. As we struggled through 2009, we saw the ‘average’ FBO experiencing a 20 to 25 percent drop in business sales with some losing more than 50 percent F of their fuel sales. In 2010 there was some recovery with an encouraging increase in charter activity and the resulting increased fuel sales. Now in 2011, we are struggling with ever higher fuel costs and a general business malaise. Just as we are writing this article, we experienced more unfortunate politics conveying a negative image for business aviation. And we are seeing the restart of the continued consolidation of the FBO industry; some failures; and most of all, much continued pressure on fuel margins. The cost of fuel peeked in the first week of May and has dropped .40 cents to early July; now it’s on the way back up. Just about the time we sell the high priced inventory in our fuel farms and look for some stability, the higher prices are again reality. Changes in operator fuel purchasing habits Over the last few years we have seen a strong push from corporate customers towards a utilized alternate fuel purchasing strategy, rather than the traditional retail fuel purchase. Of course, the full retail fuel purchase has always been a myth — purchasers of Jet A fuel expect and get discounts off the posted price. The trend over the last 15 years, especially within the last few, is to pre-negotiate fuel purchasing with many of the contract fuel sellers prior to arriving at your FBO. Calling ahead for the best discount available or changing plans to get the best overall operating costs are all tactics for reduced fuel costs and gallons purchased. This is savvy cost control for corporate operators. 26 Aviation Business Journal | 3rd Quarter 2011

Table of Contents for the Digital Edition of Aviation Business Journal Third Quarter 2011

Aviation Business Journal Third Quarter 2011

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