Aviation Business Journal Third Quarter 2011 - (Page 27)

Add to this the fact that corporate aircraft operators are getting more sophisticated in their flight planning: ■■ Using fuel tankering models ■■ Pre-established fueling points ■■ Better ATC routing for weather and flight planning to minimize fuel costs ■■ The purchase of more fuelefficient aircraft FBO profit misconceptions Today’s FBO business model has not changed much over the last 30 years. It is still highly dependent on the retail fuel sale. The successful FBOs look for the fuel sales — retail, contract, or other — to essentially support the entire FBO operation. But do all the aircraft that taxi onto an FBO ramp purchase fuel? NO THEY DON’T! Yet the cost of doing business goes on, including exposing your FBO to potential insurance claims should the customer’s aircraft get mishandled. This has given rise to the Ramp Fee which is still a controversial subject in some aircraft operator’s minds. Again, there is this misconception by many in the aviation business that FBOs are super-high profitable organizations and are “ripping off” the flying public. This, of course, is highly exaggerated. There has even been a string of emails lately that draws attention to the continuing misunderstanding of the FBO business. These emails contend FBOs are making more than $4.30 per gallon gross margins and, after fuel cost and lease expenses, are earning $334,000 per week before labor and other expenses. In the middle is your margin, being squeezed like a lemon in a juice press. In reality, margins are running more in the $1 to $1.50 range while insurance costs alone can run $1,000 per day. So the operator who comes onto the FBO’s ramp and doesn’t contribute to the income stream is not cost free to the FBO. To be sure, the FBO business is still a good business to be in. If an FBO chain or individual location can make 10 to 15 percent EBIDTA, then it is a very good business. In perspective, look at the oil companies who may be earning in the nine percent range; on the other hand, a general consumer company like Coke is running 25 percent plus. In the middle is your margin, being squeezed like a lemon in a juice press. So how do we make lemonade out of the tart extracted juice? Here are few observations to ponder. Having operated FBOs in both the U.S. and in the Middle East, we are very familiar with the European FBO Business model where fuel is not part of the income equation. Rather, fixed base operators in this part of the world depend on revenue generated solely by fees associated with providing various services common to an FBO operation: ■■ Marshalling ■■ Handling ■■ Parking ■■ Ramp ■■ Ramp transportation ■■ Over the road transportation ■■ Baggage handling ■■ GPU ■■ Lavatory service ■■ Customs/visa Continued on page 29 Changes in the wind However, today’s FBO model in the U.S. is destined for change. As mentioned, fuel margins are being squeezed from both ends. At one end is the higher cost of fuel which drives up the base price. At the other end is the more savvy aircraft operator trying to drive down the posted price. Aviation Business Journal | 3rd Quarter 2011 27

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

Aviation Business Journal Third Quarter 2011

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