Mid-Point 2012 FBO Gut Check … It’s Wheels-Up for Remainder of Year

By John L. Enticknap

“All growth depends upon activity. There is no development physically or intellectually without effort, and effort means work.” - Calvin Coolidge

We’re halfway through 2012, so let’s do a gut check to see how the FBO industry faired for the first six months of the year. Then, let’s take a look at what we can do to help our bottom line for the remainder of the year.

At the beginning of 2012, we wrote three blog posts that I encourage you to review.

Part 1: 2012 Business Outlook for FBOs

Part 2: Decreasing FBO Costs in 2012

Part 3: Improving FBO Productivity in 2012

To summarize our 2012 FBO economic forecast, in January we said if your FBO has a five percent growth for 2012, your firm will be a star! That is still very true. We thought for a while that the growth rate may be greater in the first quarter of the year, but growth was a meager 1.9 percent. There was a slight up-tick for the second quarter that may push us past 2 percent. However, our overall prediction for the year of a 2.2 percent growth rate will most likely be the norm.

As predicted, volatility on several fronts kept growth in check. Some of the newspaper headlines told the story:

—“Consumer confidence dwindles”

—“Fourth-straight drop as concerns linger”

—“Despite some relief from gas prices, joblessness still a worry”

In fact, the unemployment rate has been stuck at 8.2 percent for the past three months and only 80,000 jobs were added during June. In addition, wage income has grown 1.4 percent on an annual basis, which is less than the anticipated inflation rate.

However, the business and general aviation industry held its own for the first six months. Business flying appears to be maintaining a small increase over 2011 activity according to information from TraqPak.

“Business aircraft flying activity last month in the U.S. increased again year-over-year, with traffic rising 1.6 percent,” according to TraqPak data released July 1 by aviation services company AR/GUS. “Notably, Part 135 charter flying moved into positive territory for the first time in 16 months, climbing by 0.9 percent from a year ago. Part 91 activity still dominated by operational category and increased 4.3 percent from a year ago. However, activity at fractional providers appeared to worsen, falling 6.9 percent year-over-year.”

Another leading industry indicator is the pre-owned aircraft inventory which saw some positive movement.

“Pre-owned business jet and turboprop inventories eased further in April with more sales transactions thinning the herd,” according to business aviation market information firm, JetNet.

Inventory of used business jets fell to 13.6 percent in April, down by 0.7 percentage points year-over-year. Pre-owned business jet sales transactions rose 4.1 percent in the first four months of 2012 versus a year ago, while asking prices remained nearly flat, eking out a 0.1 percent gain to an average of $4.22 million. Average number of days on the market for a business jet dropped to 340 days, down 70 from the January to April period last year.

Meanwhile, turboprop inventory fell to 9.2 percent or 1.3 percentage points below April last year. JetNet thus considers the turboprop segment a seller’s market since it has moved below the 10 percent mark. Turboprop sales transactions climbed 3.1 percent in the first four months of the year, while average asking price rose by 1.7 percent, to $1.28 million. However, the amount of time on the market for used turboprops ticked up by 46 days to 345 days. This is not a great report and continues to support marginal growth predictions.

Looking Ahead

As most of us are aware, Jet A fuel prices have fallen from a high of $3.3624 GCPM in April to a low of $2.6600 for the week of July 2.

Now, in the middle of July we are starting to see Jet A fuel prices jumping back up. Therefore we think our discussion in the beginning of the year still holds true: fuel prices will remain volatile.

What are others saying?

“Crude has dropped 25 percent since late April so it’s possible we are oversold in the short term but risk to the downside remains. Analysts and participants have finally started to notice China may have serious issues. Consistent information is increasingly difficult to obtain but signs continue to point to a potential hard landing,” said Kirk Howell, Chief Operating Officer of SunGard Kiodex.

What FBO Operators Can Do

It is imperative that FBO operators manage their fuel inventory in terms of margin. By watching the changes in fuel prices, you should keep track of the cost of inventory in the fuel farm with the goal to purchase fuel to minimize high cost inventory. Holding your margin steady is critical as gas prices fall. Equally important is maintaining your margin as gas prices rise.

Are lower prices at your FBO stimulating extra sales? Based on what we are seeing from the industry, FBOs are maintaining their sales levels from last year. Any increase in sales activity is only slight. This is supported by the data on flight operations previously discussed.

Besides properly managing fuel inventory and future fuel purchases, FBO operators should continue to look for ways to run their businesses more efficiently. There are several resources available to get help - including attending an NATA FBO Success Seminar. The next seminar is scheduled for September 12-14 in Dallas, Texas.

Subjects include cost saving measures for insurance and credit card fees, and how to negotiate a favorable fuel supplier agreement. Other topics include; how conducting an external audit can save you money; and how to turn a marginal customer into a long-term profitable customer. Additional sessions will discuss appraising your FBO for leases, mortgages and M&A activities as well as legal issues that affect your business.

For the remainder of the year, let’s get our wheels up and make sure we are flying in the right direction. Let’s be active by putting effort into running our businesses as efficiently as possible. And along the way learn something that will add value to our business.

Let us know what you think----Please e-mail your thoughts and comments to: jenticknap@bellsouth.net

About the authors:

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 CSR training. 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. Ron co-developed NATA’s acclaimed FBO Success Seminar Series and writes an industry blog for AcUKwikAlert.com titled: The FBO Connection. 

John Enticknap
John Enticknap founded Aviation Business Strategies Group in 2006 following a distinguished career in aviation fueling and FBO management, including President of Mercury Air Centers network of 21 FBO locations. He is an ATP and CFI rated pilot with more than 7,800 flight hours and is the author of “10 Steps to Building a Profitable FBO”. John developed NATA’s acclaimed FBO Success Seminar Series and writes an industry blog for AcUKwikAlert.com titled: The FBO Connection.