Results of our Annual FBO Fuel Sales Survey are in, and we are happy to report that 75 percent of FBOs responding to the survey experienced positive — increased or the same — fuel sales in 2018 compared to 2017.
This is the third consecutive year we have seen an increase in fuel sales by more than half of FBOs responding.
No doubt you have noticed the increase in fuel prices. Since the beginning of year, Jet A has increased by more than 20 cents per gallon.
The impact on your FBO can be felt in cash outlay. For instance, if you recently purchased an 8500-gallon load of Jet A, you probably paid $1700 more than in early January.
If you haven’t been diligent about tracking fuel prices and adjusting your posted price along the way, a $1700 hit to the bottom line is substantial. What about increasing those contract prices that always seem to be too low?
Every January, FBOs begin to gear up for the annual NBAA Schedulers & Dispatchers (S&D) Conference where they can attract new business to their ramp while cementing trusted relationships with current customers.
At this year’s conference, Feb. 6-9 in Long Beach, Calif., we had a chance to converse with many FBO owners and operators, as well as schedulers and dispatchers, to find out how they view the health of the industry and if there are any real concerns going forward. We believe the following statements reflect the overall opinion on each subject:
By John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group
Following our Annual FBO Fuel Sales Survey, we initiated our first Mid-Year Fuel Sales Survey. Please note this is a top-line survey designed only to gauge trends. The survey database was provided by AC-U-KWIK.
As a quick review, the annual survey results we released in January indicated that 49 percent of FBOs surveyed reported an increase in Jet A fuel sales in 2014 compared to the results of 2013 while 18 percent reported fuel sales to be about the same. This gives a total of 67 percent reporting having at least the same fuel sales or improved fuel sales over 2013. (For complete results of our annual survey, please click here.)
As part of this mid-year survey, we asked:
For the first six months of 2015, compared to the same period in 2014, are your Jet A fuel sales:
A total of 45 percent of the FBOs responding to the survey reported sales were up from a year ago with 26 percent indicating sales were about the same. That’s a total of 71 percent reporting having at least the same fuel sales or improved fuel sales from a year ago.
Conversely, 29 percent indicated Jet A fuel sales were down in 2015 compared to the same first six months of 2014.
For this mid-year survey, we also wanted to get a feel for the average posted Jet A retail price so we asked:
What has been your average posted retail price per gallon of Jet A over the past six months? Respondents were given a choice of price ranges with the following responses:
As we all know, because of various industry discount programs, the majority of FBOs do not sell Jet A fuel at the posted retail price. However, the results of this survey question can provide insight into what FBOs are posting on average.
Further, it has been our experience in consulting with many FBOs as well as conducting the NATA FBO Success Seminar, that the average margin on Jet A fuel sales runs between $1.30 and $1.60 per gallon. FBOs that are consistently selling Jet A Fuel below a margin $1.10 are having a hard time of making ends meet.
For our next blog post, we’ll draw some conclusions and take a look at the responses we received from our write-in question:
What has been your biggest challenge so far in 2015? Some of the answers may surprise you.
About the bloggers:
John Enticknap has more than 35 years of aviation fueling and FBO services industry experience. 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.
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Part 1: Our FBO Business Outlook for 2012
By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group
Get your facts first, then you can distort them as you please. —Mark Twain
Recently we received a call from one of the major business aviation publications asking for our outlook for the FBO business in 2012. As writers, practitioners and consultants to the business aviation community, we are often contacted by the aviation trade press for our views on various industry subjects.
We have our ears and eyes glued to the FBO market, and recently completed one of our FBO Success Seminars for the National Air Transportation Association (NATA), so we have a pretty good pulse on the health of the industry.
Looking into the FBO Crystal Ball for 2012
First of all, in today’s political environment—especially with an election year upon us—it’s hard to get a good read on what’s going to happen in 2012 on a national level that will affect our FBO industry either positively or negatively. If you’ve watched any of the debates, you probably think ‘ol Mark Twain hit the nail on the head. You might as well wet your finger and hold it up in the air to see which way the economic wind is going to blow.
We can start by turning our attention to the cost of fuel because it’s one of the most watched components to running an FBO.
For 2011, the Platt’s (what fuel suppliers use to price Jet A) pricing index at the beginning of the year saw the Gulf Coast Pipeline Mean (GCPM) at $2.4738. By the time December rolled around, the GCPM posting was $2.4866 with the highest price occurring in May, when the GCPM topped out at $3.3239 per gallon. It is interesting to note that in the first week of 2012, the Platt’s index is up a little over 7 cents per gallon.
For 2012 we think it’s fair to say fuel prices are going to remain somewhat volatile and a range of $2.50 to $3.00 per gallon is going to be the norm. With nothing new to report on that front, expect more of the same general course for 2012. (Of course, a caveat is that the world economic situation needs to remain reasonably stable.)
Outlook for FBO Operations
As to actual operations, the best information comes from the FBOs themselves without all the filters from so-called experts. As mentioned, we recently completed another effective FBO Success Seminar in November. We gained a wealth of data from a diverse group of more than 25 attendees representing 20 various sized FBOs.
So what did they have to say?
They all experienced a reasonably stable business environment in 2011 with incremental growth in fuel sales as well as solid aircraft maintenance bookings. If you were to benchmark their growth with the National Gross Domestic Product (GDP) index for 2011, you would see similar numbers to what the attending FBOs experienced, which is a 1.9% increase on average.
Historically, the FBO business suffered significant lows in the 2008/2009 timeframe and since that period has seen small but steady growth. Of course, we’re still seeing some industry fallout from those lean and tough years, so keep in mind FBOs will not be getting back to the 2007/2008 business levels in the near term. This, again, tracks national business trends.
The Market for New Aircraft
Another leading indicator for aviation business recovery is industry forecasts for new business aircraft sales. Traditionally the demand for new aircraft picks up when companies operating business aircraft start to fly more hours and thus feel the need to either replace or expand their current fleet. Obviously, more flying hours equals more airplanes on the ramp equals more fuel sales. So tracking new aircraft bookings is a good idea.
Both Forecast International and Honeywell do not predict business aircraft sales to return to 2008 levels (1,313 units sold) until 2018! However, just for reference, the business aircraft production forecast for 2011 was 683 units with a rise to 728 units for 2012. Again, only a slight uptick, but an incremental increase is better news than a recessionary market.
The companies attending our FBO Success Seminar had similar concerns for the coming new year. They are not expecting anything new or earth-shattering that would help increase business growth.
Other Areas of Concern
Besides a less than robust business environment, the FBO community also has concerns about other areas which might adversely affect their profitability. These concerns include national business trends such as increasing regulations from the EPA and FAA; increasing labor costs including healthcare; and a national election year leading to sustained political gridlock.
In addition, FBOs are concerned about a potential trend of airport boards and authorities getting into the aviation service business and competing against existing firms, or not extending leases with reasonable terms.
So what’s our 2012 FBO business prediction? If your FBO sales increase 5 percent, you are a star! Based upon what the general business trends seem to be, a 2 to 2.5 percent increase would appear to be normal business growth. At the same time, most FBOs will not be adding new employees but instead replacing those lost to attrition. In addition, cost control will remain a high priority as will be increasing productivity. (Stay tuned for Parts 2 and 3 of this series for more on that.)
What about the big FBO networks? In 2011, every chain made some major expansion moves and worked to increase efficiency. (Signature just announced another FBO acquisition as we go to press.) It is reasonable to assume the chains will continue to consolidate the FBO industry. Remember, our national FBO industry includes fewer than 3,000 FBOs while the FBO chains combined represent a group of about 250 locations. Consequently, plenty of acquisition targets remain.
Decrease in Number of FBOs
Another industry trend we should all be concerned about is the continued loss of FBOs within the US. The most recent NATA Fact Book indicated in the year 2009 there were 3,138 FBOs in the US. In November 2010, that number decreased to 2,987. Now, at the end of 2011, there are reports of three more FBOs going out of business and no doubt there will be more to come. Will this be a continuing trend?
As mentioned earlier, there is still fallout from the massive 2008-2009 downturn coupled with the continued unsettled economy. In addition, bank loans have been called, credit has been tightened, leases have not been renewed under reasonable terms, and, to a minor extent, FBO consolidation continues.
Unfortunately, the business pressures FBOs have been under will continue in the coming years and managing a profitable FBO won’t get any easier. However, there are things we can do to affect the bottom line by decreasing costs and increasing productivity. Parts 2 and 3 of this series will discuss these opportunities.
Next in the Series:
Part 2: Decreasing FBO Costs in 2012
Part 3: Increasing FBO Productivity in 2012
Let us know what you think! Please e mail us at jenticknap@bellsouth.net
Ron Jackson
Ron 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.
John Enticknap
John 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.
“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.
“You can't do today's job with yesterday's methods and be in business tomorrow.” – Anonymous
We know the pricing game all too well. Gas stations and auto dealerships have conditioned us to react to pricing of a product or service by offering a perception of a good deal.
In the FBO fuel pricing arena, we tend to play the same game.
In a previous blog post, FBO Fuel Pricing: Seeking a Silver Bullet, we discussed some pricing theory and came up with some ideas to find the silver bullet — which is the best price.
In the FBO business today, some customers call ahead for fuel prices, seek to use contract fuel suppliers and try to negotiate when they arrive on your ramp. We would like our customers to believe that our prices are well thought out and not just some arbitrary posted numbers.
Knowing how customers interpret numbers can help your FBO make stronger pricing decisions. What we would like to discuss here are some thoughts that go through people’s minds when they are looking to purchase. Consider these ideas drawn from “The Importance of Numbers,” written by Geoff Williams and published in Go magazine:
If you make your prices easier to remember, comparison shoppers should think of your FBO more readily. Your potential to complete a sale increases.
The numbers 0 and 5 are remembered easily. For example, $4.70 for a gallon of fuel is easier to remember than $4.72, and $5.50 sticks better than $5.58.
Precise numbers seem less flexible to consumers than rounded numbers, according to a study by a social psychologist named Matt Wallaert. If you price your fuel at $6.00 per gallon, your price might seem flexible. If your price is $6.23, it appears to be non-negotiable.
Our minds play tricks, according to DePaul University professor and pricing expert Tim Smith. Auto gasoline priced at $3.699 is really $3.70 a gallon. In the Western world, our languages read left to right, so to some extent, we encode the lower numbers on the left first. In addition, we seek the best deal from a rational point of view, but we perceive emotionally that we have “saved” by not paying $3.70 a gallon.
We tend to have a mindset when it comes to prices. It is incumbent on us to break out of normal thought patterns and be original with our pricing proposals to pilots. If you know how people view numbers, you can predict their reaction to prices and, therefore, price more strategically. For example, above a certain threshold — say $5.00 per gallon — people will not react too differently to $5.25 or even $5.45 a gallon. They will not balk until you approach the next threshold, $6.00 per gallon. For maintenance services, on a higher price scale, $875 is better than $900, yet $825 will sell as well as $800.
Blogger John Enticknap presents at the 2011 Florida Aviation Trades Association (FATA) annual conference.Much can be said about numbers and their importance to your pricing theory as well as your target margin — both gross and net. By keeping in mind some of the psychological factors discussed above, you have a better chance of making the sale.
As our anonymous quote states, we must keep an open mind and study new business ideas and methods to be successful. Yes, we see many of the same business situations time and again in the FBO business, but that should not allow us to get complacent or not try new thinking.
Stay flexible, and stay informed.
Please let me know what you think, and share your ideas. Please email me at jenticknap@bellsouth.net.
The next NATA FBO Success Seminar is scheduled for Nov. 8-10 in Atlanta. Register at nata.aero.
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.
"Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes — it should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the one we are living in, change is the norm." – Peter Drucker, Management Challenges for the 21st Century (1999)
Recently, I was reading an article posted to Eye on the Economy on msnbc.com. The article was titled “As oil prices drop, Fed should get credit.” After reading the article, I decided to write Part 2 to a previous blog post titled The Cost of Aviation Fuel.
In the first post, I talked about continued increases in the cost of aviation fuel and what FBOs can do to mitigate high retail prices. We looked at a number of the reasons for the increasing cost of fuel:
Since then, here is what is happening in the world markets:
The Platts fuel index prices peaked two weeks ago. The Gulf Coast Pipeline mean was $3.3239 per gallon. Looks like the West Coast took the prize for the highest Platts prices at $3.4275.
So what happened in the last two weeks? Prices dropped more than 15 cents last week (May 10). This week, we have seen nearly an additional 8 cent drop (May 16). We now have a drop of 23 cents! Perhaps your customers are wondering why you haven’t dropped your price.
I’ve seen posted retail prices of Jet A as high as $8.74 per gallon. Who is going to pay that for jet fuel?
And what’s going on with oil futures? The trend right now is good, but will it last? There are many factors in the national and world marketplace that can affect what is happening.
On a national basis, we have the debt ceiling vote coming within two weeks or so; the economy might continue to slow; demand might be down; the Middle East could get more unstable. All these issues can negatively affect the markets and drive up prices again.
It appears the oil commodities markets/speculators are backing off the high prices to be paid for futures.
Simply put, the forces that drove the market up are now down.
All this begs several questions:
First, do not change your price! You have all that high priced fuel in storage — the same goes for the terminals and pipelines. This high-priced inventory will take a few weeks to work itself through the system. So when you purchase you next load of fuel, you will then be able to purchase at the lower price. How fast you turn over your fuel will determine how and when you pass along price reductions to your customers.
In a previous blog post, we talked about FBO Fuel Pricing: Seeking a Silver Bullet, so we won’t plow that ground twice. Suffice it to say you must maintain your margin to sustain your profitability and understand pricing theory. But the high price of fuel is making the customers very price sensitive. Change is coming!
One possible scenario is to establish a dual pricing strategy by providing an a la carte service as well as a full-service offering.
Remember when gas stations offered two levels of service, self service and full service? You would pay extra if you wanted everything under the hood plus your wipers and tire pressure checked. Otherwise, you saved by doing it yourself.
An FBO could offer two levels of service as well. For instance, you could offer full service for one price, whether retail or contract fuel. Under this pricing scenario, you continue to offer all your usual amenities for one set full-service price.
Then you could offer a discounted or a la carte “basic” service price. If the operator wanted other services, he could pay for ice, coffee, papers, lounge, transportation, baggage handling, galley and lav servicing, etc.
Our advice is to stay in touch with your fuel suppliers and what is happening in the national and world marketplace. Change will continue to happen, and you must be aware of it and react in a reasonable businesslike manner to be successful. Think seriously about an a la carte or full-service pricing methodology.
The next NATA FBO Success Seminar is scheduled for Nov. 8-10 in Atlanta. Register at nata.aero.
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.
“Business, more than any other occupation, is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight.” – Henry R. Luce
We think it’s fair to say we are all feeling the impact on fuel price increases over the last six months or so. As a pilot, I’m seeking the best fuel price and am modifying my flying patterns to get the best deal.
Historically, after an initial spike in oil prices, the market tends to settle down. So why haven’t we seen a stabilization in Jet A fuel prices? What’s causing the volatility in the open and spot fuel markets?
Besides the obvious affects of world events, including the disaster in Japan and political upheaval in the Middle East oil-producing regions, there are other underlying dynamics that contribute to rising aviation fuel prices.
Let’s review a few articles that have been written lately.
As discussed in Charles Kadlec’s article, the current Fed policy of keeping the value of the dollar low in the international markets is one of the main influences. Because it takes more dollars to buy a barrel of oil, the low dollar value pressure drives up the costs. It’s not necessary to review the entire article here, but suffice it to say the continued low value of the dollar is not going to reverse anytime soon.
In the article “Oil Spike Prompts Airline Profit Fears,” the authors discuss in detail the increasing cost of fuel and its effects on the airline industry. The airlines anticipated the increasing cost of fuel to be in the $75 to $90 range, but now a barrel of oil costs more than $108 this week. The economics of the airlines are such that a $1 increase in the price of a barrel of oil will increase the costs to the airlines more than $1 billion in a year.
As a result, the airlines are looking at a $10 billion cost increase in 2011 with fuel costs, on average, representing approximately 29 percent of the airlines’ operating costs. In order to gain back revenue, airline ticket prices are going up. Expect to see more fees and reduced flights with higher load factors.
The NBAA article details some similar statistics. They indicate 20 to 25 percent of a turbine operator’s cost of operation is fuel. The article notes, as we have discussed in previous blogs, that corporate operators are utilizing tactics such as using contract fuel providers, discounts with their base FBOs, tankering fuel and other fuel savings measures.
As Henry Luce noted in his quote, in business we are always trying to look into the future. So looking into the crystal ball, what is going to happen with fuel costs, and what can we do about it? With the continued world unrest in the Middle East, oil prices will probably remain volatile.
The wild card in this equation is the Fed monetary policy. If the dollar remains weak, it’s our opinion the price of a barrel of oil is not going to go down anytime soon. Unfortunately, these factors are also going to slow down the economic recovery.
The bottom line: Just as the airlines are dealing with higher fuel costs, the cost of operating your FBO is going to go up and will probably not get any better soon. You’re also going to continue to see increased pressure on your fuel margin as aircraft operators, faced with their own budget problems, seek to negotiate better fuel prices.
So how do you survive during this fuel crisis? First, you must reconnect with your customers. Get out from behind the desk, and be a pro-active owner/operator. Be the restaurant owner!
Get to know your base customers and your transient customers. Learn their needs, wants and desires. By knowing your customers’ requirements, you can negotiate your own fuel delivery program that is customized to their operating parameters. At the same time, you minimize outside influences and maximize your returns. With regards to transient customers, you should already know who is flying into your location, so meet with them, and negotiate a reasonable service fee program which includes your fuel delivery.
Secondly, remember the Pareto 80–20 Principle.
Generally, the Pareto Principle is the observation (not law) that most things in life are not distributed evenly. It can mean all of the following things:
The Pareto Principle helps you realize the majority of results come from a minority of inputs.
As the FBO manager and chief marketing/sales person, this principle can help you concentrate your efforts by identifying your top customers — the important 20 percent that generate 80 percent of your business. That is the best bang for your buck. Know these folks well. This understanding of the vital few is what will make your business successful, and you can manage the change in cost of fuel.
Remember our premise as we forecast for the future. Concentrate on what you can control in a measured and methodical manner. We have little control over world events or what the Fed is going to do with monetary policy.
How are you dealing with the higher fuel costs? I’d like to know. Please email me at jenticknap@bellsouth.net.
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.
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.
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.
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