Don’t look now, but there are two golden eggs in your grassy nest next to your fuel farm. The first one is your hangar lease agreement which we discussed in the last blog post. The second golden egg represents your office lease agreements which also deserve your undivided attention.
Read MoreBy John L. Enticknap and Ron R. Jackson, Principals, Aviation Business Strategies Group
In our last two blog posts, we reported the results and findings from our Mid-Year FBO Fuel Sales Survey. For this blog post, we look at the answers from a write-in question we asked in our survey:
What has been your biggest challenge so far in 2015?
With a nod to David Letterman’s Late Night Show Top 10 List, we’ve compiled our own list based on our survey results and named it the Top 10 Challenges FBOs are Facing in 2015, and offer a little sage advice.
No. 10: Contract Fueling. Not surprisingly, this topic made the top ten list. This subject has been discussed and debated many times in various forums including the NATA FBO Success Seminar. Our tip to FBOs struggling with this topic is to stay in your comfort zone with your margins, establish your own FBO contract sales price and offer this to your contract customers. Do your homework and track your contract sales. Did you sell more with a great discount?
No. 9: Managing your fuel inventory. Don’t get caught short. Develop daily dashboard reports to keep track of what’s in your tank. Check fuel prices on Thursdays to spot trends and to order fuel for Monday delivery if the prices are going up on Tuesday.
No. 8: Filling empty hangars. This is a constant challenge for many FBOs. Be proactive in identifying potential hangar prospects within a 50-mile radius. Use your flight tracking program to attain aircraft registration info. Put an attractive incentive package together, pick up the phone and call for an appointment. Also, visit neighboring airports and make cold calls. Know the costs of your hangar facilities.
No. 7: Fluctuating Fuel Prices. Welcome to the new normal. Our advice is make sure you keep track of the various price of loads that are in your tank. Be consistent with the margin you want to achieve relative to selling off your old inventory and adding new. Platts-based fuel pricing data changes on Tuesdays for most FBO fuel contracts.
No. 6: Runway closures. This is obviously a problem that’s out of your control. Use down time to maintain ground equipment, train staff and freshen up the lounge area.
No. 5: Weather. This is another problem that’s out of our control. However, interestingly, it’s the number five concern among those surveyed.
No. 4: High AvGas Pricing & Availability. We saw this comment many times, especially among smaller FBO operations in the Central time zone. Here is an anonymous comment submitted in the survey that sums up the situation:
“Uncertain supply issues that continue to plague delivery and pricing of AvGas. Rising prices which are counter to the price of oil and gasoline price at the pump are trends that are harming the industry as a whole, making it difficult, if not impossible to forecast sales and the future of the industry.”
No. 3: Growth and attracting more business to the airport. Although our survey showed very positive signs of growth among FBOs in larger markets, smaller FBOs pumping under 40,000 gallons of Jet A per month are mostly reporting no growth. Historically, the larger markets improve first, followed by the secondary markets. As reported in our most recent blog post, there are positive industry recovery signs in both flight hours being flown and in the United States manufacturing sectors.
No. 2: Finding and keeping qualified employees. This problem is not unique to the FBO industry. Working hand-in-hand with the local Chambers of Commerce and grass roots efforts at job fairs are critical. But perhaps more importantly is giving a potential employee a realistic look at the offered job. This may include on-the-job demonstrations, before hiring, from seasoned employees of the actual job being offered. While determining aptitude is important, assessing attitude is essential. Therefore, involve your team in the process.
No. 1: Marketing and inconsistent/low traffic counts. Attracting and waiting for new transient customers is one thing. Keeping the business you have is another. Make sure you are doing everything you can to keep your current customers. That’s worth more than spending marketing dollars to replace a disgruntled customer. It starts with a consistent customer service experience. Invest wisely by making sure your employees have good customer service skills and then lead them by example. Always ask your current customers if they would recommend you. If they hesitate, then fix the internal problem first.
What is the biggest challenge you face in the FBO business? We’d like to hear from you. Please write your comment below.
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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John Enticknap discusses lease agreements at the 2015 NATA FBO Success Seminar in Las Vegas.Ron Jackson and John Enticknap presented the NATA FBO Success Seminar in Las Vegas on March 9-10.
NATA posted additional photos on its Safety 1st Program blog.
by John L. Enticknap
If you build that foundation… the business foundation, and the experience foundation, then the building won't crumble.—Henry Kravis
Like most FBO owners and operators, you probably wonder what your FBO is worth. To answer this question, you should start by asking another important question: What is my lease worth? That’s because they are inherently linked.
If you are thinking about capitalizing your investment or looking to sell your business, the first thing a banker or a buyer will assess is the value of your lease, especially the length and terms.
That’s why it’s such a critical component when figuring the intrinsic value of your FBO. You may have just put millions of dollars in building a fantastic infrastructure, but unless you have negotiated a long enough lease to amortize your investment, it’s easy to get upside down with little or no wiggle room.
With a long-term lease of at least 20 or more years, you have great value. However, if you have less than five years you have little or no value.
(Side Note: One of our most popular courses we conduct at the NATA FBO Success Seminar is “Developing a Favorable Airport Lease”. During this session we discuss many of the important elements of an FBO airport lease agreement. If you’re interested, the next one is in Atlanta November 8, 9 and 10. Contact NATA at www.nata.aero and look under Events, or call 800-808-6282)
For the purpose of this blog, let’s hit a few of the highlights we discuss in our seminar.
First and foremost, the longer term you can negotiate the better. Let’s say you have negotiated a 20 or 25 year lease. You should also negotiate at least one additional option period of five years; two option periods would be even better. The goal should be to have at least 30 years on your lease including the option periods.
It is not unusual to get longer terms at some airports for large investments in facilities. I’ve seen leases of 40 and even 50 years. ‘The Longer the Better’ should be your mantra. When you are negotiating lease extensions, try to get at least back to this sort of term. You’ll need it to finance capitol projects and have a reasonable depreciation term.
However, in order to get this type of long-term lease, be prepared to invest in facilities and/or upgrades. Traditionally, the length of term is commensurate with a larger capital investment.
Big/Commercial Airport Lease Terms
So why are the big airports giving only five year leases and reliever and general aviation (GA) airports giving longer term leases?
During the recently held Airports Council International (ACI)–North America meeting in San Diego, there was a session titled “Fixed Base Operators and Airports—Strategies for a More Successful Partnership”. A detailed discussion was conducted concerning lease term length. It seems there have been some divergent opinions between some airports and FBO’s concerning lease terms.
At a few large airports, five year leases are all that have been granted. Some of the new FBO leases, included existing facilities, have high rental rates and gross revenue fees being paid to the airport authorities. In many of these cases, renovation of existing facilities was all the capital investment required by the FBO. Not surprisingly, General Aviation activity at these selected airports was not the priority for the airport authority. That’s because commercial airline operations took precedent at the vast majority of the operations.
In all appearances, both the FBO community and the airport community had a very open and fruitful discussion at the ACI conference. The results being that both parties appear to understand the lease term issues from each other’s perspective.
For the predominantly General Aviation airport sponsors, both parties understand that to get infrastructure built, a long-term lease is required. Fortunately, this was not difficult to appreciate.
During a recent meeting I had with one Airport Director, he fully understood the issues for the FBO. He realizes that for the FBO to be successful--to provide the high quality services that the airport and customers desire and make a reasonable profit--the FBO must have a good lease with a good term.
This practice will attract superior FBO operators who can make capital investments in hangars, new business operations and employees.
The All-important Minimum Standards Clause
This same airport director also mentioned that one of his first priorities, before commencing lease negotiations with an FBO, was the development of new up-to-date Minimum Standards provision to be inserted into the new lease.
I’m sure that many (most) FBO operators have Minimum Standards written into their lease—at least we hope you do. Minimum Standards are your basic protection for your business. In addition to your lease, they allow your FBO to operate within defined parameters.
Minimum Standards allow you to know
More than what defines your business, Minimum Standards protects your business from inequitable competition. If another FBO wants to operate at your airport, they must provide the same services, the same investment and the same facilities.
Since 1938, Congress has passed laws to improve safety and efficiency at Airports by, among other things, promoting competition among aeronautical users. This includes FBOs.
In order to promote competition, the Sponsor Assurances lease provision prohibits any party from obtaining or maintaining an exclusive right to perform services at an airport, and requires Airport Authorities (also called Sponsors) to not unjustly discriminate against aeronautical users of the airport. Minimum Standards, therefore, are your safeguard. It allows for fair competition and makes sure that your FBO will continue to be successful.
Other Lease Issues
These two issues are just examples of important items an FBO lease covers. Here is a list of other issues we cover at our FBO Success Seminar regarding leases:
The airport management and the FBO owners make success together for their mutual benefit. As we mentioned in our premise, the lease is your foundation, your value in the business and ultimately your protection.
If you have a particular question or would like to discuss a lease issue, please let me know. We would like to hear from you. Contact 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.
As a red-blooded American, I love hot dogs, apple pie and baseball. Being from the Dallas area, I’ve been following the Texas Rangers through thick and thin for more than 20 years. Mostly it has been thin, though the Rangers made it all the way to the World Series last year for the first time in franchise history.
When the newspaper hits my driveway at 6 a.m., I read the sports section from stem to stern and go over the box scores and team stats.
Recently, I read a sidebar article about Dollar Hot Dog Night at the Rangers’ stadium. On Wednesdays when the Rangers are in town, they cook some 65,000 hot dogs for hungry patrons. At a buck each, the promotion attracts a lot of families to the game, and the conies are quickly snatched up!
I’m sure you have your favorite sport, and if it’s baseball, you know how a hot dog with your favorite beverage tastes on a warm summer night around the diamond. It hits the spot! But something else is going on at the ballpark.
In the article, the writer asks a university professor for his opinion on why a $1 hot dog attracts so many to a game when patrons can have all the hot dogs they want for a lot less money by buying them at a supermarket and eating them at home.
His answer, posted in the Dallas Morning News, is what spurred me into writing this blog post.
According to Ernan Haruvy, a management professor at the University of Texas at Dallas, a perceived deal, such as the $1 hot dog, depends on several factors, including:
OK, that all sounds logical because the customer is at the ballpark; therefore, the surroundings are fun. Secondly, because a day watching baseball is better than a day at work, the customer is probably in a pretty good mood. And lastly, $1 for a dog that usually costs $4 seems like a relatively fair value.
But what does this have to do with an FBO?
In previous blog posts, Are You the Restaurant Owner; Do You Feel Lucky; and Don’t Forget the Cheese, we discuss what is important to customers when they choose a particular FBO.
First of all, the physical surroundings need to be pleasant enough that they don’t cause a distraction. The ramp and equipment need to be neat and tidy. Line-service personnel should use crisp ushering techniques to guide the aircraft. The facilities, particularly the bathrooms, need to be as clean and sparkling as possible.
Next, from the time the customer comes onto the ramp to the time for departure, it’s everyone’s job to create an atmosphere that keeps the customer in a good mood throughout the transaction. Customers who fly on private and business aircraft are used to getting good service wherever they go.
And finally, when the customer goes to pay the ticket, it’s important that he or she truly believes it represents a fair value. Remember, just because you may have offered a volume fuel discount doesn’t mean the customer flies away feeling like he or she received a fair value.
For the type of customer that you want to attract and keep, receiving a fair fuel price is just part of the equation. If you failed to deliver an exceptional customer service experience, chances are your facility will not be remembered, and you will not get a recommendation.
So the next time you bite into a red hot coney, remember these three simple principles of pleasing a customer:
If you have had success in pleasing a customer, please let me know the particulars by emailing 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.
"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic." – Peter Drucker
One of our more popular courses at our FBO Success Seminar is Maximizing Your Credit Card Transactions. We discuss in detail the credit /debit card processing system and how it affects your FBO business. Needless to say, the cost of this vital service is substantial and increasing.
First, let’s take a look at the use of debit cards. In the process of updating our seminar course materials, I’ve been researching the recently enacted regulations by the Federal Reserve to reduce debit card interchange fees. Here’s a little background information.
The new laws are still being written and are scheduled to be completed by April 21 with an implementation date of July 21. The laws change the fees from percentages to fixed fees. Some efforts in Congress may further delay the implementation or change the regulations.
Currently, debit card swipe fees average $0.44 per swipe. The new requirements reduce them to $0.07 to $0.12 per swipe. The banking and credit card industries are not in favor of the new requirements because they stand to lose some $12 billion in fees; therefore, they are lobbying Congress and others for changes.
As an example of the impact this would have on a retailer, look at The Home Depot’s operations. If the debit card fees are reduced as planned; The Home Depot will see a reduction of $35 million in debit cards costs. Obviously, the average FBO doesn’t have the volume of debit card transactions of a large box retailer, but we’re talking about potential savings over the long term and revenue to your bottom line.
Regarding credit card fees, each transaction fee in the FBO business varies greatly. The fee can be zero for your branded oil company card to a high of four percent of the transaction. During the classes we teach at the FBO Success Seminar, we provide a detailed analysis of fees, but for now, here’s a look at an example of an average transaction:
First of all, the current national average cost of Jet A is $5.38 per gallon. Based on the Platts index, this average is an increase of more than 92 cents per gallon in only the last six months. For the FBO operator, this adds up to an increased credit card transaction charge of just over $0.02 per gallon or a total of $0.11836 per gallon, assuming the average fee is 2.2 percent. Under this scenario, a 500 gallon sale would result in credit card fees totaling $59.18, which includes an increase of $10.02 in extra charges resulting from the rise in fuel costs over the past six months.
We would venture to say that credit card fees are a bigger portion of your costs than you imagined!
If you are selling 1.5 million gallons a year at $5.38 per gallon, your annual credit fees will be $177,540. In this scenario, your credit card fees have gone up approximately $30,360 per year, based on recent fuel price increases.
Here is the bottom line: The credit card processors are profiting during this crazy volatile spike in fuel prices, and the FBO is not! So what do we do?
The first step is to look at your processing fee costs and where the fees are being generated. Start by analyzing your sales and payment history:
Once you have completed your research, look at changing customer buying/payment habits, — not an easy task!
As your business changes with all the turbulence in today’s marketplace, you need to analyze all of your cost structure. Credit card fees are sometimes a cost we think we cannot manage. Not true!
With the tools and ideas we have presented here, these costs can be reduced. As Peter Drucker indicates in his quote, new thinking is most important in business, not only for this issue, but for all your business management concerns.
Let us know your thoughts on this issue or any of our FBO Connection blogs. Please contact 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.
In Part 1 of Optimizing Your FBO, we talked about analyzing your business and investing in your front line employees. It just makes good business sense, even in tough economic times, to invest your time and resources in your front line employees because they have the first and the most important contact with your customers.
In this post, Part 2 of Optimizing Your FBO, I want to share additional strategies that will help prepare you to weather any kind of economic environment and increase the efficiency of your operation.
For most FBOs, employees must learn to multitask — a term that management gurus have coined. It’s really a new term for an old axiom. The best employees, who do the best jobs, can do many different tasks. Gee, what a concept!
For FBOs that are consistently successful, employees do many different job functions that result in a more efficient operation and better employee morale. A happy employee, a happy customer. It can be a very contagious working environment that results in better customer service. Cross-training makes all employees more valuable and better motivated.
Let’s look at some ideas:
Many FBOs feel outsourcing is what big companies do, not smaller aviation service companies. The fact is, many services an FBO provides are not necessarily full-time, around-the-clock services. Outsourcing may actually save you money and help keep your front line employees focused on better serving the customer.
For instance, building cleaning, most especially restrooms. This service is not one most employees enjoy, so let’s outsource it. There are many vendors available to do this as well as provide the cleaning solutions, toilet paper, hand towels, etc. Get competitive pricing and monitor closely.
Another area is maintaining indoor plants as well as outdoor landscaping. This is a pain in the neck for most employees, but if you want a first-class FBO facility, you need to pay attention to interior details and keep the grounds well groomed. Get a number of bids, and again, monitor closely.
How about providing some extra services on an on-call basis? No overlapping costs while providing more services and a new stream of income. For instance:
In larger cities or communities, there are vendors you can source that specialize in aircraft cleaning and detailing. In smaller communities, you may be able to find a good auto detailer that you can trust and help train to provide on-call services such as aircraft cleaning services, auto valet, customer car washing and detailing services.
What are some other ideas for cross-training and outsourcing? If you have some ideas that have worked at your FBO, please send them to me and I’ll include them in a follow-up blog. My email is 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.
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