The FBO Business Model of the Future Continued from page 11 is still taking advantage of the customer. While there may be some operators that might not be as “generous” as others, it is my experience that complaints about the high price of fuel at a location are more related to the perceived quality of the facilities or services and not directly aimed at the cost of fuel. As one FBO owner once told me, “My job is to treat the customer so well that he feels guilty if he doesn’t buy the maximum amount of fuel possible.” Some FBOs do a better job of this than others. The FBO industry is service-oriented and happens to offer a commodity. For too many years, the focus has been on the commodity and less on the service. FBOs cannot demand that someone buys fuel. However, whether or not the customer buys fuel, they are still using the FBO’s facility. They are flushing the toilet, watching the new flat-screen TV, eating the popcorn, using the crew car, and the list goes on. The FBO still has the same cost of operating and maintaining the facilities whether a customer buys fuel or not. Somebody must pay for the facilities and amenities, and it shouldn’t just be those customers that elect to buy fuel. This was one of the driving forces behind the implementation of a facility fee by most operators. While virtually every FBO will waive the facility fee if the customer buys a certain amount of fuel, the “breakpoint” between the motivation to buy fuel versus the decision to pay the facility fee is often the point of contention. Obviously, the break- point is not just some arbitrary figure, but rather designed to encourage operators to buy more fuel. There are several problems with this model. The entice- ment to sell more fuel is usually to discount its price, hoping to make up the dif- ference in volume. Unfortunately, not every operator does the math to analyze the amount of gross profit they are potentially giving away. (I am reminded of the story about the guy buying watermelons for $0.50 and selling them for $0.25, planning to make up the difference by selling more watermelons.) In addition, FBOs do not operate like a big box retail store (Walmart, Target, etc.) that heavily Aviation Business Journal | 4th Quarter 2017 discounts certain items to get customers in the door in anticipation that they will also purchase other higher margin products. Most FBOs have little to offer besides fuel. The FBO of the future could easily be one that gener- ates the majority of its revenues from sources other than fuel. There is already evidence that a focus on real estate is making headway, with several aviation-only real estate interests out there. Perhaps facility fees should be imposed on transient aircraft whether or not they buy fuel. This fee is for what the pilot gets when they use the FBO’s ramps, bathrooms, heated or air-conditioned lobbies, flight plan- ning facilities, eat the cookies and popcorn, and so on. If they need fuel, this would be handled via contract fuel or at a lower posted price with the only discounts predicated upon uplift volumes. In fact, there is some evidence that it might make more sense for some FBOs to focus on more fixed reve- nue sources, and simply sell fuel on an “into-plane” basis. In other words, the customer buys fuel at cost, plus a nominal fixed per gallon pumping fee. This allows the FBO to better address the costs and risks associated with providing fuel, without worrying about the costs associated with paying the electric bill, airport rent, or customer service personnel. Under the fuel-centric business model, fuel revenues must adequately cover the cost to build and operate the infrastructure, as well as maintain the requirements of the business operation. The model of rolling virtually all the revenue requirements of an FBO into the sale of fuel can create the necessity for higher prices that can drive many customers to buy the minimum amount necessary to get them from point A to point B safely. Most corpo- rate operators choose an FBO for reasons unrelated to the price of fuel. Why not capitalize on this selection criteria? Moreover, if an FBO builds new facilities or offers greater services or amenities, would it not be easier to justify an increase in a facility fee than in the price of fuel? Of course, one challenge of this business model is not only going to be getting the first FBO or FBO chain to adopt this, but to get everyone else to play “follow the leader.” However, the bigger challenge will be to get the general aviation population and their alphabet associations to accept that there are no more FBO “free lunches” and that everyone must contribute to the FBO’s operation. No more just hanging out in the FBO lobby all day, drinking the cof- fee and using the crew car to go to lunch, only to decide at Continued on page 15 13
