Building the FBO Terminal of Tomorrow Continued from page 37 FBO–far from it. It’s just that like the Arms Race, the FBO industry may eventually conclude these terminal buildings were a waste of money. One is left to wonder what hap- pened, and why did the industry move towards progressively more lavish FBO terminals. Defining the problem is quite simple—solving it will take a radical approach. There’s no one party to assign blame for the growth—both literally and as a function of construction cost–of the modern FBO terminal. The industry collectively shares blame, including FBOs themselves, air- ports, and yes, even customers. The now-well known narrative of the FBO industry demonstrates a market consolidation of what-was- once a landscape of independent FBOs. Growing, professionally-run FBO chains paid significant sums of money to acquire a great many independent FBOs, securing long- term entitlement rights to operate an FBO at a given airport. With that leasehold came investment require- ments, and a new, “first class” FBO facility was constructed at then-significant cost. Additionally, other airports started requiring showcase FBO facilities at their airports, using Minimum Standards as the means to attain the goal. To clarify, Minimum Standards are important to creating a level playing- field at airports; more airports should have them as they encourage fair competition, and protect the invest- ment of airport businesses such as FBOs. It’s just that some Minimum Standards for FBOs are so exhaus- tively defined that they actually create wasted space. For example, one set of Minimum Standards for FBOs defines that an FBO “…shall provide a minimum of 3,200 square feet of heated, lighted, and air conditioned terminal and office space that will include space for crew and pas- senger lounges, public restrooms, training, and flight planning.” Some get more specific. Another older, though still current, set of stan- dards notes an FBO should have “… coin operating vending machines of tobacco, confections and refresh- ments...” Tobacco sales from coin operated vending machines? Really? But this issue isn’t just a function of FBOs lobbying for greater Minimum Standards—airports themselves seek enrichment of their infrastructure. While basic Minimum Standards do make sense for the industry, the amount of investment required by airports is often disproportion- ate to those standards. In order to secure a long-term lease, many FBOs are required to spend into the double-digit millions of dol- lars. Airports could simply set a required amount of investment, or exhaustively define their Minimum Standards, but it seems odd to do both. Requiring a high capital com- mitment—but then dictating exactly how that capital will be deployed via Minimum Standards—only fuels the FBO terminal arms race. Finally, customers—both pas- sengers and the pilots alike—his- torically demanded facilities that matched their traveling experience, under the logical premise the FBO is an extension of that space. Not surprisingly, many FBOs are built to mimic the comfort of a high-end hotel lobby. That much makes sense from a design inspiration perspec- tive. Yet, while customers desire such facilities, many drive directly to the aircraft, bypassing the FBO altogether. Those who most fre- quently use the FBO building today are pilots, vendors such as limou- sine drivers and employees of based tenants, such as that one Director of Maintenance, who more or less lives at the airport. Hence, if there’s four people in the lobby, statistically, only one is an actual paying passenger. As a result of these various forces, the FBO industry is building pas- senger terminals that are not being used by many customers, cost mil- lions of dollars, and are not in and of themselves, revenue-producing. Unlike a hangar with office space, both of which provide revenue opportunities in the form of subleas- ing, FBO terminal buildings are often viewed as a cost of doing business. In a pure commercial real estate environment, it would be ludicrous to deploy millions of dollars into non-revenue producing structures– without at least picking up Common Area Maintenance charges (CAM). But, as the theory goes in the FBO industry, these increasingly large and exceptionally well-appointed terminal buildings are supposed to be paid by fuel sales. That notion is especially disturbing if one considers the ever- declining margins on those fuel sales. The solution is to monetize the FBO terminal itself–by redesign- ing them to alter the passenger Continued on page 41 Aviation Business Journal | 2nd Quarter 2017 39
