FBO Survival Series - Survival Tip #4: Develop an Early Warning System
/By Ron Jackson and John Enticknap, Aviation Business Strategies Group
Welcome to the fourth installment of our continuing AC-U-KWIK FBO Connection Series: FBO Survival. This series focuses on the various strategies and tactics needed to survive the daily rigors of running a successful FBO operation.
“History is a vast early warning system.”
-Norman Cousins
In developing operational strategies for our FBO clients, one of the first questions we ask is if they have in place a daily, weekly and monthly reporting system that shows at-a-glance critical metrics of their business?
It’s a type of early warning system that helps FBO owners and managers run a more efficient and profitable operation.
Many of you may recall the Distance Early Warning (DEW) radar system implemented by the U.S. during the early years of the Cold War with Russia. Part of the Semi-Automatic Ground Environment (SAGE) program, it included a radar net that stretched across the Northern boundaries of Alaska to detect, track and help destroy enemy aircraft.
Ronald Enticknap, John’s father, helped develop this system while being assigned to the U.S. Department of Defense by Great Britain’s Royal Air Force.
Just like the SAGE system, the metrics displayed in an FBO early warning system, commonly referred to as dashboard reports, can be used as an early warning system to flag unusual sales activities and spot trends that could indicate something is amiss in an FBO operation.
Dashboard Metrics
Properly integrated into an FBO’s management process, an early warning system will act as a business barometer to help set in motion a get-well program to maintain profitability goals.
The basic metrics a dashboard report should include are:
- Daily, monthly, & YTD fuel sales
- Ongoing margin analysis
- Maintenance labor productivity
- Charter aircraft productivity
To give you an idea of how effective these reports can be, we recently corresponded with one of our clients who spotted a disturbing trend in their fuel margins that resulted in loss of revenue.
Case Study
This client had been monitoring their margins. They noticed their contract fuel prices, based on their margin, seemed to be in-line with other FBO’s including their main competitor. Contract fuel mark-up, on average, ran 8 cents to 12 cents per gallon, which was fine with them.
However, about six months prior they noticed the price to customers started increasing quite drastically and wound-up being 20 cents to 30 cents a gallon more than it had been (adjusted for PLATTS fluctuations). During this time, the client did not increase their margin. They then asked several contract fuel suppliers if they had changed something and the answer was no. They then asked their fuel supplier the same thing and their answer was no as well.
Upon further investigation, the client discovered their fuel supplier uses a different benchmark for Into-Plane pricing–ARGUS (not PLATTS). In their analysis, they put together a comparison between PLATTS and ARGUS Jet-A numbers. For the past 18 months, ARGUS was shy of a penny more; however, since early this year, ARGUS seemed to be 4 cents to 10 cents higher than PLATTS.
The client dug even deeper and discovered the fuel supplier had a “glitch” in their system and the mark-up was actually 15 cents, not 10 cents as previously thought.
While many FBOs go through their fuel provider for contract fuel, our client decided to change and elected to go direct with the major providers. The terms were not that different from their fuel supplier, but it put our client more in-line with their competitor and saves them from having to cut their margin. Now, they are actually trying to increase their margins.
Our client said it was time consuming to go through this process, but without having an early warning system in place, it may have gone undetected.
To summarize, it’s important to build flexibility into your business. The competitive nature of our industry is always there, not to mention the FBO business model of the past 50 or more years is changing. Today, there is more squeezing of fuel margins; competing on multiple bids for maintenance work; aggressive pricing on charter trips; and more pressure on costs which keep FBO owners and managers very busy trying to turn a profit.
Tactics: Re-think long-term dealings:
- Do no more than three-year contracts on fuel supply
- No more than one year on hangar lease agreements
- Put fuel uplift agreements in writing to maintain margins
- For fuel discount programs, let’s evaluate every three months
- Review maintenance discounts
We are operating in a new environment, but remember there have always been business cycles. Operating your business prudently and with good planning will keep you in the game for a long time.
If you like this series, please ‘Like Us’ by clicking the icon below. Also, let us know your thoughts by e-mailing us at:
John Enticknap: jenticknap@bellsouth.net
Ron Jackson: rjacksongroup@earthlink.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.