FBO Survival Series - Survival Tip #5: Prepare and Adapt to the New Normal
/By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group
Welcome to the fifth 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
“Expect the best, plan for the worst, and be prepared to be surprised.”
-Denis Waitley
Last January we published our FBO Industry Outlook for 2013. Basically, we said FBOs will compete on customer service and not price as they try to hold their margins and squeeze out a modest growth of 4 to 6 percent.
Now that we’ve put the first two quarters behind us, nothing has really happened to temper our economic outlook. That’s because we’ve seen more of the same.
- Oil Prices have remained very volatile.
- Business aircraft sales on a slow recovery.
- Business aircraft traffic counts for the first six months of 2013 are down 2 percent from last year.
- Political gridlock continues.
- Unemployment continues to be well above normal levels.
- Healthcare costs will rise—Obamacare implementation continues to be uncertain.
- The Gross Domestic Product (GDP) in the United States expanded 1.70 percent in the second quarter of 2013 over the previous quarter as reported by the Bureau of Economic Analysis. GNP Annual Growth Rate is up 1.4 percent from the previous 1.3 percent.
- The U.S. Consumer Confidence Declines in July. The Conference Board index decreased to 80.3 in July from 82.1 in June. The Present Situation Index increased to 73.6 from 68.7. The Expectations index decreased to 84.7 from 91.1 last month
What this shows is we are now operating in a new normal. In other words, forget the way the FBO business operated in past years. The playing field has changed. Like it or not, we have to adapt and change the way we do business. Otherwise, survival will be difficult.
Operating in a New Normal
The new normal really started taking shape in 2008 when the economy began to put on the brakes. You did what you had to do to survive. You began operating smarter. Perhaps you looked to cut labor costs by outsourcing some of the things you did for customers, such as detail and cleaning aircraft as well complimentary auto washing.
Other FBOs cross trained their employees to do various jobs. This way an FBO did not have to layoff skilled and long-term employees as jobs were filled when normal attrition thinned ranks.
You no doubt took a hard look at your purchasing behavior and kept expenses in check in order to create positive cash flow.
In reality, the things you were forced to do created your own new benchmark for how you should operate in the foreseeable future. This now has become your new normal.
Industry wise, there is very little on the horizon that would induce a robust return to pre-2008 business levels. Add to this the fact that aircraft operators have become smarter during the downturn by operating more efficiently through tighter scheduling, negotiating fuel purchases, tankering fuel from their home base and purchasing more fuel efficient aircraft.
Moving Forward
As we move forward, here are a few things FBOs can do to protect their current situation and be positioned for potential future growth.
- Pay your bills according to terms. Use the 30 day windows most creditors allow.
- Use the credit card that gives you points or cash back, and then pay on time.
- Use a bonded and stable payroll processing firm to pay employees. They know tax issues.
- Receive payments promptly. Fuel suppliers should pay within 24 hours.
- Get paid immediately by contract fuel suppliers and credit card processors.
- Cash is king. Maintain positive flow and maximize cash on hand. Don’t pay excessive interest rates or fees. Work with your banker to get a line of credit and do cash forecasts.
- Have a good insurance story and let your broker be your friend. They have resources to help with safety training and audits
- Do a business analysis prior to making decisions on expenditures.
And always remember to maintain a healthy fuel margin. We know a $2 margin is hard hold but if you are competing on customer service and not price, you will find that customers will remain loyal, are less likely to ask for deep discounts, and will recommend you to others.
So, be prepared and adapt. The new normal may be here to stay!
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:
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.
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.