March 13, 2014

FBO Best Practices Series #1: FBO Accident? Don’t be Sorry!

March 13, 2014/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group - ABSGgroup.com

Welcome to our new blog series on FBO Best Practices. With each blog post in this series, we’ll discuss “Best Practices” in running an efficient and effective FBO operation. Also, please join John and Ron for the next NATA FBO Success Seminar, March 24-25, 2014, in Las Vegas.

Best Practice #1: Never say you’re sorry to a customer if you have an accident on the ramp or in the hangar of your FBO.

We know this sounds a bit callous and goes against everything society has taught us regarding common courtesy, but here’s why it’s important to keep emotion out the equation and treat an accident as an event.

The fact is an accident can potentially involve legal action. Therefore, statements made that are apologetic in nature could possibly be used as part of a lawsuit to show potential admittance to wrong doing on the part of the FBO.

At least, that’s our experience. However, before we go further with this post, here is our disclaimer: We are not attorneys. Please consult an attorney for legal advice.

As mentioned, the natural reaction to an accident is for an employee to offer an apology and once that happens, it often doesn’t stop there, especially if the accident involves the grounding of an aircraft. We’ve seen and heard of FBO employees going as far as immediately offering a charter aircraft and to fix the aircraft that’s damaged.

Further, no statements should be made regarding how the accident happened or inferences of assuming responsibility. And the restriction is not just for verbal statements. Employees should not use cellular phones to take photos or contact anyone regarding the accident especially texting or the use of social media such as Facebook or Twitter.

When substantial losses or lawsuits are anticipated, the prudent thing to do is not to talk about it to anyone other than a lawyer or insurance broker. This is a hard position to take when things go wrong at an FBO. Your customers are unhappy, your employees are unhappy and perhaps even under duress.

FBO owners and managers have to balance this uncomfortable situation and do the best for all affected parties. This includes protecting the business from potential lawsuits and unnecessary expenses while maintaining a trustworthy enterprise.

So what is the protocol in dealing with an accident? Here are some general guidelines:

If there are injuries, get medical help immediately and make sure all are out of danger.
Employee, without delay, reports the accident to the supervisor.
Supervisor contacts FBO owner/manager.
Insurance broker is contacted and deals directly with the customer.
If there is a risk management department, it should be contacted to manage the customer and their issues.
Help the customer with such items as rental car and hotel arrangements. Note: The customer should pay for the rental car, hotel or other transportation, not the FBO.
Be an empathetic listener for the customer. Do not get defensive. Act with understanding and seek to ease stress from the circumstances.
Let investigators do their job. Liability needs to be investigated in a detailed investigation of the facts.
Do not email or hold casual conversations on the incident. Investigative reports and details should be kept confidential between the FBO ownership and insurance brokers.
All statements that have to be issued should be done so after consulting an attorney and/or insurance brokers.

Once again, please remember we are not lawyers, so consult with your attorney if you have an accident. Our advice is to be careful when an accident occurs and do not automatically make statements that assume the FBO is at fault … it’s not always the case. And above all, put your procedure in writing and educate your employees regarding the procedure. Keep a copy in your Standard Operating Procedures (SOP) manual as well as your Customer Service Manual.

Tell us what you think—we appreciate your comments and thoughts. Also Like us by clicking the link below.

Send us an email to Ron@thejacksongroup.biz or jenticknap@bellsouth.net and visit us online at www.ABSGgroup.com. Also, learn more about negotiating airport leases, fuel supply agreements and exceptional customer service at our next NATA sponsored FBO Success Seminar to be held March 24-25, 2014, in Las Vegas. Click here to register.

About the bloggers:

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.

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

February 07, 2014

Our 2014 FBO Industry Annual Forecast

February 07, 2014/ AC-U-KWIK

Expect a Flat Market with Spotty Increases in Fuel Sales

Key for Success in 2014 will be Higher Margins on Static Volume

By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group

Recently we conducted our 2014 Annual FBO Industry Survey and the overall results indicate a mixed market that has yet to catch real traction.

We surveyed more than 500 FBOs and asked for responses to these statements:

For this past year, 2013, please indicate how your FBO fuel sales performed compared to 2012.
For this year, 2014, what are your predictions for your FBO fuel sales compared to 2013?
In your opinion, is the economy headed in the right direction?

In general, there is a sense of status quo for 2014 with a majority of those surveyed predicting, at best, a breakeven marketplace. However, on the positive side, more than 40 percent predicted an increase in fuel sales volume with 20 percent of those surveyed projecting an increase of more than 5 percent.

Although there were reported pockets of increased fuel sales in 2013, nearly half the FBOs surveyed did not see an increase in business while feeling the economy is not headed in the right direction. We feel this trend will continue for 2014 with a relatively flat market and again some spotty increases in fuel sales.

While another year like 2013 is not necessarily good news, we feel the average FBO can improve profitability even in a flat market. Here’s what we believe are the keys to success for 2014 and beyond.

Keys to Success in 2014

Watch your margins closely.
Don’t give away your services.
Compete on customer service, not price.

Let’s break this down further:

Key No. 1: Watch Your Margins Closely.

If you’ve been to our NATA FBO Success Seminar, you’ve heard us go through the drill:

Understand the true cost of pumping a gallon of fuel including labor, fuel truck lease, flowage fees, insurance, credit card charges, utilities, rent, coffee, ice, cookies, popcorn, etc. We’ve seen midsized FBO operations with an insurance bill that averages $1,000 per day.
Set your own discount fuel price and don’t go below it. We all know the posted price myth: no FBO sells fuel at posted price. However, there is a discount limit you need to establish and stick to it. Too often, third-party fuel providers dictate your fuel price and chances are you lose money or breakeven at best.
You may end up with less volume, but the fuel you end up selling is at a higher value and your bottom line will look a lot better. Sometimes less is more!

Key No. 2: Don’t Give Away Your Services.

If someone can show us another industry where the business model gives away so many services, please let us know. In reality, we’ve probably done it to ourselves by offering free newspapers, crew cars, coffee, ice, cookies, Wi-Fi, ushering, baggage handling, aircraft towing, parking, tie downs, multiple lounges, flight planning, etc.

Problem is that our current business model has spun out of control. Margins are getting squeezed and yet customers still expect the free stuff. You can’t go to the bank when you’re busy pumping a pre-arranged load of fuel at a heavily discounted price. Or, in the case of the reluctant customer, no fuel at all.

Consider a two-tier pricing structure where everyone who comes on your ramp must contribute something to your business. Whether it’s a courtesy load, a top off, or a ramp and facilities fee.
Tier One: Full Service. Pay something close to retail price and you’ll throw in the kitchen sink.
Tier Two: A La Carte Services. Want a heavily discounted fuel price? Great! But pay for each and every service you use, including a facilities fee, to cover all the incidentals. That clean bathroom just didn’t happen!

Key No. 3: Compete on Customer Service, Not Price.

Yes, FBOs need to be price competitive, but they must maintain healthy margins and find other ways to compete through differentiation. One of the best ways we find to differentiate is to offer an outstanding and memorable customer service experience.

More and more FBOs are taking customer service training very seriously. Just as FBOs don’t tolerate mishaps on the ramp, they are becoming more conscious of eliminating miscues with the way they deliver customer service.

Here are suggestions for improving your customer service experience:

Standardize your customer service training.
Empower your employees to own their mistakes.
Teach employees to deal with customer dissatisfaction.
Motivate your employees to work together as a team.
Measure your customer service delivery with a short survey.
Ask the customer the really tough question: Would you recommend us?
Monitor your loyal customer database. If you haven’t seen a regular customer in a while, find out why.

If you want to learn more about developing a customer service training program, check out our acclaimed Don’t Forget the Cheese!© The Ultimate Customer Service Training Program and visit our new website at www.absggroup.com.

During our upcoming NATA FBO Success Seminar to be held March 24 and 25 in Las Vegas, we will be discussing these major issues and much more. Please join us for this event. Past attendees say it’s like taking a short course on how to run a more successful FBO.

Tell us what you think—we appreciate your comments and thoughts. Send us an email to jenticknap@bellsouth.net or Ron@thejacksongroup.biz.

About the bloggers:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

January 10, 2014

FBO Survival Series - Survival Tip #10: Sharpen Your Negotiation Skills

January 10, 2014/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group

Editor’s Note: Meet our bloggers, John and Ron, at the AC-U-KWIK booth No. 1004 at the NBAA S&D Conference in New Orleans, Jan. 14-17. Register to win a free registration fee to the next NATA FBO Success Seminar, March 24 and 25 in Las Vegas, a $650 value. Also, join John and Ron on Jan. 17 at the S&D 10:30 a.m. session on: Get Ready for a New FBO Business Model.

Welcome to the next 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.

"My father said, ‘You must never try to make all the money that's in a deal. Let the other fellow make some money too, because if you have a reputation for always making all the money, you won't have many deals.'"
- J. Paul Getty

As we start the new year, it’s never too early to get out the old business tool kit and sharpen a few skills that will help you survive in 2014. The art of negotiation is one skill that we can use every day in running a successful FBO operation.

In a broad sense, negotiating skills can be used in a variety of situations, including dealing with employees, customers, investors, vendors and suppliers; virtually all your stakeholders.

The FBO business is a relationship business and for relationships to be successful, your negotiating style is very important. We believe in win-win negotiations where both parties feel a sense of gain. However, if you are set on negotiating a one-sided win, the result is often a short-term solution.

There are many different styles of negotiating and the style we feel works the best is based on compromise, accommodation and collaboration.

In preparing for a negotiation, here are few things to keep in mind:

What are your goals?
What are the goals of your negotiating partner? (Note partner, not adversary)
Do you have common ground with your partner?
In what type of environment are the negotiations going to be conducted?
Are you facing a very competitive partner who wants to win at all costs?
What is going to be your opening position?
At what point do you walk away? Or do you have that option?

Knowledge is key to any negotiation. If you are negotiating something major, such as a new lease with the airport authority, you must research your partner and know as much as you can. This includes gathering any personal background information as well as history on prior negotiations.

The FBO and aviation services business is generally a very small community. If your style is confrontational and aggressive, as opposed to a businesslike approach where goals are mutually appreciated, you tend to be less successful in the long run.

In an ideal situation, you will find that the other person wants what you are prepared to trade, and that you are prepared to give what the other person wants. Ultimately, both sides should feel comfortable with the final solution if the agreement is to be considered win-win.

If you can answer yes to the following questions, then your negotiations have been fruitful:

Have most or all of your goals been met?
Has your partner met their critical goals also?
Is your relationship with your negotiating partner good?
Are the outcomes of the discussions better than other alternatives?

The most sensible outcome is to have ongoing relationships with your negotiating partner. This is particularly important when dealing with a disgruntled customer. As we all know, the aviation business is a small community and if you’re in it for any period of time, you will meet the same people again and again, sometimes in different capacities. Therefore, it is in your best interest to have a reputation as a fair negotiator.

During our upcoming NATA FBO Success Seminar to be held March 24 and 25 in Las Vegas, we will be discussing the major elements of negotiating an airport lease as well as a fuel sales agreement. Please join us for this event. Past attendees say it’s like taking a short course on how to run a more successful FBO.

Tell us what you think—we appreciate your comments and thoughts.

Send us an email to Ron@thejacksongroup.biz or jenticknap@bellsouth.net. Also, learn more about negotiating airport leases, fuel supply agreements and exceptional customer service at our next NATA sponsored FBO Success Seminar to be held March 24 and 25, 2014, in Las Vegas. Click here to register.

About the bloggers:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

December 10, 2013

FBO Survival Series - Survival Tip #9: Avoid the Status Quo

December 10, 2013/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group

"Status Quo, you know, is Latin for ‘the mess we’re in.'"
- Ronald Reagan

About the time you think you’ve got your FBO running smoothly, that’s the time you need to step back, reevaluate, get back out on the floor and see what’s going on. If you are willing to accept the status quo, chances are you’re becoming a little too complacent and that can spell disaster in any business.

Case in Point

Recently, an independent aviation consulting firm conducted a fuel-brand phone survey of FBOs. In most cases, the person answering the phone was a customer service representative. The consulting firm simply asked: “What brand of aviation fuel do you sell?”

Shockingly, more than 30 percent of respondents did not know the answer. That’s one in three!

This begs the question: What else don’t your employees know about your business?

Knowing the basics of your business is essential. However, a greater understanding of some of the technical points of fueling and servicing an aircraft by all employees instills greater customer confidence.

One of the best ways to help a new CSR understand your business is to cross train the employee beginning with line service. Let them get out on the ramp and learn firsthand from your most experienced line service technician. And, alternatively, have your line service technicians spend some time observing and helping out at the front desk, in the lounges, and even cleaning bathrooms.

Some business modelers call this job enrichment. They’ve observed an increase in employee morale when horizons are expanded and other skills are experienced and learned.

If you are running an FBO that does more than sell fuel, like maintenance, flight school and perhaps charter, you would probably want your frontline employees equipped with enough information to help solve any customer problems by offering the right solutions.

As we teach in our Don’t Forget the Cheese! customer service training course, it’s not the elephants and hippos that cause the most problems, it’s the little gnats that buzz around constantly giving you fits.

That’s why it’s important to standardize your customer service delivery experience. If you’re like most FBO owners and operators, you don’t tolerate mishaps on the ramp! Why, then, would you tolerate a misstep at the front counter, the very point of customer transactions?

Therefore, put it in writing and make sure every employee receives the proper training required to competently represent your business interests.

So go ahead and shake up the status quo. Get your employees more involved by getting yourself more involved. Challenge your employees by developing a little pop quiz. Correct answers get some string cheese or other healthy treat. Keep them on their toes, always thinking and learning.

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:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

November 14, 2013

FBO Survival Series - Survival Tip #8: Be a Savvy Business Operator

November 14, 2013/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group

In the business world, everyone is paid in two coins: cash and experience.
Take the experience first, the cash will come later.
- Harold S. Greneen

In our continuing series, we are seeking to help you run your FBO more efficiently, urging you to compete while helping you understand what drives your business.

The typical FBO owner is really in a number of diverse businesses including fueling, maintenance, charter and maybe running a flight school. The savvy FBO owner should know and understand each of these business segments intimately and comprehend what drives profitability.

On the fueling side of your business, the savvy FBO owner knows to review each and every fuel invoice and compare the pricing with the fuel supplier contract. Don’t forget about the details, such as the freight rate and taxes being charged. Paying attention to these kinds of details can mean money in your pocket.

Of course tracking your cost of fuel in your tank is also important, realizing that each load has a different cost basis which will affect the margin you need to maintain. We’ve said this before, you don’t want to give it away and not maintaining a healthy margin can spell disaster.

Another area of concern should be tracking your capture rate. This is one of the most important but least recognized statistics you should monitor. For reference, the capture rate is based on the number of arriving aircraft that take fuel vs. the number that don’t. Over time, you can spot trends that may need your attention.

For instance, if you see a spike in the number of aircraft not taking fuel, you may want to examine the workings of your line service deliverables. Also, do a little on-the-ramp survey by simply asking the customer why they aren’t taking fuel. You may be surprised at the information you can collect that can help change patterns and behaviors.

Understand Your Market Share

Another statistic to track is your market share on the airport if you have one or more competing FBOs. Your airport authority should be providing you with monthly reports of fuel being sold by your competitors. If your business goes down, then you can see if the overall business is down at the airport or if your competitors are taking market share away from you. By being business-savvy in this area, you can quickly analyze the market dynamics to first spot the trend, and then develop a plan to reverse the trend.

If you are located in a metropolitan area where you are also competing against FBOs at nearby airports, then it’s important to track activity as well as fuel prices at these airports. Remember, you want to be competitive with your fuel prices, but you don’t want to participate in a pricing war. No one wins if this happens.

We have discussed in previous blogs how to evaluate contract fuel programs. One of the largest issues for FBOs is remembering that all contract fuel suppliers add a margin onto your price. The contract fuel suppliers have to cover their costs of administration and, of course, they want to make a profit. Our advice: don’t give away your contract fuel.

Check Your Maintenance Shop Productivity

With regards to your maintenance business, one of the main statistics you need to be aware of is the productivity of your mechanics. Look at the simple calculation of hours paid to hours billed. If your software/accounting program will not do this, then calculate it manually. A rule of thumb is your shop should be at least 80 to 85 percent productive. If you’re not doing that, then you need to find out why.

If you’re working on older aircraft, are you charging for the research for compliance with ADs, service bulletins and previous maintenance? These are required items to complete an annual inspection or scheduled maintenance event. Yes, it can be expensive for the aircraft owner, but you, as the responsible party, are not in the business to subsidize these requirements.

Also, look at your parts profit margins. You should be averaging a 20 to 25 percent gross profit margin. Of course, the margin is not the same on all parts. High value parts are usually sold at a margin of less than 20 percent, however, lesser value items are at a higher 30 to 35 percent rate.

Have you ever had a customer bring in his own parts? If so, what do you do? Once the parts are installed by your mechanics and you sign off in the logbooks, your FBO is now responsible for the repairs and the parts. The question is, how do you defend yourself if there are problems later?

Don’t Forget the Details

Let’s look at core charges. Are you charging the customer for the high-value core fees? We see FBOs that don’t do that. You, as the FBO, have not been responsible for the condition of the removed part, why should you assume the financial risk? Charge the customer for the core charge and when you receive the credit, issue a credit to the customer.

Another area to examine is shipping charges incurred by the FBO. For instance, on a large turbine engine overhaul done by a vendor, we’ve seen FBOs discount hefty freight bills. If customers want fast turnarounds and expect engine shipments to be expedited, then they have to pay the shipping. Not only that, all vendor-charges should be marked up by at least 15 percent to cover associated administration costs.

These are just a few of the areas that savvy FBO owners should be looking at in order to make their business more successful. At our NATA FBO Success Seminars we discuss many more of these issues and invite you to attend the next one scheduled for March, 2014. Details will be posted soon on the www.nata.aero website.

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:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

October 03, 2013

FBO Survival Series - Survival Tip #7: Ask the Tough Questions!

October 03, 2013/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group

Col. Nathan Jessup: “You want Answers?”
Lt. Daniel Kaffee: “I want the Truth.”
Col. Jessup: “You can’t handle the truth!”
- A Few Good Men

Most FBO owners and operators who we come across think they are doing a pretty good job of running their operations. They’ve been in business for a relatively long time, survived the economic downturn, and managed to make a profit, sometimes a pretty slim profit, but they’re keeping their heads above water.

However, most can’t answer these three questions: Do you know what your customers think of the way you run your business? Have you ever asked them directly? Have you ever asked them the really tough question as they pay their bill and are walking out the door?

And what is the really tough question, you ask?

Answer: Would you recommend our FBO?

We all know corporate pilots, our main customers, are a rather tight-knit group. They are professionals who have earned their position over time. It’s true that some pilots are easier to please than others. Pilots are also held to a higher standard by their customers, the men and women who fly in the cabin and ultimately pay their salary.

You’re Only as Good as Your Last…

There’s an old saying among veteran pilots: “You’re as good as your last flight.” That’s because their customers have short memories regarding past flight performances when the flight they are on turns sour.

This is also true in the FBO business. Pilots are always judging us. It doesn’t really matter if they had a good experience the last time they visited. Although, the really loyal customers may cut us some slack, at least once.

Pilots are keeping a mental score of our service from the moment they’re greeted on the ramp to the moment they board their aircraft to leave.

As we teach in our acclaimed Don’t Forget the Cheese!© customer service training course, FBOs should measure their service against their own set of service standards, and remind themselves:

You’re only as good as
-your last fueling
-your last quick turn
-your last marshalling job
-your last lavatory service
-your last catering or galley service
-your clean restrooms
-your friendly and personable customer service
-your directions to a restaurant
-your recommendation on a hotel
-your clean and orderly appearance

The trouble is that most pilots won’t tell you if they’ve had a good or bad experience during their visit, unless you do something drastic, such as hit their aircraft.

Instead, they’ll leave and may never come back. Even worse, they’ll leave and tell every other pilot they know about their bad experience. And with social media, the message is literally instantaneous. There’s truth in the saying that good news travels fast, but bad news travels even faster.

Ask the Tough Question

So how do you know if you’ve scored high or stubbed your toe along the way? Simple, before the customer leaves the building, you, or someone on your staff, should approach the customer and say “Thank you, Mr. Jones, for your business. We hope you had a pleasant experience. Can you please tell me, would you recommend us?”

Most business owners are afraid to ask this question because, deep down, they’re afraid of the answer. They literally can’t handle the truth. That’s human nature. No one wants to hear something negative about their pride and joy.

However, listening to criticism is the only way to find out what part of your business needs improvement. It’s the only way to grow.
If the customer does not hesitate and readily states that yes, they would recommend you, then you can give high-fives to everyone on your staff. However, if there is the slightest bit of hesitation, you should probe further and ask, “Was there something in your service experience that we could have done better?”

Now you’ve averted disaster. You listen empathetically, apologize, and make assurances that the problem will be corrected. You invite the customer back for another chance. You also need to follow-up with the customer by sending a hand-written note, giving the customer a call, or better yet, doing both. This is all part of the information we cover during one of our NATA FBO Success Seminar sessions on Being the Restaurant Owner.

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:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

September 04, 2013

FBO Survival Series - Survival Tip #6: Take Off the Blinders

September 04, 2013/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group

Welcome to the sixth 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.

“But if you are going to wear blinders then you do not know the world.”
-Miriam Makeba

We’re all guilty of doing it. We get so busy, and maybe a little complacent, and forget to take the blinders off in order to see and experience our FBO from the customer’s perspective.

At our NATA FBO Success Seminar, we discuss “Management by Walking Around.” This involves getting out of the office and observing the workings of your FBO — while wearing the hat of the customer. It’s like being a restaurant owner and making sure the operation is running smoothly.

Not long ago we were on a commercial flight and in the seat next to us was a pilot for one of the leading aircraft fractional providers. So, we took advantage of the situation and began asking some questions about the level of service he was looking for in an FBO. He started by telling us some of the things he observed while taxiing onto the ramp of an FBO for the first time.

“I can always tell if I’m going to get good customer service by the way I’m greeted on the ramp by the line service personnel,” he began. “If I don’t see a line service technician guiding me into a parking spot with crisp and proper hand signals, then I know we’re in for less than good time.”

“Then I look at how clean the ramp looks. Is the ground equipment looking good, parked with chocks under the wheels, traffic cones placed around parked aircraft?” the pilot asked. “If so, then I know this FBO is following good operating procedures.”

He said that if he is disappointed with his arrival, then he knows he’ll be disappointed with the rest of the service experience.

We could tell this pilot knew his stuff and was anxious to tell us more. So, we probed a little further.

“If the APU is filthy dirty, I wonder what the bathrooms look like,” he said, poking his hand into the seat pocket in front of him. “The same way with an aircraft, if you see a bunch of stuff sticking out this seat pocket that doesn’t belong here, don’t you sort of wonder what kind of maintenance the aircraft gets?”

He made some good points and we were readily taking mental notes to share in our seminars.

All of this begs the question: When was the last time you got out of your office and walked around the facility and out onto on the ramp?

Observe from a Pilot’s Perspective

Why not look at your business the same way a customer would? Walk all the way out to the entrance to your ramp and observe the view pilots have of your FBO. Can you see what the pilots see? Is the first impression what you want?

Do you observe a clean well organized ramp, equipment parked and looking good with safety cones in place? How about your fuel trucks parked in a line in accordance to NFPA 407?

Or do you see grass growing out of the tarmac, equipment that needed a paint job 10-years-ago, fuel trucks that are leaking and/or have the seats blown out and perhaps disorganized aircraft parking?
Here is a little check list we encourage you to post in your FBO:

AIRCRAFT ARRIVALS

» HEARING PROTECTION
» MARSHALER POSTED
» WANDS ON ARRIVAL
» CORRECT GUIDE SIGNALS
» CHOCKED BOTH MAINS
» CARPET ON HAND
» CONES ON THREE POINTS
» NIGHT WANDS USED WHEN APPROPRATE
» RAMP LIGHTING WORKING AND IN GOOD REPAIR

AIRCRAFT DEPARTURES

» HEARING PROTECTION
» REMOVAL OF CARPET
» WANDS ON DEPARTURE
» GPU OPS/SIGNALS
» CORRECT GUIDE SIGNALS
» NIGHT WANDS USED WHEN APPROPRIATE

PARKED AIRCRAFT

» CHOCKED BOTH MAIN LANDING GEAR
» CONES FOR VEHICLES
» TRAFFIC CONES ON 3 POINTS/TAIL AND WINGS
» TIEDOWN ROPE CONDITION
» TIEDOWN ROPE LOG

What else can you do while you’re walking around your FBO? How about greeting your employees, engaging them in conversation, getting to know them and praising them for doing a good job? Human factors research indicates that what employees want most is recognition for doing a good job. Helping people reach their full potential will allow your business to succeed.

And this is just the start of “Managing by Walking Around.” You’d be surprised what else you can become engaged in when you take off the blinders!

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:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

August 08, 2013

FBO Survival Series - Survival Tip #5: Prepare and Adapt to the New Normal

August 08, 2013/ AC-U-KWIK

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:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

July 10, 2013

FBO Survival Series - Survival Tip #4: Develop an Early Warning System

July 10, 2013/ AC-U-KWIK

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.

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

June 11, 2013

New Series: FBO Survival - Survival Tip #3: Don't Give it Away!

June 11, 2013/ AC-U-KWIK

By Ron Jackson and John Enticknap, Aviation Business Strategies Group

Welcome to the third 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.

"Your success in life isn't based on your ability to simply change. It is based on your ability to change faster than your competition, customers and business." — Mark Sanborn

For many years, FBOs in the United States have been operated with a simple formula: markup fuel to cover all the operational business expenses. The greater the margin, the better the profit!

When fuel prices were fairly stable and the old inefficient heavy iron aircraft were commonly seen on ramps, this worked out pretty good.

But as singer- songwriter Bob Dylan so poignantly penned, “The Times They are a Changin’”.

From the last quarter of 2008 we’ve seen some real changes in our industry including the political bashing of our industry and a prolonged recession. As we struggled through 2009, we saw the ‘average’ FBO experiencing a 20 to 25 percent drop in business sales – with some losing more than 50 percent of their fuel sales. In 2010/2011 there was some recovery with an encouraging increase in charter activity and the resulting increased fuel sales.

Now in 2013, we are struggling with continuing volatile fuel costs. At the beginning of the year the Gulf Coast Jet A fuel prices ran up to $3.24 per gallon; now they’re down to $2.74 per gallon. That’s a .50 cent swing! Did your posted prices swing .50 cents a gallon?

We are still experiencing more unfortunate politics conveying a negative image for business aviation. And we are seeing the restart of the continued consolidation of the FBO industry – including FBOs that fail. Most of all, FBOs are continuing to experience competitive pressure on fuel margins to include all stakeholders such as customers, contract fuel suppliers and large volume users. Just read about a couple of the large chain operators and the largest corporate aircraft operator in the world – they’re in a dispute over discounts being extended to more corporate aircraft operators.

Changes in Operator Fuel Purchasing Habits

Over the last few years we have seen a strong push from our corporate customers utilizing alternate fuel purchasing strategies, rather than the traditional retail fuel purchase. Of course, the full retail fuel purchase has always been a myth – purchasers of Jet A fuel expect and get discounts off the posted price.

The trend over the last 15 years, especially within the last few, is to pre-negotiate fuel purchasing with many of the contract fuel sellers prior to arriving at your FBO. Calling ahead for the best discount available or changing plans to get the best overall operating costs are all tactics for reduced fuel costs and gallons purchased. This is savvy cost control for corporate operators.

Add to this the fact that corporate aircraft operators are getting more sophisticated in their flight planning:

Using fuel tankering models
Pre-established fueling points
Better ATC routing for weather and flight planning to minimize fuel costs
The purchase of more fuel-efficient aircraft

FBO Profit Misconceptions

Today’s FBO business model has not changed much over the last 30 years. It is still highly dependent on the retail fuel sale. The successful FBO’s look for the fuel sales – be it retail, contract or other – to essentially support the entire FBO operation.

But do all the aircraft that taxi onto an FBO ramp purchase fuel? No, they don’t. Yet the cost of doing business goes on, including exposing your FBO to potential insurance claims should the customer’s aircraft get mishandled. This has given rise to the Ramp Fee which is still a controversial subject in some aircraft operator’s minds.

Again, there is a misconception by many in the aviation business that FBO’s are super high profitable organizations and, quote: “ripping off” the flying public. This, of course, is highly exaggerated.

Changes in the Wind

However, the FBO business model in the U.S., as we know today, is destined for change. As mentioned, fuel margins are being squeezed from both ends. At one end is the volatile cost of fuel which drives significant base price changes. At the other end is the more savvy aircraft operator trying to drive down the sale price. In the middle is your margin, being squeezed like a lemon in a juice press.

So, how do we make lemonade out of the tart extracted juice? Here are few observations to ponder …

Having operated FBOs in both the U.S. and in the Middle East, we are very familiar with the European FBO Business model where fuel is not part of the income equation. Rather, fixed base operators in this part of the world depend on revenue generated solely by fees associated with providing various services common to an FBO operation:

Marshalling
Handling
Parking
Ramp
Ramp transportation
Over the Road transportation
Baggage Handling
GPU
Lavatory Service
Customs/visa
A handling fee for collecting navigation fees
A handling fee for collecting landing and over-flight fees
Lounge Fees
Catering

We are not suggesting you should follow this model, at least in its entirety. However, as margins get squeezed, you need to get creative in shoring up your bottom line by creating other streams of income.

Don’t Give it Away!

So our FBO Survival advice for this blog post is: DON’T GIVE IT AWAY!

If a customer doesn’t buy fuel, or at least doesn’t buy a minimum quantity for the type of aircraft being flown, why not charge a facility fee for use of the ramp that includes labor for safely parking and towing the aircraft, and repositioning for passenger loading?

If aircraft operators want a significant discount off the posted price, why not charge for taking out the trash, cleaning the lav, servicing the galley with ice and coffee or hooking up the APU?

If a fuel broker drives a hard bargain, why not charge for the courtesy vehicle or the newspapers? This often entails a requested set for the pilots and a set for the passengers.

If, during the course of a transaction, your fuel margin is significantly compromised in any way, why not consider an Airport Infrastructure Fee; say $18.88 per aircraft for all transient aircraft, for that clean restroom which is kept tidy by paid staff? Or how about a fee to cover the nicely furnished and well equipped conference room, pilot and customer lounges, the coffee and cookie bar which is kept well stocked throughout the day?

No, were not saying you need or want to charge for everything you do, but you need to analyze your various income streams and make sure you’re not giving your services away. Your business deserves to make a profit – and that is not a bad word! Your business should not subsidize corporate aircraft operating companies or your airport sponsor. If you do that, your business will not survive and you’ll lose your investment. Profit, it allows for growth and the continuation of your business.

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:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

May 02, 2013

New Series: FBO Survival - Survival Tip #2: Avoid the “Ready, Fire, Aim” FBO/MRO Syndrome

May 02, 2013/ AC-U-KWIK

By Ron Jackson and John Enticknap, Aviation Business Strategies Group

Welcome to the second installment of our new AC-U-KWIK FBO Connection Series: FBO Survival. This series focuses on the various strategies needed to survive the daily rigors of running a successful FBO operation.

As a follow-up to our first survival tip, ‘Keep Your Customers Close…and Your Margins Closer’, let’s examine a syndrome that has been occurring with FBOs that also run an MRO business.

It’s called the “Ready, Fire, Aim” syndrome. It affects FBOs and MROs and its symptoms are:

Lack of communication between the ‘business end’ and the ‘factory’
Job bidding that has no ‘real cost’ basis
Over-promising and under-delivering
A slow but sure drag on bottom-line results

Lack of Communication

Often times, MROs are primarily focused on keeping the factory busy. By factory, we mean the direct labor side of the business. All the technicians, inspectors and supervisors whose responsibility it is to inspect, modify and fix a customer’s aircraft.

However, the indirect labor, or the business side, is often guilty of not managing the workflow properly - which is the acquiring, scheduling and managing of aircraft that come into the factory. This mismanagement often results in extreme highs and lows in terms of work cycle.

Thus, it’s often “Ready, Fire, Aim”. It’s a lack of communication between the business side and the factory. It’s a perfect example of the right hand not knowing what the left is doing.

Inefficient Job Bidding

Another symptom is job bidding that has no real cost basis. This action typically results in underbidding a job. We find many MROs don’t really know the true cost of labor when developing a bid.

Every FBO and MRO should have an idea of what their actual cost is for an hour of labor. Whether you’re pumping a gallon of Jet A or turning a wrench on a Hawker, you should have a total grasp on what the actual cost is for each hour of service expended.

As we all know, it’s not just the cost of hourly wages or salary we pay our team members. Also, we have to include the mandatory taxes, social security, FUI, SUI and possible state taxes. In addition, we have to figure in optional benefits. Medical plans and other employee benefits also must be included. This can be 25 to 35 percent of the base wage.

Many firms stop there! What about your overhead costs? You should collect the information on your basic overhead costs such as:

Rent
Utilities
Communications
Workers Compensation
Insurance

We have talked to many medium sized FBOs who have told us their insurance is $1,000 per day! So these values become part of your labor cost.

As an example, if you pay an employee $15 an hour you need to add $5 for taxes and medical. When you add another $7 for overhead you have a real labor cost of $27 per hour. For a technician, you can have a labor cost of more than $40 per hour with a basic hourly wage rate of $25.

Once this is done, then you have to add extra to cover administrate overhead, sales costs, unproductive labor cost, overwork on jobs, the “free stuff” you give away, advertising costs, contingencies for insurance deductibles, etc.

Then you need to add a reasonable percentage in order to make a profit. Why else are you in business? As we often teach in our NATA FBO Success Seminars, we love the aviation business, but you can’t give it away. We’re not in this business for a hobby.

Dashboard Reports

Rely on your Dashboard Report. You should have a system in place that produces a reliable Dashboard Report. Here is a brief explanation of what they are, and how you should use them.

There you are, flying or driving along and you take a look at your dashboard. What does it tell you? In one quick glance you can tell your speed, direction, condition of your engine and the amount of fuel that remains.

The same goes for when you want to check on the condition of your company. You need a daily report – a Dashboard Report – that tells you what is happening with your business. You need to know:

How much fuel you pumped the day before
How much you pumped for the month to date
Value of the parts sold
Value of the work orders billed
Charter hours sold and dollar amount
Other sales information

This information tells you how you’re doing and you can compare the information to your budget. You did do a budget … right?

Collect this information from your accounting system or develop your own report.

Over-Promising and Under-Delivering

Often, the result of the first two parts of this syndrome is promising the customer something your FBO/MRO can’t deliver. Whether it’s when you can deliver an aircraft, the true cost of the job or both.

Yes, there are a lot of factors that can disrupt the delivery cycle including unforeseen extra work that needs to be done to the aircraft. However, by being positioned as a partner and communicating with your customer on a regular basis, many cost over-runs and delays can be mutually worked out.

What you don’t want to do is surprise your customer by underbidding and over-promising on delivery times. If you are pro-active with your customer from the start, you stand a better chance of getting a good recommendation and ultimately a loyal, satisfied customer.

Drag on the Bottom Line

Needless to say, lack of communication, inefficient bidding and over-promising can be devastating to your bottom line. The FBO/MRO business is challenging enough. Margins are extremely thin in this business and anything an owner/operator can do to create more efficiency and value in an operation has a positive impact on the bottom line.

Before you start a new job, get with your factory in order to properly schedule the work. Make sure they are comfortable with the terms of your proposal. Then, calculate your true costs before you add in your profit margin - and remember to keep your customers close.

If you like this article, please click on the “Like” icon below. Also, if there is a comment you’d like to make, please email us at:

John Enticknap: jenticknap@bellsouth.net

Ron Jackson: rjacksongroup@earthlink.net

About the authors:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

April 04, 2013

New Series: FBO Survival - Survival Tip #1: Keep Your Customers Close...and Your Margins Closer

April 04, 2013/ AC-U-KWIK

By Ron Jackson and John Enticknap, Aviation Business Strategies Group

Welcome to the first installment of our new AC-U-KWIK FBO Connection Series: FBO Survival. This series will focus on the various strategies and tactics needed to survive the daily rigors of running a successful FBO operation.

Our first survivor tip, ‘Keep Your Customers Close … and Your Margins Closer’, is inspired by dialogue in the film, The Godfather: Part II. It means, in order to survive today’s economic FBO climate, you need to focus on your two most important revenue generators: your valued customers and your fuel margins.

Keep Your Customers Close

At the beginning of 2013, we made our yearly FBO Industry Business Forecast by issuing a news release at the Annual NBAA Scheduler’s and Dispatchers (S&D) show and convention in San Antonio. The headline read: FBOs to Compete on Service, Not Price in 2013.

To recap, FBOs which compete on price will find it difficult to carve out a true Unique Value Proposition (UVP) in today’s competitive environment. Competing on price accomplishes two things - both negative:

It attracts the bottom feeders. This type of customer is only interested in the best price on any particular day and they often flit from one FBO to another in their quest. They are not ‘loyal customers’ and are often the ones who complain the most.
You compromise your fuel margins. Not only are you practically giving away your fuel, you’re setting yourself up for fiscal ruin. We’ll discuss this topic more in this blog.

When you compete on a customer service level, you start to create value for your own brand. You establish a UVP. Customers begin to take note and over time, become loyal.

Loyal customers complain less. They tend to pay a reasonable price in return for a good customer service experience. And, more importantly, they like your brand and are willing to recommend your FBO.

These are the types of customers you want to hold close, making sure everything goes well during their customer service experience. A repeat, loyal customer is more valuable than trying to go after a new customer based on price. And, when they are willing to recommend your FBO to other pilots and flight departments, there is only one word for this … priceless!

Therefore, train your employees in the art of delivering unique customer service, like the one we subscribe to at Aviation Business Strategies Group called, Don’t Forget the Cheese!©.

And above all, keep your customers close by building long-term relationships at all levels of your organization. Be the restaurant owner and lead by example. Create a working climate where every employee is customer service oriented. Let the customers know you appreciate their business.

Amazingly, only one in 25 customers will ever tell you there is a problem, so empower your employees to ensure any dispute is taken care of at the time of transaction. Up to 95 percent of disgruntled customers will return if disputes are handled in a timely fashion.

Keep Your Margins Closer

When we say ‘keep your margins closer’ we are recommending that you protect your fuel margins in order to survive. Often FBOs are under stress by customers, third party fuel providers, etc. to cut fuel prices thus eating into your fuel margins and your potential profit.

At our industry acclaimed FBO Success Seminar we conduct for the National Aviation Transportation Association (NATA), we have a session called ‘Seeking a Silver Bullet’ where we discuss maintaining healthy but fair fuel margins. Like the Lone Ranger, we are all seeking a silver bullet solution. Question is, does it exist?

Often times we run across FBOs that don’t really know what their actual operating costs are - which causes their fuel prices to be set arbitrarily. When your fuel truck hooks up to a customer’s aircraft, each gallon of fuel pumped should be priced to not only cover your set costs, but also yield a reasonable profit.

Therefore, you should have at least three desires or goals in mind when you set fuel prices:

Be competitive within your marketplace
Make a reasonable gross profit
Retain customers

In order to reach these goals, we should understand the relationship between price and cost:

The obvious -prices must exceed costs or we will ultimately fail
Costs include all the normal items such as leases, equipment, labor, training, loan repayments, etc.
But don’t forget to add costs of mark downs, shortages, discounts, marketing, overhead, etc.
Treat profit as part of your costs - we don’t want to be in business for a hobby!

Now, let’s look at a real world pricing evaluation for pumping a gallon of JET A at our fantasy facility – we’ll call Ron/John’s FBO:

Cost of Jet A Platts 2/12 thru 2/18/2013:
LAPM               3.3876
Differential      .15
Fed Tax             .244
Lust                      .005
Flowage                  .10
Transportation          .06

Total Cost of Jet A $3.9466/gal.

However, the above cost of fuel does not include our operating costs.

What does it really cost to pump a gallon of fuel? Here are our example numbers for Ron/John’s FBO:

FBO X Pumps 584,910 gallons per year
Annual revenue $2,278,000
Cost of Sales 1,665,000
Expenses 409,904
Net Profit 203,000

Therefore, under this scenario, the cost to pump a gallon of fuel is $0.7007/gallon.

Now let’s take a look at True Cost Evaluation:

Cost of Fuel $3.9466
Cost to Pump $0.7007

Total Cost per Gallon $4.6473

In order to determine what your actual posted price should be, there are several cost pricing models to consider including, cost plus pricing, mark-up pricing, demand pricing and competitive pricing. At our NATA FBO Success Seminar we discuss each of these methods in detail. However, for this blog, let’s just keep it simple.

Think of a flat added-on margin of $2.00. It used to be $1.00, but we all know what time and inflation has done to our economy.

For every gallon of fuel sold, you should have a goal of a $2.00 plus gross margin.

Sell a gallon - $2.00 in the bank!

Conversely, think for every $2.00 in expenses; labor, cookies, papers, coffee, etc. you need to sell a gallon of fuel - $2.00 plus out of the bank!
Therefore, our Ron/John's FBO example sale price would be $6.65/gal.
Guess what the chain FBO’s are charging?

Earlier we talked about ‘Seeking a Silver Bullet Solution’? The solution is KNOWLEDGE. Therefore, in order to Keep Your Margins Closer, we should take into consideration the following:

All prices must cover costs and profits
The most effective way to lower prices is to lower costs
Review prices frequently to assure that they reflect the dynamics of cost, market demand, response to the competition and profit objectives
Prices must be established to assure sales, but don’t give it away

And lastly, remember to add value to your fuel transactions by providing the best customer service, and don’t just drop the price. Keep your customers close, and your margins closer. That’s our FBO Survival tip No. 1.

Let us know what you think about our comments on FBO Survival!

John Enticknap: jenticknap@bellsouth.net

Ron Jackson: rjacksongroup@earthlink.net

About the authors:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

March 08, 2013

FBOs Face a Changing Environment in Fuel Supplier Relationships: Exploring the New Norm

March 08, 2013/ AC-U-KWIK

By John L. Enticknap, Aviation Business Strategies Group

“Everybody has accepted by now that change is unavoidable. But that still implies that change is like death and taxes — it should be postponed as long as possible and no change would be vastly preferable. But in a period of upheaval, such as the one we are living in, change is the norm.”
— Peter Drucker- Management Challenges for the 21st Century

Over the last several years we’ve seen some major changes in fuel supplier relationships within the FBO industry. It wasn’t that long ago when most FBOs had a fuel supply agreement directly with the oil company.

Then the landscape changed. Prominent industry brands like Texaco, Exxon, Air BP, Chevron, Mobil and Gulf Oil, if you remember that far back, have been acquired by other oil companies and then the majors have withdrawn from the retail marketplace.

These actions beg many questions. Why has this happened? Who is replacing the oil companies? Is it good for the FBOs selling to the end user, and is the FBO the only business selling to the end users?

First, let’s get to the bottom of why this happened. Basically, it comes down to economics. It costs the oil companies quite a bit of money to support the FBO marketplace. As much as we all love the FBO business, General Aviation is a small market segment for oil companies, considering the huge auto market they have to support and, closer to home, the commercial airline marketplace. On top of this, Avgas is a small percentage of the world aviation fuel market, and most oil companies would miss it on their ledger if they blinked.

In short, the support of an FBO takes much effort and expense. As we’ll discuss in our NATA FBO Success Seminar next week in Las Vegas, the fuel suppliers provide a number of services to FBO’s, in addition to the fuel:

Truck Leasing Programs
Quality Control Inspections
Over the Road Carrier certification
Credit Facilities
Marketing Support
Credit Card Processing
Into-plane programs for corporate aviation
Airline into-plane support

Changing Pricing Policies and Business Model

Most of the aviation fuel pricing policies have changed over the past 20 years. The basis has changed from rack prices at the loading point to Platts based national/international indexed pricing. The result may reduce the profit margin for the fuel supplier who also faces increasing costs for support and, in recent years, a shrinking marketplace.

Another change oil companies have encountered is the advent of a new type of FBO fuel supplier like Avfuel, who was one of the first. They purchase the product directly from the refiners and, as wholesalers, remarket the fuel supply to the FBO marketplace. Avfuel provides a high level of marketing and support to the FBOs including other necessary support like fuel trucks, credit card processing, credit facilities, etc. They do a good job and at a lower cost than the oil companies.

Because of this metamorphosis in the FBO fuel supplier landscape, we have an almost complete change where the oil companies have very few direct accounts. We have observed the rise of firms such as Eastern Aviation Fuels, representing Shell, and Epic Aviation as a direct fuel supplier to FBOs after termination of the Air BP relationship. Others include Avfuel - which we previously discussed - Arrow Energy, Perry Brothers, World Fuel and others.

World Fuel is a very special case. Just a few years ago they were in the wholesale Jet fuel business and marine markets. Within the last few years they have grown into the retail fuel supply business by purchasing Hiller Aviation (who acquired most of the Chevron Oil business when they exited the FBO business), Western Petroleum (large Exxon wholesalers) and Ascent. Now they are one of the largest providers of fuel and support services to the FBO business.

World Fuel, through their various wholly owned affiliates, can provide credit cards, accounting software, contract fuel and branding opportunities for a range of different sized FBOs, along with competitive pricing programs.

Is Change Good or Bad?

Is all this change good or bad for the FBO industry? In a nutshell, we would have to say it’s good. The fuel supply and support FBOs need is available from a number of different firms. They’re all doing a great job for the FBOs. They each have their own competitive market position in the business and aggressively price their services to knowledgeable FBO firms.

The marketplace needs these services. Large FBO chains have the financial capacity to provide for many of their own FBO back office services. The medium and small FBOs need value added to help with such things as fuel truck leasing programs, credit card processing, contract fuel programs to assist in selling fuel and, in many cases, help with government into-plane services.

What about Contract Fuel?

As we mentioned, the “new” fuel suppliers help the FBO in marketing their fuel with contract fuel programs. This leads to the discussion about who will be the main contact for the customer under a contract fuel program? Is it the FBO, the contract fuel supplier or the wholesale fuel supplier?

It is my belief that the FBO needs to be the contact for the customer. After all, it’s the FBO who controls the customer service experience, as it should be. When the customer’s aircraft arrives on your ramp, it’s your employees who spring into action providing your brand of service.

More than anything, it’s the customer service experience that will determine the amount of fuel to be purchased. The fuel supplier can assist you and your firm with all the support services, marketing, good purchasing power, etc. However, where the “rubber meets the road” is on your ramp and with your people. Therefore, invest in proper customer service training and use the resources of your fuel supplier. After all, it’s a changing business environment … and it’s the new norm.

Thanks, and let us know your thoughts and feedback. Please, contact me at jenticknap@bellsouth.net.

About the authors:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

February 07, 2013

FBOs to Compete on Service, Not Price in 2013 - Steady 6% Growth Forecast for FBOs

February 07, 2013/ AC-U-KWIK

By John L. Enticknap and Ron R. Jackson
Principals, Aviation Business Strategies Group

Recently, we attended the National Business Aviation Association’s (NBAA) Schedule and Dispatchers (S&D) Conference in San Antonio. While there, we had the opportunity to address a group of FBO leaders regarding the present state of the industry and where we saw the future headed in 2013.

Throughout the year we have many opportunities to talk with FBOs from various parts of the country. At the NATA FBO Success Seminar, we conduct twice a year, we network and exchange ideas and information with FBO owners, operators and managers. Also, we receive feedback from this blog we write for AC-U-KWIK FBO Connection.

In addition, we attend various aviation shows including the annual NBAA Meeting and Conference as well as the S&D, and we review industry information and forecasts released by a number of companies and organizations including:
• Honeywell’s Global Business Aviation Forecast
• FAA Aerospace Forecasts
• GAMA
• JETNET
• ARG/US
• NBAA

2013 Forecast

To summarize our findings, the FBO industry has not fully recovered from the economic downturn of the past several years. Yes, 2012 was a better year than 2011, but there has been a modest shakeout of FBOs who have been operating marginally.

Going forward, airframe manufacturers are starting to see a recovery in their orders for new aircraft and used aircraft inventories are starting to shrink. The industry is forecasting a slight uptick in the number of hours flown by corporate flight departments and charter operators. However, more efficient aircraft and the practice of tankering will make 2013 another challenging year for the FBO industry.

In general, what we find is a more positive business outlook for FBOs. To be sure, confidence in the economy is rising. Many are seeing more activity on their ramp than a year ago and a slight increase in the number of gallons being sold.

We feel most FBOs have an opportunity to grow their business in the range of 4 to 6 percent this year. If an FBO achieves a growth of 6 percent or more, they will be a star performer.

One of the biggest challenges for FBOs in 2013 will be competing for business aviation transient traffic. Although being competitive with fuel prices is important, FBOs can’t afford to heavily discount Jet A and then give away their ancillary ramp services - while trying to maintain a first class facility.

As we discuss during the FBO Success Seminars, FBOs competing on an aggressive fuel discount pricing strategy is an archaic way of doing business. In today’s tough business climate, FBOs are operating on very thin margins, yet the cost of doing business continues to rise.

Therefore, in order to stay in business, FBOs can’t afford to sell fuel at heavily discounted prices. No one wins with this strategy.

Competing on Service

Many FBOs have gone out of business by lowering their prices over an extended period of time. Yes, FBOs need to be price competitive, but they must maintain healthy margins and find other ways to compete through differentiation. One of the best ways to differentiate is to offer an outstanding and memorable customer service experience.

Therefore, for 2013, we see a shift in the FBO industry away from a price sensitive business model to one based on providing exceptional customer service.

More and more FBOs are taking customer service training very seriously. Just as FBOs don’t tolerate mishaps on the ramp, they are becoming more conscious of eliminating miscues with the way they deliver customer service.

Research indicates that loyal customers don’t stop doing business with a company solely because of price, but rather because of a poor customer service experience. However, most will return if you recognize and correct the problem.

One way to improve customer service is to standardize training and aim to motivate employees in a way that encourages them to take ownership of problems when they arise.

Here are suggestions for improving your customer service experience:
• Standardize your customer service training.
• Empower your employees to own their mistakes.
• Teach employees to deal with customer dissatisfaction.
• Motivate your employees to work together as a team.
• Measure your customer service delivery with a short survey.
• Ask the customer the really tough question: Would you recommend us?
• Monitor your loyal customer database. If you haven’t seen a regular customer in a while, find out why.

Just like a restaurant owner, you have to be there for the customer. Empowering your employees to own their mistakes at the time of transaction is crucial. Teaching them to effectively deal with customer dissatisfaction helps make for a long-term profitable customer relationship.

At our next NATA FBO Success Seminar, March 11 and 12 in Las Vegas, we go into detail regarding each aspect listed above in developing an effective customer service training program. If you would like more information on this acclaimed seminar, please click here.
If you would like more information on our Don’t Forget the Cheese© Ultimate Customer Service Training Program, please click here.

Your feedback is important to us. Please, let us know your thoughts on subjects covered in our blog by emailing John Enticknap at jenticknap@bellsouth.net or Ron Jackson at Ron@thejacksongroup.biz.

About the authors:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

January 04, 2013

Part 2: Making the FBO Customer Your Fan

January 04, 2013/ AC-U-KWIK

By Ron R. Jackson, Co-Founder, Aviation Business Strategies Group

In a previous blog, we talked about making the customer your fan. It’s a reversal of roles … a conscious change in attitude by your customer service staff.

Keep in mind, your customer service staff consists of anyone that comes in contact with the customer. This would include customer service representatives (CSRs), line service technicians, flight instructors, charter pilot and the FBO owner or manager.

For this blog post, we’ll talk about making an impression in a way that prompts the customer to be your fan. In a nutshell, it’s all about making an impact on the customer in a way that he or she will not forget. In turn, the customer recommends the FBO by sharing their customer service experience to their staff or peers.

Here’s an example: Recently, I became a fan of a hotel in the Indianapolis, IN area. One of our clients, Montgomery Aviation, arranged for my partner, John Enticknap, and myself to be lodged at a local hotel.

As a student and teacher of exceptional customer service, I often observe the customer service habits of places we frequent while traveling, whether it’s a hotel, restaurant or commercial store. At this hotel, I was impressed from the time we checked in, until we left after a two day stay.

After checking in, I came down to the lobby to see if there were any newspapers left. It was already evening and the manager apologized for having run out. However, he mentioned the next day’s paper would be delivered at 4 a.m. I laughed out loud and said I probably wouldn’t be getting up that early.

The hotel representative said no problem and asked if he could arrange to have a paper slid under my door by 6 a.m.?

I know some hotels provide this service on a daily basis, but this was not the case at this location. So, I said please and thank you, and retired to my room. As my 6:30 a.m. wake up call sounded, my feet hit the floor and I noticed the paper had arrived as promised.

The second morning, I forgot to ask for a paper delivery, but just like the day before, my wish was granted and I was a very happy camper. Obviously, the hotel staff made the time to look at all customer service requests and took pride in following through.

Besides the newspaper request, I found I had not packed my razor. So, I went to the front counter to see if I could purchase one - as some hotels keep spares. Not only was I not charged, they gave me the best razor that ever whisked my whiskers. No kidding. It was the latest wiz-bang, multi-bladed model on the market. I joked that from now on I would forget my razor whenever I stayed there.

To say the least, I was hooked. I became their fan. Not only did I tell the good folks at Montgomery Aviation about their fine selection of a hotel, I use this as an example in our Don’t Forget the Cheese© Customer Service Training classes.

And now, I’m telling everyone who reads this blog, which begs the question: What was the true value to the hotel with the newspaper under-the-door gesture and the great razor I received? As the commercial says, PRICELESS!

For FBOs, it’s easy to put these types of gestures into play. It starts by everyone on the staff ‘being there’ for the customer, anticipating their needs, wants and desires. Every day the FBO staff should be looking for an opportunity to help a customer along the way - even before the customer asks.

It’s being the ‘restaurant owner’ and taking pride in ownership of your job and the place where you work. It’s also being able to ask the really hard question: Would you recommend us? If a customer hesitates in answering this question, you should find out why and fix the problem.

Ultimately, if everyone on staff has a great attitude about their job, about their FBO and about delivering a great customer service experience, customers can’t wait to become your fan!

Please tell us how you make your FBO customer your fan. Send me an e-mail to Ron@thejacksongroup.biz. Also, learn more about providing exceptional customer service at our next NATA sponsored FBO Success Seminar to be held March 11 and 12 in Las Vegas. Click here to register.

About the authors:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

December 06, 2012

Is Selling Your FBO A Perilous Process?

December 06, 2012/ AC-U-KWIK

By John Enticknap, President, Aviation Business Strategies Group

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.” - Niccolo Machiavelli

According to Machiavelli, selling your FBO can be a perilous process. But in my experience, you can even out the bumps and curves by developing a logical plan, well enough in advance, that will lead you to a successful transaction.

Let’s start at the beginning

There are many reasons why, after numerous years of dedicated work, you have decided it’s time to sell your FBO:

Retirement is the number one reason.
Harvesting your business for the next investment.
Partnerships Issues.
Illness or death.
Becoming overworked.
Boredom—looking for a new change.
An uncertain future.

Before we move forward and discuss the sale process, we need to make some basic business management decisions. We need to review the business as a buyer would, i.e.: Will my investment be worthwhile--short term and long term?

Here’s a buyers view:

What is the ROI?
Will the value of the deal enhance my existing business?
Is this a new business venture and add value?
What alternatives do I have to invest elsewhere for better returns?
Does the deal satisfy my business, financial & emotional ideals?

In addition, we need to review the business and make necessary adjustments to enhance the profitability and make the business more attractive to potential buyers. We do this by increasing the term of the lease, removing excess debt or amounts due to the owner/partners and removing excess owner expenses.

In addition, we need to pay attention to:

Increasing profits.
Maintaining consistent income figures.
Retaining a strong customer base.
Major contract(s) that span several years.
Meeting with your tax folks and discussing capital gains and a sale structure that will minimize your tax consequences.

Although we’re asking you to put in a lot of up-front time and preparation, these concepts and business practices will benefit you and your business and position it for a sale to maximize the value, not only for you, but the buyer.

Before we look at valuation, we should examine the timing of the sale. To effectively complete the items we discussed previously, the decision to sell should be planned well in advance, at least a year or two out. The preparation will improve your business and make the business records appear to be in order in addition to the basic structure of the FBO.

These improvements also will allow you, as the owner, to transition out of the business. Like many small businesses, the FBO owner is intrinsically invested in the business, not only financially, but emotionally as well. The business has become your life. By separating yourself slowly from the business, you will be in a better position to sell and view the transaction as a business deal.

Valuation

As an FBO owner, you have seen what has been going on in the industry with the continued consolidation of the FBO business over the last 15 to 20 years. You’ve also undoubtedly been exposed to the term ‘multiples’ when it comes to evaluating the sales price of an FBO.

I’ve written in a previous blog about valuations as a multiple of your earnings before depreciation (EBIDTA). Say your FBO has earned $850,000 on average the last couple of years (before depreciation). If you were to value the business at a 7.5 multiple, then your FBO would be worth $6,375,000. Or to look at it another way, if a buyer bought your business it would take 7.5 years to make the investment back, assuming all business aspects stay the same!

Now, we need to look at the value of your lease. Generally, the longer the term of the lease, the better the value. If you only have 5 years to go, the above scenario would not work!

Here, in general, are the various line items that add value:

The length of your lease term must be at least 10 years. Twenty plus years is ideal.
Physical assets: hangars, real estate, option years, terms in your lease, minimum standards--all these items affect value.

Get an expert to help you. We would not recommend hiring the local commercial real estate appraiser as they usually do not understand how to correctly appraise an airport property.

Airport leases are unique and the major value in your business. It outlines what you can and can’t do; establishes fees and charges; the rules of competition; capital investment requirements, and in many cases, determine whether or not your business is going to be successful.

Preparing Your Documents

Once you have determined what your selling price will be, you’ll need to put together a list of the documents a buyer will want to review prior to making an offer. In today’s electronic environment, you can establish an electronic document “room” where you have put several years worth of profit and loss statements, balance sheets, listing of assets, lease documents, etc. These should all be easily accessible and ready for review.

A Non-Disclosure Agreement should be prepared by your attorney or broker. Once a prospective buyer signs the agreement he can have access to your financial data. Remember to give a specific time frame to review and make an offer and don’t let the sale process drag out too long. If a buyer reviews the data and is not interested, you need to move on.

Finding a Buyer

Whether you use a broker, or you find prospective buyers yourself, the process can be challenging. Selling your business is like any other business deal; if you’re lucky it can be done in months. However, in most cases, a deal will take anywhere from six months to a couple of years.

In today’s business environment, deals are tending to take longer. Buyers are being more diligent and making sure their investment will be the correct decision. Once you have prospective buyers, keep the process moving along:

Line up two to three potential buyers, just in case the initial deal falters.
Stay in contact with potential buyers throughout the process.
Find out if potential buyers prequalify for financing. Don’t do a deal and then find out the buyer can’t close!
Allow for negotiations, but keep in mind your end goal both financially and emotionally.
Put agreements in writing. Get a professional attorney to assist with the development of a Purchase and Sale Agreement.
Be very cognizant of the terms of the assignment clause in your airport lease.

Closing the Deal

Note: Keep the sale process moving along! We’ve seen many a deal come apart due to the negotiating parties getting tied-up in the deal process. They want to do a deal for the deals sake! Your goal is to sell your FBO on reasonable terms and conditions. If your buyer gets too demanding and bogs down the negotiations, end the discussion and move on to another buyer.

Keep your Goal in Mind

Selling your business is time consuming, difficult and can be as stressful as running your business. Keep in mind some of the concepts we have discussed in this article.

You have planned for change throughout all stages of the ownership of your business. Finding the right professionals to facilitate the process is essential. It will ensure you’ll get the most from your business and secure the retirement you’ve worked for all your life.

Please give me your comments on this article or other subjects you would like to discuss. Contact me at jenticknap@bellsouth.net. Please note: Many of these topics are discussed in our NATA FBO Success Seminar. The next seminar is scheduled for March 11 and 12 in Las Vegas. Please go to http://www.nata.aero/Events/Spring-Training-Week.aspx

About the authors:

There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things

November 08, 2012

The Future Of Insurance Rates: Good News or Bad News? How to make the most of what’s to come!

November 08, 2012/ AC-U-KWIK

Editors Note: From time-to-time, FBO Connection bloggers John Enticknap & Ron Jackson invite aviation industry professionals to write a guest blog. For this post we invited Jim Gardener, President of James A. Gardner Company, Inc. - an independent aviation insurance specialty broker based in Atlanta, GA.

By Jim Gardner

As the saying goes, there is good news and there is bad news. Which would you like to hear first?

First, let’s look at the good news for the FBO Operator. We are in the continued midst of a soft aviation insurance market that began in 2006. Since then, aviation insurance rates have declined to their lowest point in history.

Now, the potentially bad news, beginning in the winter of 2010, many in the aviation insurance industry are predicting a return to a Hard Market.

What is a Hard Market? It is generally characterized by fewer underwriters bidding on a particular risk - resulting in fewer options, increased rates and premiums, decreased limits of liability and less ancillary coverage offered. In addition, there are more stringent underwriting requirements on training with less flexibility for the operational managers.

To this point it has been wishful thinking (by the insurance companies) that we are returning to a Hard Market

Needless to say, there isn’t a single underwriter from any aviation insurance company who wouldn’t like to see premiums rise. The consensus is there are two major factors keeping premium rates down:

1.   The poor economy, which has shrunk demand for insurance.
2.   Too much capacity for the market conditions.

Even with the economic recovery that many feel is underway, there is agreement in the industry, unless there is an unforeseen event or outside force which alters the landscape, the soft market will continue.

Absent a catastrophic event, the likely scenario for increased rates may be more pragmatic. The change would be characterized by an improving economy combined with a reduction in capacity through merging aviation underwriting companies; or a further departure from some or all markets by some insurance companies. Rate increases and underwriting restrictions would be less severe, but more selective as to whom and what type of risk each underwriter would be willing to rate.

Either way, every insurance buyer needs to think about the impact on their budget and what can be done to mitigate the increase in cost.

Understanding how insurance quotes are generated can help in getting best results at renewal

Unlike auto insurance and other forms of property and casualty insurance, aviation insurance has not been reduced to a commodity. Except for light pleasure and business aircraft, most aviation quotes, including those for FBO operators, are generated manually by an underwriter using a rate book based on a “best guess according to historical experience” of that insurance company. The underwriters must follow a created scale of rates with the goal of making an underwriting profit (premiums, minus claims and administrative costs).

The big unknown is the dollar cost of claims which may not be clear until years after the premium has been set and collected. What makes it more difficult is the different insurance companies do not share trends, claims or rate information with one another, so it’s harder to generate accurate rates consistent across all classes of risk. And each insurance company has a different appetite and therefore puts a different priority on each class of risk.

The underwriters manually apply these rates to generate the quote based on the information sent to them by the broker. One of the keys to getting the best quote is to help the underwriter get a better understanding of the risk they are rating and to find a comfort zone which will allow their pen to move down the scale of rates, instead of up.

At the NATA FBO Success Seminars, the facilitators talk about the “Insurance Story.” This is telling your broker all about your business including: training, internal and external operational audits, and risk mitigation. The key is making your broker part of the business process.

The quality of the submission by the broker is the only thing the underwriter has to determine the quality of the risk presented

There are two parts that make up a quality submission:

1.   Accurate/full description of the risk.
2.   The appearance and organization of the submission itself.

For the individual aircraft operator, gathering the proper information needed for a quote is a relatively simple process. Most good brokers have a detailed quote form they use to gather information from the insured, which includes FBO information, insured value, liability limits requested, basic pilot information (for charter and rental), purpose of use, territory, home base and other basic information.

However, as the market hardens, more underwriters may require additional information to determine which risks they are willing to offer higher liability limits, as well as their best rates. This would include more information about the following:

FBO Owner and Operator: Who are the partners, shareholders, LLC members, etc? Who makes the business decisions? Is there an operations (SOP) manual and is it endorsed by management and the employees to include line service training, fire suppression systems, fuel farms, etc.?

Aircraft: More detail about the total time on the engine(s), airframe, rotor blades/propellers and other time compliance components. More detail about the avionics and maintenance schedule.

Mission: More detail about when and where the aircraft is flown and number of hours per year, especially if it involves international flight or flights into hazardous conditions or unprepared airfields.

Pilot Information: A good pilot history form provided by your broker and properly completed by all employed pilots should answer all the questions an underwriter should have.

Commercial operator is much more complex

Appearance Matters

This may seem like a small point, but unless an underwriter can visit your facility or operation, they can only rate based on what they read. Therefore, your website can be an important front porch to display the quality of your company or operation. However, the biggest asset you can have is a broker who properly represents your risk with a well polished, accurate and professional submission.

Substance Matters Most

To an underwriter, the quality of an operation can be defined by many different parameters.

More experience, better training and the employment of other risk reduction practices that addresses the inherent risks of an operation all play a major role in judging the overall risk of an insured. What is so wonderful about aviation, and frustrating to the aviation insurance industry, is every aviation operation is unique. While all like operations (FBOs, charter operators, or part 91 operators, etc) share some common risks, each have unique characteristics requiring it to be rated individually.

Operational Improvements and Risk Management measures can turn an average risk into a good risk

For instance, if your operations use older aircraft, make sure your maintenance program is excellent. And, make sure this is communicated to the underwriters.

If you have low-time or inexperienced pilots, make sure the training program is geared to getting them the experience they need, while addressing your operational needs.

An FBO which has a fully implemented and documented training program for their line techs will always be looked at favorably and it will show in their year-over-year loss ratio. Criteria will include initial and periodic training, plus a safety awareness program designed to create a culture of operational excellence.

A picture is worth a thousand words: An invitation to the underwriter to visit the operations can erase many doubts

Safety Saves

It’s no secret, the best operators with a clean claims history and a safe operation are going to continue to get the attention of most underwriters. In the end, the number of underwriters who want your business will determine how much negotiating leverage there is when it comes time for policy renewal. If you want to get the best premiums in your rate class, be the best risk.

About the author:

Jim Gardner is a retired U. S. Air Force officer, a former commercial pilot and President of the James A. Gardner Company, Inc., an independent aviation insurance specialty broker based in Atlanta, GA. jim.gardner@jagardner.com

October 04, 2012

Want to insure your FBO construction project will be successful? Start with having ‘reasonable’ expectations!

October 04, 2012/ AC-U-KWIK

Editors Note: From time-to-time, FBO Connection bloggers John Enticknap and Ron Jackson invite aviation industry professionals to write a guest blog. For this post we invited Mercer Dye, President of Dye Aviation Facilities, an aviation design and construction management company.

By Mercer Dye

The truth is, most of us in the FBO design and construction business can’t afford the luxury of a guaranteed perfect project - and frankly, no one ever gets one anyway.

As in any endeavor, successful FBO construction projects depend on the owner, or in this case, the FBO owner having reasonable expectations and willingness to participate in the equitable sharing of risks.

I’ve been in the design and construction industry all of my working life. For the past 30 years, my firm has been devoted to the design and construction management of aviation support facilities. These projects range in size from very modest renovations to totally new greenfield projects for FBO’s, aircraft OEMs and large corporate operators. In the hundreds of projects completed, there has never been a lawsuit filed against anyone involved. Not an owner, construction manager, architect, engineer, contractor or material supplier.

I know you can’t see me, but I am knocking on a big piece of wood right now because there is a smidgeon of luck involved in this perfect record. Also, having world class clients who all have become friends really helps.

These successful projects all have a few things in common:

1.   Very careful and systematic early project analysis was orchestrated by a General Aviation, Design and Construction Management (DCM) expert.

A.   Goals were set based on real needs and the ability to generate a return on investment. Questions included: What is really needed now? How much is it likely to cost? How will it be paid for? How can the project be expanded later?

B.   Budgets were NOT set up by the local pre-engineered building contractor. Understandably, this person is in a sales mode and does not have the ability to foresee all potential cost impacts. Remember, a metal building can be less than 50 percent of the total construction cost. Don’t let the tail wag the budget dog.

C.   There were careful evaluations of the site conditions by the DCM. Site work can, and often does, cost more than the buildings. Utility availability, soil conditions, storm drainage, pollution control requirements, fire codes, building codes, FAA building limits, zoning or architectural requirements all affect cost and were vetted early. Obviously, this list is very long and overlooking one element can become an ugly surprise later. This is where good industry specific DCM’s can save much more than they cost.

a.   The site work and buildings were designed by experts in airport construction and specifically, General Aviation support facilities.

b.   A limited list (+/-4) of highly regarded General Contractors was selected to price the design development (75 percent completed) drawings.

c.   Contractor selection began with an interview of GC’s, bidder selection and post bid interviews. Then, the selected GC priced the final construction documents. After the pricing was approved, a final contract for construction was negotiated. With the assistance of the DCM, a fair contract was developed between the owner and General Contractor (Cost-Plus Contracts with a Guaranteed Maximum Price [GMP] are most common).

d.   The owner had set aside a realistic contingency account established with the advice of the DCM to cover unforeseen costs or extras. Note: There are always change orders, ALWAYS! Well designed and managed projects can have very few.

2.   The project, budget, quality and schedule were monitored at regular intervals by the DCM to address issues before they were built into the project or created misunderstandings.

3.   The DCM assisted the owner from very early in the design concept stage all the way to turning the key. Through careful team selection and fair contracts, designers and contractors were in partnership with the owner - insuring success.

4.   Price was not the leading factor in selecting the General Contractor. A post bid grading matrix was used to rank bidders, and aided in making the correct selection. Here is an example:



Therefore, having a successful project is dependent upon:
•   Setting appropriate functional and financial goals.
•   Selecting the appropriate Design team. Design and Construction Manager (DCM) recommended.
•   Conveying your expectations accurately.
•   Selecting the right General Contractor.
•   Having good weather.
•   Not having code officials messing with you too much.
•   Not expecting any miracles.
•   Having enough contingency money.
•   Paying enough attention through the entire process.

Then you can reap the rewards:
•   You will have the right facility …
•   … of the expected quality
•   … at the right price
•   … within the expected time frame.
•   Your family will still love you, and your employees will still adore you. In short, SUCCESS!

Through all of this, having a General Aviation industry-specific Design and Construction Manager (DCM) is a low or no cost way to get closer to a no risk FBO construction project.

About the author:

Mercer Dye
Mr. Dye is President of Dye Aviation Facilities, an aviation design and construction management company. His experience includes serving as Chairman, CEO and owner of Airway Aviation, a large, Atlanta FBO where he administered the rapid growth and ultimate sale of the FBO to Signature Flight Support PDK.

Mr. Dye is an active member of the National Business Aviation Association and the Flying Rotarians. He is a past board member of the Fulton County Airport Association and currently sits on the NFPA 409 Technical Committee for airport facilities. He is the recipient of an American Institute of Architects international honor award presented in Washington, DC by HRH Prince Charles. Mr. Dye is an instrument fixed wing and rotary pilot and is an Army National Guard veteran.
Web site: www.dyeaviation.com

September 06, 2012

Is Your FBO Data Driven? If not, how do you know what's really going on?

September 06, 2012/ AC-U-KWIK

By John Enticknap, Aviation Business Strategies Group

“The goal is to transform data into information, and information into insight.” - Carly Fiorni: President Hewlett Packard, 1999-2005

Do you really know what’s going on at your FBO? It seems many businesses operate on a day-to-day, crises-to-crises basis with the managers just along for the ride.

This has validity in numerous market segments, not just in the aviation services industry. During our NATA FBO Success Seminar, scheduled in Dallas on September 12, 13 and 14, we will discuss this and many other topics. However, for this blog post, let’s concentrate on data collection and what we can do to improve our financial numbers. Then, turn it into insight we can act on to operate our businesses more profitability.

We think it is fair to say most owner/operator FBOs provide a range of services. These may include fuel sales, flight training, aircraft rental, aircraft sales, maintenance and real estate rental. Now, maybe you don’t do all of these, but it’s safe to assume your FBO offers multiple services. So, how do you keep track of everything?

Many FBOs started their business by offering a variety of flight services, because their owners were flight instructors and/or flight examiners. Others started FBOs because of their A&P background and providing aircraft maintenance services. Still, others may have started working in line service and are now FBO managers.

Regardless of your background, you have an accounting system to keep track of billing and expenses. However, the big question is: Does your current system give you data that can be used to properly manage your business?

Data without understanding is useless! At our FBO Success Seminar, we suggest a number of Simple Strategies, as well as a number of Simple Tactics, to assist you with data management.

Here is the data we suggest you collect and utilize on a daily basis.

Start by using Dashboard Reports

So, what constitutes a Dashboard Report? While flying, you check and scan the dashboard/instrument panel repeatedly to monitor what is happening and adjust accordingly. Financial Dashboards do the same thing for your business. They’re a quick snap shot you take on a regular basis to make sure the engine of your company is running smoothly.

Just as you set up way points when you are flying, with a financial dashboard you set up data points you can use on a daily basis.

Here are some suggested data points to set up on your dashboard:

Line Service Business
Review your previous day’s retail fuel sales
Contract fuel sales
Airline fuel uplift
Month to date retail fuel sales
MTD contract fuel sales
MTD airline fuel uplift
Budget retail fuel sales, contract and airline fuel sales
Number of customer contacts yesterday

Maintenance Business
Mechanic hours billed yesterday
Mechanic hours paid leave, vacation
Mechanic hours paid
Yesterday mechanic productivity
Month to date productivity
Budget productivity
Parts sales dollars
Budget parts sales
Support staff hours paid
Number of customer contacts
Number of annuals/100 hr./inspections bid

Flight Operations
Flight instructor hours billed yesterday
Flight instructor hours paid
Flight instructor productivity
Charter hours billed
Charter hours available
Charter productivity
Customer contact - flight instruction
Sale contacts for charter


So, what kind of data are we collecting? You’ll notice a variety of sales data, labor data and marketing data. Why are these three data points the major drivers of your business?

1.   If you’re not getting a good, regular snapshot of fuel sales, plus flight hours and/or maintenance hours, you’re managing blind.

2.   After cost of sales, labor is your biggest expense. Labor hours must be reviewed and managed to assure you maximize productivity.

3.   You must continually market your business, retain existing customers and gain new customers. If you don’t grow - you go out of business.

If, after reviewing our list of data points you are saying, “well it’s going to take all day to gather that information,” then you need to examine your accounting system. It should be able to produce these reports.

We know from experience that programs such as TotalFBO®, one of the most popular FBO accounting and operating systems, provide these types of reports. Although the reports may not be in the exact format as we showed above, they’re in a readily manageable format. If you have a different accounting system, aviation specific or not, you should still be able to generate these daily Dashboard reports.

Make the adjustments with your accounting personnel, as well as department managers, to collect this data and start reviewing it on a daily basis. Now, that we have the information, it’s time to act on it.

One of the best ways to look at your statistics is to compare it to your history and your budget. (You did put a budget together at the beginning of your fiscal year, right?) By completing the budget process, it forces you to review and forecast sale levels in all departments. Then, you can plan your labor, expenses and other data points within your business.

Now, that we have current information, we can analyze and proceed accordingly. If our fuel sales are going well and above budget, we are able find out why. It could be a result of increased traffic or increased uplift per aircraft, etc.

As for aircraft maintenance, we can determine if productivity was at least 85 percent or meeting our budget goals? How many annuals/100hr/inspections have been quoted? We want to keep the shop busy! The same analysis should be completed for your flight school, charter department and any other activity within the business.

Now that you have insight, it will be easier to manage your business and you can relax knowing you have information systems in place to keep track of your progress. It’s a win-win for all involved.

Let us know what your think. We appreciate your input and comments. Please contact me at jenticknap@bellsouth.net

About the authors:

August 06, 2012

An MRI for Your FBO — Improving the Vital Parts of Your FBO

August 06, 2012/ AC-U-KWIK

By Ron Jackson and John Enticknap

“Business is never so healthy as when, like a chicken, it must do a certain amount of scratching around for what it gets,” - Henry Ford

How healthy is your FBO? Is it running on all cylinders? Or is it in need of doing what Henry Ford suggests, “a certain amount of scratching around,” to find the golden nuggets buried in the business?

If you’re ailing, chances are you’d go to a doctor. If it’s serious enough, the doctor may order an MRI to aid in the diagnosis.

The financial and operational health of an FBO is no different. Sometimes we need a better look at all the vital parts in order to create a remedy that puts us on the path to prosperity.

At Aviation Business Strategies Group, we’ve put together our own version of an MRI to help FBOs become more successful. It’s based on years of working in the industry and helping ailing FBOs find a better way to run their businesses.

When we consult with FBOs, we break down the vital parts into an MRI review:

M = Maximizing Profits
R = Reducing Expenses
I = Improving FBO Productivity and Bottom-Line Performance

It’s a well-balanced, three-pronged approach to doing discovery work.

M= Maximizing Profits

When we look at the “M” part of the equation - Maximizing Profits - we want to see the various checks and balances an FBO has in place in order to understand their overall perspective of the business.

It all starts with what we call dashboard reports. These are the daily - sometimes hourly - reports set up by management to get a feel for what is being transacted at the FBO.

A good dashboard report is an FBOs virtual window or snapshot of the operation. Included should be fuel reports on each refueling; add the volume and price charged per gallon.

Other profit centers should be reported such as catering and requested line services including APUs, lav service and cabin cleaning. If you’re giving any of these services based on fuel volume, you should be able to see your margin on these transactions. If you’re not adding enough margin to the cost of your fuel to cover volume discounts and ‘freebies’ then you are not maximizing profits.

For those FBOs that have a maintenance shop, another dashboard should identify what jobs you have in the shop, the time allotted for the job and a detail of the parts being sold. And ultimately, it also should tell you the productivity of your technicians.

Same goes for any other services you offer - from rental cars to flight school operations.

Speaking of fuel margins, we find many FBOs don’t keep track of what’s in their tank. With today’s rapidly fluctuating fuel costs, it’s imperative FBO managers keep track of the price of each load that has been added to their tank and keep the margins steady throughout the dispensing cycle. If not, FBOs can find themselves upside down very quickly, and at the end of the month they may be wondering what happened to projected profits.

At the FBO Success Seminars we conduct for the National Aviation Transportation Association (NATA), we cover fuel margins, dashboard reports and other metrics in detail. We also cover timed purchases of fuel including the potential benefit of fuel hedging.

R = Reducing Expenses

There are many things an FBO can do to reduce expenses. Again, we cover this subject in detail at the FBO Success Seminar but here are a few things an FBO should consider:

Negotiate a better fuel contract with your fuel provider. When it’s time to renew, there are things you can do to add value to your retail operation.
Negotiate a better agreement with the airport authority. You don’t have to wait until your agreement is about to expire. Put together a plan that will not only benefit your FBO but also benefit the service and facilities being offered at your airport.
Take a look at your credit card expenses. You may be surprised at the amount of money that’s going to the credit card processing service. You have the right to negotiate a better fee/rate. After all, it’s your money.
Reduce your insurance premiums. Believe it or not, your insurance broker can become your best ally. Are you doing all you can to better this relationship? Do you have a good insurance story to share?
Take a look at outsourcing some of your services. Sometimes the internal fixed costs of providing aircraft detailing, cleaning and customer car washing - just to name a few - don’t add up to positive cash flow.

I = Improving FBO Productivity and Bottom-Line Performance

The key to improving FBO Productivity is a workforce that is fully trained, motivated and dedicated to creating the best customer service experience.

Many FBOs have good technical training in place and subscribe to valuable programs such as NATA’s Safety First Professional Line Service Training (PLST) curriculum. This kind of training not only gives the technician the proper tools to complete various tasks safely and efficiently, it also gives customers a heightened sense of comfort, knowing their aircraft is being looked after by professionals.

But just as FBOs don’t tolerate incidents on the ramp involving customer aircraft, they should not tolerate incidents involving poor customer service. Therefore, it’s equally important all FBO employees undergo customer service training that includes a customer service manual customized for their operation.

By standardizing the customer service experience, FBOs can begin to measure their productivity through:

Repeat business.
Referrals.
Better bottom-line performance.

At Aviation Business Strategies Group, our client FBOs have reached out to us in helping them not only provide customized customer service training, but also help with a team building program in order to bring employees closer together for the benefit of serving the customer.

The result is our memorable, Don’t Forget the Cheese!© Customer Service Training program and Soar Like and Eagle, Fly Like a Goose©, team building module. As you can tell by the program titles, we have a lot of fun with this which helps the employees in the learning and retention process.

If you would like more information on either of these programs or anything in this blog post, please contact ron@thejacksongroup.biz or Jenticknap@bellsouth.com

Also, if you would like to meet us in person, come to our next NATA FBO Success Seminar, September 12-14 in Dallas, TX. It’s being hosted at the award winning FBO Business Jet Center at Love Field.

About the authors:

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