FBO Survival Series - Survival Tip #8: Be a Savvy Business Operator
/By John L. Enticknap and Ron R. Jackson, Aviation Business Strategies Group
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.
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:
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.