Paul Seidenman/SAN FRANCISCO
Fixed base operators (FBOs) will going to continue to see their industry consolidate, despite increases in business flying. While industry experts point out that the consolidation of FBOs is nothing new, the current trend has some differences compared to the last great shake-out that occurred in the late 1980s and early 1990s.
"If you look at what we are seeing today, compared to a decade ago, the consolidation trend has actually slowed considerably," says Randy Bisgard, a senior associate with the Aurora, Colorado-based Aviation Resource Group - a well-known consulting firm in the FBO field.
"For example, from 1990 until 1995, the number of FBOs in the USA went from 5,700 to 3,700. For 1997, the most recent year statistics are available, the number has shrunk to 3,240. That represents a levelling off; although there are still a few airports where it could be argued that there are too many FBOs."
Along with a slowdown in the number of FBO closures, Bisgard sees another difference. "In the early 1990s, the consolidation movement was driven by FBOs that were failing because there wasn't the volume of fuel sales and maintenance - traditionally the two biggest revenue generators for FBOs. Today's consolidations are fostered by a strong economy and low interest rates. This encourages large FBO chains to acquire smaller operations that are doing well."
Bisgard adds that, with the availability of capital, large FBO groups are able to pick and choose prime locations that offer excellent growth potential. "With more capital behind them, and a recognised brand name, the chain operators are in a position to buy a strong, independent FBO and make it do that much better."
One effect of consolidation, says Bisgard, is that more airports are moving toward single FBO operations - with the encouragement of the airport authorities. While that might seem anticompetitive, he explains that a sole FBO may no longer be in a position to control fuel and support services even within its immediate area. "Today, FBOs are finding themselves competing with those at other nearby airports, as well as with the other facilities on the same field."
For instance, he notes, there are four airports in the Denver, Colorado, area - Denver International, Front Range, Jefferson County, and Centennial - that a general aviation operator can use. "Those airports are within a 20-25 mile [32-40km] radius of one another, and a 30-45min drive of Denver," he says. "Under those circumstances, airport authorities are recognising that a single FBO per airport is more likely to be profitable and will have the resources to offer high quality facilities and services."
Jim Taylor, president of Piedmont Hawthorne, now the second largest company-owned chain of FBOs in North America (after Signature Flight Support), agrees that more airports will be served by single FBOs. Taylor cites a study carried out by the Aviation Resource Group, which Piedmont commissioned earlier this year.
"One of the points brought out was that FBO customers believe that where there is a reduced number of FBOs at any given airport, it is more likely that those FBOs will provide a higher quality of service," Taylor reports. "The study indicated that customer service - not the price of fuel - is why pilots are choosing specific FBOs, and therefore why more are now competing on the basis of service and amenities."
Piedmont Hawthorne, which is based in Winston-Salem, North Carolina, operates 21 FBOs along the East Coast of the USA. The FBO chain is the result of a merger between Piedmont Aviation Services and Hawthorne Aviation in July. At that time, Piedmont also acquired Leesburg, Virginia-based American Beechcraft and Transportech, which owned an FBO at Raleigh, North Carolina.
Taylor reports that, where potential synergies exist, so will opportunities for further consolidations. "Part of Piedmont Hawthorne's growth strategy will be to acquire FBOs where we can expand maintenance capabilities," he notes. "For example, we have a large piston engine and propeller overhaul capability in Winston-Salem. So, an FBO that has this capability in place - or one where we could add the capability - would be especially attractive to us."
The expansion of maintenance capabilities is high on the list of priorities for Orlando-based Signature Flight Support, the world's largest chain of FBOs. Owned by the BBA Group of the UK, Signature now has 41 facilities of which 39 are designated flight support operations (FSOs). The FSOs, located throughout the USA, as well as at Zurich and Paris Le Bourget Airport, offer full FBO services, while two locations - Honolulu in Hawaii and Anchorage in Alaska - are devoted strictly to airline fuelling.
At this year's National Business Aviation Association (NBAA) convention in Las Vegas, Nevada, Signature Flight Support announced the expansion of its maintenance facilities at several US locations. "We are going to establish Regional Maintenance Centers [RMCs] for general aviation aircraft at Hartford, Connecticut, and Las Vegas, and at Denver Centennial Airport," says John Diebold, Signature's senior vice-president of technical services.
"We have also purchased a hangar at Chicago Midway Airport, where we plan to perform light maintenance, but may expand the facility's capabilities into an RMC."
Under current planning, the Las Vegas RMC is scheduled to be open before year-end, with the Hartford RMC due to open next January. Denver Centennial is projected to be operational by the third quarter of next year.
According to Diebold, the RMCs will be capable of performing major airframe work, including repairs, modifications, and avionics upgrades. Engine work will include hot section inspections, but not major overhauls.
"The extensive expansion of maintenance by Signature is part of an overall industry trend toward customer service enhancements," says Gary Boekenkamp, the company's senior vice-president - marketing. "FBO customers want to see more services that relate to one another, and maintenance is a natural extension of that."
Jack Browning, senior vice-president - western region for Dallas, Texas-based AMR Combs, feels that, as opportunities to expand internationally materialise, further consolidation in the FBO industry will be encouraged. The AMR subsidiary encompasses 11 US-based facilities along with three foreign operations - at Mexico City's Toluca Airport, Los Cabos on Mexico's Baja Peninsula, and at Hong Kong's new Chek Lap Kok Airport, which is being developed in conjunction with the Hong Kong Business Aviation Group. That facility is to open by December, or early January.
"As the FBO industry becomes more international and business flying grows, customers are demanding standardised levels of services, amenities, pricing and even [frequent user] reward programmes among the facilities they use," Browning states. "Reward programmes, in fact, have become increasingly popular among the larger networks of FBOs."
According to Browning, smaller companies that operate at one or two locations simply do not have the resources or financial backing to become major players - not only from the standpoint of customer rewards and pricing, but also with respect to name recognition.
"There is a growing preference among customers - especially fractional owners of aircraft- - to use a well-known and respected branded product," he says. "Fractional ownership has brought a lot of new people into business flying, and I would not be surprised to see agreements between the fractional ownership programmes and selected FBOs to provide customers with preferred pricing on fuel, for instance."
Two fractional ownership programs contacted by Flight International offer preferred provider programmes for FBOs. Business JetSolutions, the Bombardier-owned operator of the FlexJet programme, has selected specific FBOs at most US airports that are served by more than one FBO. In addition, Raytheon's Travel Air programme has compiled a list of "preferred FBOs" now numbering over 400 in the USA, Canada, Mexico and the Caribbean.
Browning also reports that more FBOs will have to become specialists in serving larger, longer-range business aircraft, especially as business aviation becomes more international. AMR Combs opened a hangar at the new Denver International Airport in December 1996 that is large enough to accommodate aircraft the size of the Gulfstream V and Bombardier Global Express. Browning reports that a new hangar, large enough to accommodate the Boeing Business Jet, may be opened at the same facility, pending negotiations with an unnamed customer.
In September, AMR announced that it would sell off the AMR Combs chain, and two other subsidiaries not directly related to the parent company's core business - American Airlines. According to Browning, interest in the FBO group has been strong, and as a result, an agreement is likely to be closed with a prospective buyer by year-end, or some time during the first quarter of 1999.
The consolidation of the industry into large full service chains does not necessarily mean the demise of independent operators. But independence in the FBO business may become more dependent on location, reputation, and at least some kind of name recognition.
Priester Aviation, an FBO that has operated since 1946 at the Pal-Waukee Airport - a general aviation reliever airport for Chicago O'Hare International - has continued to prosper as a single location operation. According to Charles Priester, the firm's president, his nearby competition includes Signature Flight Support's facilities at O'Hare, Midway and Meigs Field.
Originally founded as a flight school, Priester has been a full-service FBO since 1953, offering fuel, aircraft storage, aircraft charter and management, and maintenance. Priester reports that the success of his facility has had a lot to do with its location, a factor he argues will determine the success of most independent FBOs.
"We have remained independent mainly because a lot of general aviation aircraft traffic comes into Pal-Waukee," Priester says. "This has not only helped us to compete with the large chain operations at nearby airports, but even with FBOs that are a considerable distance away. I think you are going to see the competition in this business become more regional in scope - particularly with respect to fuel sales."
The reason for this, Priester states, is the 25-30% greater fuel efficiency of today's turbine powered aircraft. "Fifteen years ago, when a business jet landed, the chances were it was out of fuel. Today's jets come in here and may not need to take fuel until the last stop of the day. For this reason, we are seeing competition among FBOs that may be several hundred miles apart."
Because of this, Priester says, most FBOs are now competing on the basis of service. "Jet fuel is jet fuel. What you have to do is compete on the level of service, which means reasonable prices and quick turnaround. The brand name of an FBO chain is not as important as service or - in many cases - its location."
Priester predicts that, within the next five years, there will be a greater awareness of "total customer service" among FBO operators, as well as initiatives among some operators to establish facilities at some smaller general aviation reliever airports that do not now offer FBO services.
"That will present a challenge to the industry to work with communities that have underused airports with no on-airport fuelling service," he says. "There are general aviation airports that I would call reliever airports for reliever airports. They cater to small owner-flown piston driven airplanes with runways in the 3,000-3,500ft [900-1,050m] range. At this time, many of these airports do not have enough business to sustain even one small FBO operator. I think there will be some niche operators that could take advantage of opportunities to serve those airports - with some kind of community assistance."
Another single FBO operator, AirFlite at Long Beach Municipal Airport in California, has the financial backing of parent company Toyota of Japan. Yet the facility, which competes with a Million Air franchise FBO at the same airport, is finding the competitive environment challenging, according to Tommy Walker, AirFlite's general manager.
"There is no question that competing in the FBO business today as an independent is very tough," Walker says. "The biggest reason for this is the fact that the chain FBOs mount national advertising programmes which tend to attract the transient aircraft business. In the FBO field, the money is made more on the transient business rather than on the customers who base their aircraft at your facility."
As Walker explains, that is because base customers tend to demand special rates on fuel, while transients are more likely to pay full price. "So, the question for independents - especially those who are only one-location operations - is how do you compete with companies that market nationally?"
According to Walker, to be able to compete, an independent FBO's management must make sure that the facility is able to "-offer a better choice" than the competing chain operation. "You have to assure a better quality of service on a consistent and long-term basis," he says. "This is going to be particularly important at smaller airports as the chains move in."
Walker agrees that more independent FBOs will have to offer "at least some level" of maintenance support - appropriate to its location and customer base - to enable them survive for the long term. "Personally, I believe that the day in which an FBO can survive on fuel sales alone is gone," he states.
"Within the next five years, maintenance will become more important for FBOs, because even though there is a lot of new aircraft manufacturing going on, a great many older aircraft will still remain in service."
But Walker adds that independent FBOs will continue to have a place in the market. "Pilots will continue to demand a choice, which is why I think there will always be independent operators. Transient customers, especially, don't like to fly into an airport which is served by only one FBO. Even though small FBOs will continue to face tough competition, they will be able to survive if they continue to let the transient customers know that they are on the airport, make them want to stop there - and come back."
Lou Pepper, owner of Million Air Interlink, the Dallas-based FBO company which now boasts of a chain of 28 franchisees, also sees the continued existence of independent operators. "They will find it much harder to compete on a national and international level with the chains," he acknowledges. "Because of their marketing resources, chains have been able to build up and keep very loyal customers. Also, chains have an advantage in that they can spread the costs of operation and training among multi locations. An independent is totally on its own with respect to the cost of doing business."
Pepper also cautions that chain-type FBOs will be moving into some of the smaller airports, which have traditionally been the strongholds of independent operators. "Million Air is a very good example of this," he says. "Of the 28 Million Air facilities, 15 are at airports that have no commercial airline service. The reason for this is the growing preference among corporate pilots and those who operate owner-flown aircraft for airports that do not have airline traffic. An airport that is exclusively general aviation is a lot easier to use than one with a mix of general aviation as well as commercial airliners."
The FBO business, then, appears to be consolidating more from a position of strength. But despite the competition, the trend does not mean that the independents will disappear. As Signature Flight Support's Boekenkamp points out, "-we will continue to see independent operators at major commercial, as well as small, general aviation airports. In fact, at almost all of our locations, we are competing with at least one or two such operators. The market will always be competitive".
The nature of the European fixed base operator (FBO) industry, which is generally dominated by independent companies, varies greatly from its US counterpart by offering its customers a distinctly intimate service. "It is like chalk and cheese," says Magec Aviation's director of FBO Services, Trevor King. "In Europe the aircraft are only part of the equation. The treatment of passengers and pilots is also a very important part of the package, in the USA it's more a case of do it yourself," he adds.
The London Luton Airport-based company, which handles around 9,000 business aircraft a year, concedes that the European FBOs' main source of income derives from aircraft handling charges, which includes passport and customs control, baggage handling, weather reporting, hotel bookings and transportation. In the USA, however, the industry relies heavily on selling fuel. "We charge about £160 [$260] to turnaround a Gulfstream IV, for example, but the operator is not obliged to buy our fuel," adds King. Jet Aviation, arguably Europe's largest FBO chain, handling a combined total of around 16,000 aircraft from its Swiss bases in Zurich, Geneva and Lugano, has witnessed not only a growth in business over the past few years, but an increase in the size of the aircraft it handles. "With a rise in intercontinental travel , we are seeing larger aircraft, like [Bombardier] Challengers and Gulfstreams on our ramps," says Jet Aviation's duty officer in Zurich, David Chatfield.
The Zurich Airport-based operator claims that only around 10% of business aircraft operators choose to handle their own aircraft. "Most people prefer to have everything done for them. We can, and are, expected to perform miracles. The impossible takes a little longer," he adds.
The FBO industry is thriving, demand for business aircraft continues to rise, spurred by an increase in global travel. Europe represents the world's second largest business aircraft market, with an inventory of over 2,000 aircraft, and is slowly beginning to reveal an appreciation for the benefits of business aircraft travel.
There is, however, a mood of apprehension looming, prompted in part by the threat of recession, but mainly by the heavily contentious issue of restrictive airport access for business aircraft at key European hubs. "So many FBOs are based at major international airports, some of which are now making life extremely difficult for business aircraft, by denying them access," says Jet Aviation's Chatfield. The main culprits, London Heathrow and Gatwick airports, Madrid, Amsterdam Schiphol, Paris Charles de Gaulle and Zurich, are continually denying slots to business aircraft users. The industry fears that, although customers will continue to use their services, many are becoming intolerant of the disruption this causes to their schedules. "They have business aircraft because they are convenient, take that away and what have you got," says Chatfield.
Last May, a new slot allocation procedure was implemented at London Heathrow to alleviate congestion, much to the chagrin of the resident FBO, Metro Business Aviation, which believes that the system is designed to drive them out. "We have seen a dramatic drop in our business since 6 May, but we will continue to fight for our right to remain at Heathrow," says Metro. The company, owned by the London Harrods department store, also has bases at London's Stansted and Luton airports, and it recently issued High Court proceedings against Heathrow operator BAA, claiming that the organisation is denying them access to operate effectively. "Busy international airports often have a disdain for FBOs because they take up a prized space, where land is at a premium," says an industry source. Metro, however believes that industry offers a valuable source of revenue, by drawing in customers who often interline with the carriers. "We should stop fighting each other and start working together," says Metro.
The frustration felt by the industry has spurred the European general aviation into action. In March, four major aviation associations formed a a pressure group, the Business Aviation Fighting Force (BAFF), to campaign for the rights of business aviation in Europe and in particular, the issues of airport access. BAFF says the airports have a duty to give access to aircraft users that fit in with the normal traffic mix, and is pushing for assured rights under European Union rules. Although politicians are starting to sit up and take notice, persuaded by the argument that good business aviation access is a deciding factor for many large firms examining ventures within Europe, the campaign's long term success is vital for the FBO industry. Many in the industry believe that failure to recognise the importance of this market could sound the death knell for many operators at key hubs.
Source: Flight International