In this JETNET >>KNOW MORE analysis Mike Chase and Marj Rose assess the Fixed Base Operator (FBO) market. How do you categorize them, based on their revenue and services?
As we continue to be optimistic about the slow but steady recovery of the Business Aviation industry, the Fixed Base Operators (FBOs) continue to compete for the traffic they need in order to survive. The annual NBAA Schedulers and Dispatchers conference was about to commence in Tampa, Florida as we wrote this article and is one of the few exceptional events that showcases the FBO world and all of the services they provide to Business and General Aviation operators.
Recently, JETNET introduced an expanded service targeting the FBO networks providing operational support at specific airports. The new JETNET Evolution Airport/FBO view allows the user to quickly view individual aircraft, owners and operators, and the activity in or around a given airport. This valuable information allows deeper understanding of the flight activity at a particular airport that might provide an opportunity for an FBO business expansion.
Thus, we’ll take a look at the current FBO market and analyze the segment.
What is an FBO?
For a little more background on the FBO world, let’s review some basics. A Fixed-Base Operator, as defined by the FAA, is a commercial business granted the right by an airport to operate on the airport and provide aeronautical services such as fueling, hangaring, tie-down and parking, aircraft rental, aircraft maintenance, flight instruction, etc. Most FBOs doing business at airports of high to moderate traffic volume are non-governmental organizations (i.e., either privately- or publicly-held companies).
Though the term Fixed-Base Operator originated in the United States, it is becoming more common in the international aviation industry as Business Aviation grows. The term has not been officially defined as an international standard, but there have been recent uses of the term in International Civil Aviation Organization (ICAO) publications.
A review of the Worldwide FBO market can be summarized, as it is in Table A, by type to classify them by the number of locations. The total population of FBO’s worldwide is estimated to be around 6,400.
Meanwhile, as Table B demonstrates, FBOs can be divided into three tiers based on total revenue in US$.
The three Tiers of FBOs indicates that less than 128 (under 2%) of the total number of worldwide FBOs are classified as Tier 1, as represented in Table B. Meanwhile, 13% (832) are classified as Tier 2 while the vast majority, 85% (5,440), would be classified as Tier 3.
Tier 3 can be sub-divided into two additional categories:
Over 60% of the Tier 3 FBOs have total annual sales of less than $1m, annual retail fuel sales of less than 250,000 gallons, or provide only Avgas fuel.
The FBO market profile can be based upon the tiers listed in Table C along with the specific services that are typically associated with each.
Tier 1: Depending upon the market served and focus of services, fuel sales generally contribute ~40% of total sales, while technical services contribute the majority to sales (~60% of total sales). Gross profit, as a percentage of departmental sales, is generally ~35% of line-services sales, ~30% of Facility/Hangar sales, and ~35% of Maintenance & Parts sales. The resulting aggregate gross profit is approximately 47% of total sales.
Tier 2: Revenue contributions are generally diversified between fuel sales which contribute 25-35% of total sales, while technical services contribute the majority to sales (45-65% of total sales), and charter 10-25% of total sales.
Tier 3: Sales of retail fuel are most often less than 1.0m gallons annually, the majority of which is sold to base aircraft at that location. A limited number FBOs may service air carrier contracts on a small scale, with volumes under 2.0m gallons of Jet fuel sales.
FBO Services Retail Fuel Characteristics
Tier 1: Retail fuel sales are generally greater than 3.0m gallons, per year with the share of sales divided between based and transient turbine customers on a 40/60% ratio, respectively. FBOs in this market segment have also garnered a share in the air carrier business, and depending upon the contract can experience volumes in excess of 10.0m gallons of Jet fuel per year.
Tier 2: Retail fuel sales range from 1.0-2.99m gallons and are generally divided between based and transient customers on a 55/35% ratio, respectively. FBOs in this market may service air carrier contracts on a small scale, with volumes ranging from 2.0-10.0m gallons of Jet A fuel sales annually.
Tier 3: Retail fuel sales range from 0.5-0.99m gallons and are generally divided between based and transient customers on a 75/25% ratio, respectively.
(All information above is from Aviation Resource Group International (ARGI) as 31 Dec 2013 FBO Operating Survey/North America.)
The number of top-ranked FBOs around the globe has been steadily increasing year-after-year but the US market’s saturated growth has leveled off for the most part and has seen trends in the consolidation of independent “Mom and Pop” FBOs by larger FBO Chain’s and networks. The current trend is offering bundled services versus unbundled services.
Historically the International FBO model varied dramatically from that of the Domestic (US) FBO model. Internationally, the majority of the FBO revenue has been derived primarily from Handling Charges. While in the US, the majority of the FBO revenue has been derived primarily from fuel revenues.
All of the FBO tiers serve an important segment in the aviation industry. As we mentioned above, the majority of FBOs around the world tend to fall into the smaller Tier 3 category, supporting the vast numbers of smaller, remote airports that serve the General Aviation community.