2011 FBO Survey – The Americas: State of the FBO Industry
Printable version of the FBO Report, FBO Ratings and Readers Comments
For the FBO industry, 2010 was a year of relative stability after the decline that began in 2008. Following nearly two years of reduced aircraft traffic and diminished fuel sales, last year saw the glimmerings of a rebound. “FBO operators were hit hard by the recent economic downturn,” said Mike France, NATA’s director of regulatory affairs. “However, in mid- to late 2010 many of our members began to express optimism about an economic recovery. Most FBO operators are looking to this year to be the time to return to growth.”
According to statistics provided by business aircraft industry analyst Argus, 2010 saw an improvement in every month over the previous year, with an overall increase in the number of flights of 5.6 percent. More than one attendee at the recent Schedulers and Dispatchers conference noted there were fewer discussions about employment overheard at this year’s event, which had an almost palpable enthusiasm.
The recent increases have sparked hopefulness among fuel providers as well. “I would say we see a positive return of 2007 volume, and we’re optimistic about everything moving back to the way it used to be,” said George Ball, president of Everest Fuel Management. “I think corporate flight departments are traveling more, charter is picking up; all that’s a good indicator that the business is growing.”
Based on these recent industry advances, the major FBO chains took a look back on the past year and weighed in the future of the industry.
“It’s been a nice turnaround, considering the way it was in the prior three years,” said Atlantic Aviation CEO Lou Pepper. “I like to say we’ve had the bounce and now the business is coming back, and we’re optimistic and enthusiastic about going forward.” With 67 facilities in the U.S., Atlantic has the largest domestic footprint among the large FBO chains. The company saw a relatively quiet year in 2010. “I’d say during the past year we’ve been pretty stable and static,” said Pepper. “We haven’t made too many changes.”
Atlantic will be adding another location to its roster this year when its newly built Oklahoma City FBO opens at Will Rogers World Airport around the beginning of June. The new facility will supplement–rather than replace–the Atlantic FBO at Wiley Post Airport just nine miles away. Another project over the past year involved adding 11 acres to the ramp at the company’s Teterboro facility, making it one of the largest ramps on the East Coast. “Through the downturn we’ve been cautious with our capital, but every project that we had committed to because of lease requirements, we have fulfilled using quite a lot of capital,” said Pepper.
During the recent recession, the company, like most in the industry, adopted a conservative approach. “We didn’t knee-jerk to the big downturn,” Pepper noted. “Obviously we were more prudent and did some cost-cutting measures like everybody did to survive, but as far as the service we provided, and the amenities, they didn’t change one bit.” Among the cost-cutting measures was a reduction in staff that paralleled the reduced flight activity. As that has begun to reverse itself the company has started rehiring.
As the levels of flight activity increase, Pepper expects the recently dormant trend of consolidation in the industry to start to heat up again as well. “It went dark for a couple of years for a lot of reasons, with business being down and values being depressed.” He said the combination of buyers facing a constricted capital market combined with sellers not wanting to sell at depressed values helped put the brakes on the race to grab locations. “We were the leaders of consolidation from 2004 until about 2007,” Pepper told AIN, noting his company acquired 50 FBO locations during that time.
“I think it is going to start back up again. I don’t think it will be like it was in the early 2000s when we were all really galloping to put together large chains to improve our footprints and to provide more service, but I think it will start coming back again and [companies] will be back in the acquisition mode,” he said.
As for this year, based on the industry traction, the company expects to see continued growth. “We’ve seen more requests for hangar space, we’ve seen more transient activity and more general activity on the ramp, so it’s affected us positively,” said Pepper. “We’re glad we’re still here and came through relatively unscathed and are looking to move forward with our chain of FBOs and provide good service.”
Although the FBO consolidation market has cooled considerably since the boom times several years ago, Landmark’s recent acquisition of the U.S. Odyssey Aviation locations proves that major transactions in the FBO business are still lurking just around the corner. “It’s a great fit for us,” said Landmark Aviation CEO Dan Bucaro. “If you just look at the map of where we have locations, we had real voids in some of these areas and it gives us some really strong points in Ohio and Louisiana that help us a great deal, and help us with our customers and just building the network.”
The FBO provider is currently in the process of retraining the line service and customer service staffs and integrating the locations, which include Cincinnati and Columbus, Ohio; Chicago; Asheville N.C.; Charleston, S.C.; and New Orleans and Lafayette, La., into the Landmark brand.
The Houston-based chain, which currently lists 42 domestic locations (plus another three in Canada and two in Europe), purchased DB Aviation at Waukegan Regional Airport late last year, and will also be opening new facilities at Atlanta’s Hartsfield International Airport in April, at Miami International Airport in June, and is waiting on the final vote of approval for a location in Tampa. “With the Odyssey transaction and the RFPs that we have won, we’re going to add nine or ten locations already this year,” said Bucaro. “I would tell you that I expect to add several more by the end of the year, but we are not at this point closing on any other transactions right now.”
In addition Landmark recently performed major renovations at its FBOs in Dallas and San Antonio, Texas; Greensboro, N.C.; and Ocala, Fla., in preparation for possible market growth.
“I think in 2010 it was really a stabilizing period where you didn’t see declines in volume anymore,” Bucaro told AIN. “We actually saw year-over-year increases in volume starting in March and that has continued this year. While it is a far cry from where we were in 2007, it is in stable and modest growth period right now.”
In addition to the boost in FBO business based on increased flight activity, the company has also noted a recent uptick in its charter management division as well. “We manage more than 70 aircraft today and since the last quarter of 2010 and up until currently it’s been strong, which we think is a leading indicator of people getting back into the industry and private travel,” said Bucaro.
That growth period is welcome after the harsh climate the industry faced between 2008 and early 2010 that forced Landmark–like most chains–to make some unpleasant decisions. “We did all the things that were difficult,” noted Bucaro. “We reduced our staffing levels, we froze all wage increases and bonuses, we discontinued our 401K matching [all since reinstated] but during the real rough times we definitely had to tighten our belt and do the things that were necessary to survive that period of time, and we were able to do it.”
Despite his company’s own latest acquisitions, Bucaro doesn’t see the FBO merger market returning to its recent frothiness. “Today the buyers are more prudent in their approach; they are disciplined in how they are looking at it and I think there is still some variation between the expectations of the buyer and the seller, so while I do think there is going to be increased consolidation and more activity, I don’t think we are going to see it at the levels of 2006 and 2007.”
“Million Air actually continued to grow over the last two years, in spite of what took place,” said Roger Woolsey, president and CEO of Million Air. “I think I can speak for every line service and customer service person in my chain: we all worked hard in 2010. Everybody is doing more with a little bit less.”
Despite any belt tightening the company might have endured, its bullish spirit was evidenced by the addition of several locations to the Million Air roster over the past year, including FBOs at San Bernardino International Airport in California, Grant County International Airport in Moses Lake, Wash. (home to one of the country’s longest runways) and Yuma, Ariz. Currently under construction are new facilities in Gulfport, Miss.; Reno, Nev.; and Calgary. In the renovation of its Lake Charles, La. FBO, the aviation services provider spent more than $1 million, adding new entrances, lobby, weather and briefing rooms. The Houston-based company also plans to break ground soon on a new $12 to $15 million facility to replace its FBO at hometown William P. Hobby Airport.
“My competitors are really strong today,” Woolsey explained to AIN. “On one hand I love to say it, on the other hand I hate to say it, but they’ve done a really great job upgrading their facilities and making the investments. I think that’s the wave of the future, as opposed to an airport having seven gas stations and all of them are fighting and starving for market share where they can barely pay the lights and the rent. I think it’s better to have two or three really healthy FBOs that can put on a good face for the flying public to make a good first and last impression on the community.”
Looking to the future, Woolsey believes that consolidation by the major chains will start again but perhaps at a slower pace as companies become more cautious. “I felt at the time, back when [the market] was heated before collapsing around us, that a few of them were being a little too aggressive in what they were paying and their growth rate,” he said. “Million Air did not follow that–whether that was right or wrong, history has yet to be written–but from my perspective I’m trying to go at a much slower, more controlled pace.”
In the current economic climate, the company, the smallest of the four major U.S. FBO operators, has found that the tighter availability of financing has served as an unintended brake on its expansion plans. “It’s been a little slower than we’d like,” said Woolsey, “It’s been a lot more difficult gaining access to the capital to do those things.”
Signature Flight Support
Signature Flight Support is the world’s largest FBO operator, with 104 locations, 60 of them in the U.S. “We’ve seen encouraging signs over the past year,” said David Best, the company’s chief commercial officer. “We’ve enjoyed seeing the market solidify and grow.” During the recent economic woes, the company made changes to cope with the new realities. “We obviously managed the business proactively, and we were managing our labor supply to our business demand at the time,” said Best. “During the downturn we worked hard at building our interface with our customers.” To that end Signature established a commercial sales department to engage with major customers one-on-one and develop custom solutions to their needs.
As part of that strategy the company has focused attention on internal improvements. “We’ve taken real strides forward in the last 18 months in driving our technology and introduced some interesting new features,” Best said. Among those newly introduced capabilities are new point-of-sale systems that allow planeside checkouts. The company rolled out the new system through the first quarter of the year.
In another improvement, the company partnered with the Ritz-Carlton hotel chain to create a new customer-service training course for its employees titled “Training with a Leading Edge.”
Last year, the company introduced its Signature Status customer loyalty program, which includes benefits such as guaranteed crew cars, preferred aircraft parking, daytime hangar usage, even waivers of quick-turn handling charges (for platinum-level customers). Other benefits through sister company Dallas Airmotive offer free engine trend monitoring and, for upper-tier members, free engine field service. In a cross-promotion, Signature Status members can also take advantage of a free 1,000 gallons of fuel if they commit to major engine maintenance events with Dallas Airmotive six months in advance. “The reception [for the program] has been good, and it’s obviously driving a change in behavior in our customers, as people aim to increase their loyalty to our business,” said Best.
In terms of expansion, Signature last month announced the acquisition of its newest property, the Yellowstone Jet Center at Gallatin Field Airport in Montana. The FBO will maintain its own name but operate as a full member of the company’s network. Best still sees many other opportunities for growth by the major chains. “I think we still have a fragmented market within the industry,” he told AIN. “As economic activity picks up I see continued consolidation of that market. We’ve expressed that opinion before and stand by it.”
Another recent focus of the company is in expanding traffic to its Reagan National Airport (DCA) facility, which Signature recently refurbished in anticipation of increased activity. General aviation access to the airport is controlled through the Transportation Security Administration. “We’re looking at investing in those areas where we can assist the customers best and that is helping them through the DASSP [DCA Access Standard Security Program] process,” said Patrick Sniffen, Signature’s vice president of marketing. In an effort to drive traffic to DCA, Signature has dedicated several staffers at its facility there to assist potential customers. “We’ll actually help guide them through the paperwork, keep tabs on the progress and really hold their hand all the way through and make it less cumbersome.” o