The FBO Dilemma: FBO Fees are Getting Out of Control and Changing the Economics of Using an Aircraft for Business Travel
I am an avid supporter of business aviation. I have a unique perspective since I have worn multiple hats within the aviation community and I have experienced the benefits first hand.
I started out as a passionate aviation enthusiast with a private pilot license. In my experience as a business owner, I relied heavily on my aircraft to support and to help me grow my business. I used the aircraft to visit clients, vendors and even to help with promoting the industry to elected officials. Over the years, as the business grew, so did the capabilities of my aircraft and me.
But about fifteen years ago, I decided to start flying airplanes professionally and a whole new level opened up to me. Since then, I still fly my own aircraft for business and personal travel, but I also fly professionally for both Part 91 and Part 135 Charter clients. So, I get to see the aviation industry from the perspective of business aviation, on-demand-charter and as the owner of a small business jet.
In fact, it was this exposure to more sophisticated aviation operations that led me to create WingLeader, which has the mission of providing full service aviation operations support, trip scheduling, dispatch and trip support to smaller flight departments, aircraft managers, charter operators and contract pilots.
I have been concerned for a long time about the changes that I have seen in general aviation in the 38 years for which I have been involved. When I was younger, I remember seeing kids at the airport fence, allowing them to come look at airplanes and watching a passion ignite in them. I was excited to be a part of it and I know that most of us started because we got some exposure to aviation. As the airport fences got higher and the access to airplanes became tighter, those opportunities to show kids what general aviation is all about have become extremely rare. Nowadays, it seems that the only people that take flying lessons are wealthy retirees and younger people that are completely focused on a career in aviation. Gone almost entirely is the pilot who just loves flying and wants to do it as a hobby.
There are several reasons for the changes that I am seeing and many of those are beyond the scope of this discussion. However, there is another trend that I am seeing that I believe is exacerbating the situation and will further deteriorate the ability for people to participate in the joy and beauty of general aviation. Of course, I am referring to what is happening to the FBO industry and the fundamental shift in how they interact with their customers.
What we are witnessing is consolidation within the FBO industry. The consolidation has essentially eliminated the small mom and pop operator and now, we are left with only four or five large corporate FBO chains, all of which seem bent on driving costs even higher. That has resulted in dramatically higher prices in all areas, driving up the cost of fuel, handling fees, overnight fees, hangar fees, and even inventing new and creative fee structures that have the effect of nickel-diming customers for everything that they do.
Two recent experiences in two different scenarios exemplify the dilemma to me:
About three weeks ago, I was PIC on a charter flight to watch a World Cup game. I was advised that we had reserved a slot at the only FBO on the field for the arrival that day. Because of the ATC vectors and flow control to manage the traffic to the area, our 1.5 hour flight lasted 2.5 hours, but we arrived at our destination and were marshalled to park. The ramp, maintenance ramps and taxiways were full of private jets of all sizes. When my colleague and I got into the FBO, there was not a seat to be found. The desk was dramatically understaffed and the line personnel were doing all they could to keep up with the traffic. When it was time to settle the bill, in addition to a fuel cost that was about $2 per gallon more than average, we were charged an event fee of over $2,300. So was every other of the 40 plus aircraft on the field that day. Of course, as an aircraft owner, I thought the additional fee was ridiculous. But in this case, the client was willing to pay it, so there was not much for me to say. However, I can absolutely say that as a customer, I did not get any enhanced service from the additional fee. In fact, the service was even worse than it traditionally is from this FBO.
My second experience was me using my airplane for a personal trip to watch my son perform in a musical theater production of Newsies – It was fantastic and he was incredible! When I plan a flight, I use all of the same formalities and tools that I use for revenue and charter flights. Indeed, the idea that small operators, flight departments and contract pilots should use the same processes and tools that the large flight departments use is what drove me to start WingLeader.
As part of my process, even though I use FlightBridge to schedule departures, arrivals and services, I emailed the FBO at the airport closest to my son’s performance to ask what the fees were going to be. The day before my scheduled trip, I realized that I never received a response. Since it is one of the large FBO chains and the only FBO on the field, I decided I better follow up with a call to make sure that I was aware of the fees that I would expect. When I spoke to the Customer Service Representative and told him the type of aircraft, that I had arranged for a rental car and my anticipated arrival and departure dates. The CSR advised me that this particular FBO had shifted to an hourly fee arrangement, rather than an overnight ramp fee. He said that the entire company is changing the fee structure to that model over the course of the next year. He told me that I could expect the fees to be about $1,400 for the two days that I would be there. However, he told me that they would waive four hours of the fees if I purchased a sufficient amount of fuel at their overinflated price. I pointed out that a reasonable expectation for any other fee arrangement would be about $150 per night plus a GPU fee, making the total without fuel about $400. The new fee structure essentially tripled the cost of using my aircraft to make this trip. This fee structure is being implemented by several FBOs and is essentially designed solely to squeeze three times the revenue out of the same clientele.
I advised the CSR that I would not be arriving, cancelled my rental car and decided to fly into an airport that was over an hour drive away because the fees were far more palatable and I would rather drive an hour than endure abusive and predatory pricing by an FBO.
I know that my story is not unique. I see it happening more and more and I see the number of people that are complaining about it on the rise, as well. I am also aware that many pilots, even some reading this, are saying to themselves, who cares? Everyone has a right to charge what they want and these people have money, so if they are willing to pay it, why should I care? I have seen that response many times when people raise these concerns.
What is the obligation of an FBO? After all, they are businesses and they are entitled to make a profit. If I do not like the fees, I can always go to another competitor that charges what I consider to be a more reasonable fee.
Let me be very clear about one thing: I am about as much a capitalist as anyone can be. I have owned and operated businesses for almost forty years and I have been intimately involved with Private Equity. I understand EBITDA and the pressures that businesses have to grow. I am a big believer in the entrepreneurial spirit and believe it is the backbone of this amazing economy. Perhaps it is because of my unique perspective that I am so passionate about what I see happening to aviation.
My objection is that the aviation marketplace is not a free and open market; especially the FBO business! I cannot just open up an FBO next door to one of the large corporate FBOs. While, of course, there are legitimate business barriers, such as large capital needs, there are several barriers to entry that have no relationship to the overall business concerns.
For example, land and ramp space is finite and fixed. There is a limited amount of space available on an airport to build an FBO structure and ramp space. Generally, the airport sponsor, which is generally the local governmental entity, controls who can access the property to build a business.
In addition, long-term leases lock incumbents into the space for decades, which would prevent a new entrant from even having the option to get space.
It is often very difficult and extremely expensive to get permitting for a fuel farm with all of the environmental regulations and requirements. This is obviously a strain on resources, but it is also a significant time requirement because of the need to work with federal, state and local authorities to obtain the appropriate permits.
There are other limitations that are not exactly related to the government, but contract fuel providers and other vendors that are used by larger business aviation companies may lock out new entrants to the benefit of the incumbent.
Another limitation that I have personally seen is that airport authorities are usually small boards with close relationships with the incumbent FBOs. Those FBOs are often important local employers and donors to political campaigns, which is even more so an issue when they are large corporate entities. That will also work to the benefit of the incumbent and the detriment of the newcomer.
Airports are also required to set minimum standards for anyone wanting to operate commercially on the field. While this seems like a great idea to keep bad actors or underfunded business out, it is also used as a way to prevent free and fair competition and to enable this kind of predatory pricing.
While Federal Law technically prohibits an airport from granting anyone an exclusive right to provide services, the airport can create a de facto monopoly using lease terms and land allocation without a formal grant of a monopoly.
A free market requires a reasonably low cost, permissionless entry for competitors to enter the market. In the case of an FBO, there are several layers of governmental permission from the entity that was created by the government that created the limitations of infrastructure and land. That behaves much more like a textbook monopoly or perhaps an oligopoly than a free market.
The FAA understands the inherent limitations that are involved in issuing a private business the ability to do business on an airport. That is why they specifically attach strings to those businesses that take advantage of their position on an airport. The FAA issued Circular 150/5190-7 and said “In accordance with the Airport and Airway Improvement Act of 1982, 49 United States Code Sec 4701… The owner and operator of any airport… that has been developed or improved with Federal grant assistance… is required to operate the airport for the use and benefit of the public and to make it available for all types, kinds and classes of aeronautical activity.” (emphasis added). The obligation to make airport facilities available for public use extends to the airport sponsor or a contractor or licensee who has been granted a right by the airport sponsor to offer services or commodities normally required to serve aeronautical users of the airport. In other words, if a private business has been granted the right by the airport authority to do business, the obligation to make the use, access and affordability extends to them, as well.
While an in-depth analysis of the Exclusive Rights and the obligations and responsibilities for those who provide services at federally funded airports is beyond the scope of this discussion, there is no question that the Congress and the FAA recognized the inherent limitations in airport space, understood the importance of the development of aviation and imbued the airports with the responsibility to ensure that all aviators had access to the airport and its facilities.
In this way, I believe that the airport sponsors are failing in their responsibility and are not implementing the mandate to make sure that all classes of aviators have access to the airports. They have subcontracted their obligation to an increasingly smaller number of vendors who have become carried away with their monopolies and are implementing pricing that is intended to eliminate access to smaller general aviation enthusiasts and to only cater to the ultra-wealthy and the larger corporate flight departments. In some cases, they are actually revenue sharing with those vendors, so they are actually invested in the revenue that they are sharing. They are actively participating in the cost escalation that is making aviation unobtainable for so many.
As I mentioned previously, many pilots will say that this is not their concern. If the client doesn’t care, why should they? After all, aviation is expensive. If the client has enough money to fly in a business jet, then they have enough money to absorb all of those fees.
Well, perhaps that is true. Until it is not. Yes, once you experience the ease, flexibility and value of general aviation travel, it is very hard to go back to the inconsistency, inconvenience and rigidity of airline travel. However, every person has a cost benefit analysis that they perform to justify the expense of owning and operating an aircraft. As long as the benefits outweigh the costs, ownership continues to make sense. At some point, though, the continuous escalation in operating costs, including FBO fees, adds up to a significant number and operating the aircraft no longer makes sense. It can no longer be financially justified, especially when other options exist.
This analysis is even more prevalent for business owners and corporate flight departments that operate their aircraft to support their business growth. Anecdotally, everyone in the business aviation industry knows that when financial downturns occur, the first thing to go is the corporate aircraft.
However, there is ample data to support this fact, as well. After a five year growth spurt, during the financial crisis of 2008 and 2009, the General Aviation Manufacturers Association (GAMA) noted that there was a dramatic drop off of business jet sales during that time, which amounted to a 21% decrease in total industry billing. Moreover, that drop in new aircraft sales was attributed to cutbacks in flying hours and downsizing and divestiture of business jet fleets.
Why does any of this matter? If you are involved in the aviation industry in the United States, it is a critical issue.
Many economists have noted that our overall U.S. Economy has a widening wealth gap. Whereas ten years ago, the top 1% of total household wealth held approximately 30.7% of all net worth, now the top 1% holds approximately 31.6% of household net worth. At the same time, the bottom 50% holds approximately 2.5% of the total household wealth. The aviation industry is starting to emulate the overall economic trend by creating an ever-widening gap in the difference between the top 1% of business aviation operators and everyone else.
The United States has traditionally had a robust and active aviation industry. It is the epicenter of aviation development, training and activity. It dwarfs the rest of the world in virtually every single metric. However, we don’t have to look too far to see what that trend will lead to. This is exactly the scenario we see in aviation in most of the rest of the world. If we want to see where the U.S. aviation marketplace is heading, we need only look to Europe.
The United States holds 51% of the global general aviation market with over 200,000 active aircraft. Europe is less than half of that. The U.S. business jet fleet is about 25,000 aircraft with Europe at around 4,159 and the U.S. has over 5,000 public use airports while Europe has far fewer and they are fragmented among different countries with different regulatory requirements. The regulatory environment in Europe is also far more complex and raises, yet again, the cost of operating an aircraft.
There are solutions, but as discussed above, they are not easy to implement. Because I am a free-market capitalist, I do not believe that direct government pressure on FBOs is the right answer. The only thing that will fix the problem is unleashing the private sector to allow real competition at airports. Every airport should have at least two FBOs from which to choose and preferential treatment should be given to a smaller local business that will cater to the aviation community that wants personal service. When a monopoly is granted, it should be incumbent upon the airport to ensure that the FBO is serving the entire community or that there is another option for the aviation community to use for basic services and fuel when coming to the airport.
General Aviation and Business Aviation are not inelastic markets. Every single participant in the industry has to conduct a cost-benefit analysis of the level of complexity and cost that they are willing to endure to participate. The exponential increase in FBO fees is only one such cost, but it is a cost the owner sees and notices every time they use the airplane. Aviation is critical to our business infrastructure and it is imperative that we protect it for all members of the general aviation community. While I strongly support FBOs in their desire to be profitable, I encourage them to do so in a responsible way that helps foster the growth of the industry that supports all of us!