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State of the FBO industry

By Doug Wilson
Founder & President, FBO Partners

Million Air HPN (White Plains NY) features a 22,000 sq ft FBO terminal, 50,000 sq ft of hangar space, and offers a resort-like feel. Million Air was voted Best Large FBO Chain (11+) in the 2020 Pro Pilot PRASE Survey.
As in past years, this State of the FBO Industry provides an opportunity to honor top ground service providers, review trends in business aviation, and offer a prognostication for the coming year.

While this year’s PRASE (Preferences Regarding Aviation Services and Equipment) winners should enjoy their well-deserved recognition for the fruits of their labors, today’s absurdly brief news cycle tends to render success transitory.

It is especially true this year, for a story which began making headlines in January overshadows the news like no other in modern times. A deadly pandemic with far-reaching consequences has gripped all of humanity – Covid-19.

Although tempting to recap the FBO newsmakers of 2019, it seems that to do so now – halfway into 2020 – is insufficient a requiem for what later may be referred to as a Golden Age of sorts before Covid-19. While such words may seem overly dramatic, the statistics regarding the Coronavirus stagger the imagination.

As of this writing, some 7.5 million infections attributable to Covid-19 have been confirmed worldwide, and nearly 500,000 across the globe have lost their lives to it. By the time you read this, 125,000 Americans will have died in a mere 6 months – more than twice the number of US deaths in the entire Vietnam War.

Notwithstanding shelter-in-place orders which saw all of business and general aviation traffic drop off by nearly 74% in mid-April, there were already signs in May that business aviation – and, by extension, FBOs – will recover more quickly than other segments of the economy.

Business aviation is uniquely poised to grow as a market segment within the aviation industry at large – with a big caveat, of course. This year, let us focus on how that potential growth may be segmented, what the FBO of the future may need to consider with Covid-19, and, lastly, acknowledge that aforementioned caveat.

Market growth and segmentation

Business aviation is an industry segment that tends to be the last to enter a downturn and the first to emerge from one, making it both a lagging and leading indicator. One need only look at September 11 and the global financial crisis (GFC) for evidence of this phenomenon.

Notwithstanding an unjustified shutdown of business aviation to DCA (National, Washington DC) in the immediate aftermath of the September 11 attacks, business aviation quickly bounced back nationally.

The crisis sired a regulatory environment that led to the Private Charter Standard Security Program, the Twelve-Five Standard Security Program, and others. No doubt those seeking alternatives to the airline cabin at the time looked to business aviation instead, perhaps for the first time.

GFC was more insidious, and created more lasting economic damage than the attacks of September 11. The reason for this was simple – the US economy itself was propped up on faulty fundamentals. Although an oversimplification, subprime lending led to a domino effect of defaults, followed by the near collapse of the banks.

After November 2008, when the heads of the “Big 3” automakers cowered under pointed questions concerning their use of private jets, nothing really changed in the industry. The same people who had been flying privately before still flew privately.

Business aviation contracted with the entire US economy, but, more to the point, the market segmentation within business aviation changed. If the GFC led to lasting changes in business aviation, it was the acceleration of a general shift toward more anonymized flying – via Part 91K and 135.

So, how might Covid-19 shift the industry a step further? While many upstarts in recent years have focused on a so-called “democratization of private aviation” only to find that market did not yet exist, this time it is different. Every time the airline travel experience approaches the truly inhumane, another tranche of airline passengers exit the 1st-class cabin in search of alternatives.

As if airline travel were not painful enough, Covid-19 added the potential for death merely by a fellow passenger breathing on you. While those signing up for an insufferable airline experience often have no financially viable travel alternatives, those who do have the choice will become new consumers of business aviation, and they will express that consumption through Part 135.

This too is already an observable phenomenon according to a recent report from Avinode, which, among other things, tracks charter inquiries and bookings industrywide.

Entitled Demand Indicators are Heading in the Right Direction, Avinode’s report notes that, year-over-year interregional charter inquiries and bookings are up double digits over 2019. In particular, flights from the southeastern US to other areas of the country were up 280% for the first 2 weeks of June.

This is consistent with feedback from Part 135 operators, who are fielding a significant number of calls from first-time customers. What might this mean for FBOs? An all-new demographic will join the customer base – passengers who have never experienced private aviation.

They will be easy to identify for they will be the only passengers still using an FBO lobby. If Covid-19 has not already done so, the appearance of this new customer segment will cement an already painful reality – the death of the traditional FBO terminal, at least as it is known today. In the blink of an eye, the candy bowl at the front counter, cookies on trays, and the popcorn machine are gone, swallowed by a pandemic.

While the existing communal lobby may serve the new democratized demographic, veterans of private aviation will seek alternatives to mixing it up with them. Frequent users of business aviation aircraft will avoid the public spaces at the FBO.

As business aviation returns, rampside chauffeured transportation will increase, relegating some FBOs to empty shells. Covid-19 has become a tax of sorts on large gatherings of people, rendering communal spaces and shared amenities a liability, not an asset.

Instead, FBOs may be wise to put those mahogany conference tables in storage for now, and repurpose now-unused conference rooms into reservable, fee-based, by-the-hour mini lounges.

An all-too-common sight at FBOs today, an empty lobby at Banyan FXE (Fort Lauderdale Executive, FL) is meticulously sanitized before the next guest’s arrival. Led by industry veteran Don Campion, Banyan is consistently a top 25 FBO nationwide, and a top 10 Independent FBO in Pro Pilot’s PRASE.

Shifting revenue sources

Another phenomenon observed during the crisis is that FBOs with significant real estate holdings in the form of hangar sublessees have fared better than those whose revenue source is more focused on refueling services. This isn’t theory.

It’s already been proved during the crisis, with chain FBOs in particular reporting earnings – however meager – due entirely to rent revenue from based tenants.

While traditional fee-simple commercial real estate such as office buildings, retail, and restaurant space will contract economically because of the pandemic, hangar space, by contrast, will continue to be the most valuable physical asset at an FBO.

And, just as market segmentation occurs on the ramp and in the lobby, the same segmentation may be found in community hangars at FBOs.

While small owner-flown aircraft operators, who are already price-sensitive, may seek temporary rent relief from an FBO, operators of larger aircraft, such as corporate flight departments and high-net-worth individuals, recognize the value and scarcity of hangar space.

In turn, FBOs are wise not only to ensure those hangar agreements remain up to date, but also to refocus service efforts toward their based customers. In time, Covid-19 will demonstrate that a thriving based tenant population is nothing less than the foundation upon which a healthy FBO is built.

A caveat

Against these positive signs of life in the business aviation industry, a caveat must be provided – the health of business aviation in the US reflects the overall health of the US economy. Although some states have begun to reopen, fears of a 2nd wave of Coronavirus are top of mind.

Yet, with proper personal protective equipment, it is not the 2nd viral wave that is cause for concern, but a lack of consumer spending, which is rocket fuel for the US economy. According to the Commerce Department, consumer spending accounts for 2/3 of all economic activity in the US.

In April, that spending dropped by 13.6%, the highest single-month drop since the government began tracking the index in 1959. If not for stimulus checks and increased unemployment benefits that are set to expire on July 31, consumer spending would have sunk even lower by now.

Further, a study by the Census Bureau found that 1 in 4 Americans were unable to pay their mortgage or rent in May, queuing up a potential default rate of 25% when a patchwork of state-by-state eviction moratoriums end.

As this article was being written, the Dow Jones Industrial (DJI) Average was 27,110. Precisely 365 days prior, it was 25,720, some 5% lower than today. I shall leave it to the reader to consider if the DJI is truly an accurate reflection of the health of the US economy.

The big caveat – reality – has not yet set in. Returning to PRASE, we would be remiss if we did not mention those not recognized at all. Each year, Pro Pilot asks readers to vote for a favorite FBO Line Technician or Customer Service Representative as part of PRASE.

This year, as often before, familiar names appear. Yet, behind the names in print are thousands of men and women who stand faithfully in a driving rainstorm, holding an umbrella above passengers as they exit an aircraft to enter the warmth of a limousine.

These same men and women may also be found behind the counter in the FBO, simultaneously answering a radio and a phone, while offering a warm smile to customers from behind plexiglass and while wearing an uncomfortable but necessary face mask.

While PRASE cannot possibly recognize each FBO employee in these pages, make no mistake – front-line employees are far more than essential workers – they are the backbone of our FBO industry.

Douglas Wilson started as a lineman at JGG (Williamsburg VA). An active pilot, he now serves as president of FBO Part­ners, an aviation consultancy providing business management advisory services to fixed base operations.