Continuing to Evolve

LONG BEACH, CA — The aviation services sector has been experiencing fluctuations in activity this year, in line with much of the economy. During the NATA convention this spring, long-time independent fixed base operator Bob Showalter of Orlando, FL, offered his perspective on how current activity is affecting his company and the industry, and where the sector is headed in the next few years. Here’s an edited transcript.

AIRPORT BUSINESS: I remember you making a presentation at an FAA Forecast Conference some time ago when you talked about 2000 FBOs in 2000.
Showalter: I think it was 1988. And we’ve had a period of prosperity between shortly after that conference and shortly before this one, that has never been seen before. I think we’ve gotten a reprieve.
2000 in 2000 is a prediction that we probably need to move back a few more years. Not many.
AB: So where do you think it’s going in terms of FBOs? The business has significantly changed, don’t you think?
Showalter: I think the business has significantly changed. I think there’s still going to be consolidation, and I think my forecast of a few years ago had more people going out of business than my forecast would have today.
Part of my presentation back then was, where you have three FBOs would be two, where you have two FBOs would be one. I think we’re still going to have one FBO on an airport. I think the difference may well be, though, that instead of a guy just not able to open his doors next Monday, that the other guy will buy him, because it’s the only thing that makes sense for either one of them.
One of my best friends sold his business last year to a guy. And it was a two-FBO airport. The other guy closed his doors two weeks ago. I was there the day they closed. Just hung it up; gave up.
The other thing that’s changed a lot for an FBO that’s primarily in the fuel business, is the tremendous increase in the number of fractionals. A lot of people are owning a quarter of an airplane where they would never have owned a whole one. And we’ve seen that in our town. Our town is not a big corporate headquarters town. We have quite a few people that have bought a quarter or an eighth (share) in the last couple years; that has helped our business.
You never know what’s driving a fractional to come to your place. They look more for quality and service and amenities right now, solutions to problems that they can get at a first-class FBO. We’ll see whether that remains their primary reason for choosing an FBO as times get tougher and they don’t fly all those airplanes as much as they’ve been flying. Will they switch to the cheapest-priced? I don’t know.
AB: An interesting thing with fractionals is the effect they’ve had on business. No one quite knows for sure what will happen with that segment of the business, should we have a significant economic downfall.
Showalter: Well, it’s 8 percent of our business. We track all the fractionals in our computer system. And I actually thought it was more than 8 percent, because there are days when our ramp is filled with planes, two or three from each (fractional provider).
AB: Regarding that 8 percent, you could live with that if it were to disappear?
Showalter: We’d have to. If you’re going to be in the business for 56 years you sort of live with anything that comes along.
AB: The level of aircraft coming on to the FBOs’ ramps because of fractionals and the growth in business aviation has started to potentially change how some corporates think about courtesy fuel because of concerns over liability at the FBO. You are someone who has been through the implementation of a ramp fee. Are we seeing the catalyst that will make ramp fees more industrywide?
Showalter: If you take the last 12 years, I’ve given the insurance company a dollar, and they’ve given me 6 cents in change. I’ve bought a dollar’s worth of insurance, and they’ve given me six cents worth of coverage.
They told me this year that it’s going to go way up because the industry exposure is bad; they haven’t made enough money. Of course, they’ve made great money off of me, but that doesn’t matter.
And (a corporate) wants to come down with a $40 million Gulfstream V and park it on my ramp for $150. It’s going to cost me $150 to insure it to sit on the ramp. And, unfortunately, the guy that’s flying the Gulfstream is a very well paid individual who has little responsibility for anything other than getting the guy in the back where the guy in the back wants to go. He doesn’t understand making the payroll. He doesn’t understand the cost of being on the business end. Absolutely no clue. Looks at a gallon of fuel at $3.00 and assumes that there’s $2.00 going in the bottom of my yacht fuel tank every time he buys a gallon.
We’ve never been able to convince people that this is a very narrow (profit margin) business. And it’s particularly bad for a company like one of ours based in Orlando. We don’t have base customers; we have transient customers. And many of them don’t understand the concept.
Well, going back 25 years, I wrote an article in another magazine, and called it survival fuel, not courtesy fuel. We’ve had a ramp fee for a long time, and our goal has always been to never collect it. We’ve waived it with any fuel price or purchase. The point is to get them used to the fact that we need their business to be here. They need us. But it doesn’t get through.
AB: Has your insurance rate increased significantly?
Showalter: I don’t know yet. We had our premeeting last week, but I can tell you that in my 20 group [an industry information-sharing group], we’ve had increases range from 20 to 40 percent. Now, 40 percent for us would be, probably, equal to a quarter of our profits last year.
AB: So what does that do to your business?
Showalter: Well you have to do one of two things. You have to accept three quarters of the profits you made, or you have to raise your prices to cover it.
I appreciate the fact that they have not taken in as much premium as they’ve given out, but they’ve also insured anybody. I think they ought to have said no more often. There’s some businesses who have a track record of breaking and banging things that just should be told that they’re not covered. I don’t think they do that enough, and we all pay for it.
AB: Do you have any other particular thoughts as to how the FBO industry could be impacted with United Airlines entering the fractional fold?
Showalter: It’s got to be a great idea. I’m fascinated that they’d do that. I am surprised it’s United. United’s not, in my thinking, the most innovative group. But maybe they are.
It makes a helluva lot of sense. It was 15 or so years ago that somebody — if my memory serves me it was Delta — talked to Gulfstream about building a stretched Gulfstream that would hold 30 first-class airline seats in two stories. It was going to fly non-stop from New York to LA. They were just going to run it back and forth in that high-volume market. And they were going to take first-class out of the DC-10 and put the first-class people on a plane of their own.
I thought it was a hell of an idea.
AB: One might speculate that once they get into that business they might get into the FBO business.
Showalter: Well, AMR’s been there and done that and gone. I think it’s going to be an interesting education to United Airlines to have to learn how to take care of people at the level that they’re going to have to do it in the fractional ownership program, because they don’t know how to do that in the airline. They’d better hire some of us to teach them how.
AB: You initial comment was regarding industry consolidation. Can you elaborate?
Showalter: I think the economy of scale in this business has real merit. My indication is that Signature is doing fine. And they get to buy things with economies of scale. A big part of my overhead is my accounting and staff that they don’t have to duplicate at every base. If Signature bought our business today, our accounting department offices would be converted to another use.
They tend to run a little thinner than we do on people, certainly management of staff people, and they bring all that to the bottom line. And they don’t have my wife’s and my hours, and they can replace the two of us with one general manager that they can be bringing up through the ranks.
AB: I found it interesting that you were looking at getting back into aircraft sales [as a distributor for the German-manufactured Extra], particularly since you are someone who redefined his FBO business as primarily line services and property management.
Showalter: The business is as the distributor, which is separate from the FBO. Our FBO also happens to be a dealer for that airplane, but they’re separate companies.
I never got out of aircraft sales because I didn’t like it. I got out of it when new airplane sales went away in the ’80s and early ’90s.