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Fuel sales softened in 2023 and the Aviation Business Strategies Group predicts sales in 2024 will remain flat.
The ABSG's annual FBO fuels ales survey indicated that fuel sales in 2023 had softened, following a flat performance in 2022. Three out of the five response categories were found to be underperforming from the previous year. The largest discrepancy FBOs reported was a decrease in fuel sales in 2023 compared to 2022, with 41 percent indicating a reduction. Of the remaining categories, 17 percent of FBOs reported that fuel sales were the same; 17 percent saw an increase of one to four percent; 12 percent saw an increase of five to eight percent and 13 percent saw an increase in sales of over eight percent. Comparatively, FBOs reported just a 29 percent decrease in fuel sales in 2022 from 2021, showing a 12 percent differential in 2023 from the 2022 report. While 34 percent of FBOs reported fuel sales were the same or an increase of up to four percent in 2023, the percentage of FBOs that saw an increase in sales of five percent or more than eight was lower than the 2022 results.
The FBOs noted several factors that could have softened fuel sales in 2023. The reporting FBOs indicated a decrease in Part 91 business aviation flight activity, stating that underlying conditions like increased inflationary pressures, the elevated cost of Jet A and higher interest/corporate borrowing rates could have negatively impacted flight department budgets. The FBOs also noted a continuing downturn in Part 135 flights, a possible residual effect from the high demand for aircraft charter that was seen during the pandemic in 2021. The stalemate in the economic environment for constructing aircraft hangars was also referenced. FBOs remarked that many are facing high construction costs and higher bank loan rates, causing a slowdown in the expansion of much-needed infrastructure. There is growing demand for hangar space and FBOs report that customers are hesitant about the higher cost of the long-term hangar agreements needed to offset the increased cost of hangar construction.RELATED STORIES:Bizjet flights bounce higher in February thanks to leap dayBusiness aircraft flights deflate as 2024 kicks off, can the Super Bowl help them rally?
BizAv flight activity in North America declined in 2023 compared to 2022. Part 91 flight activity dropped 2.6 percent, equating to 42,569 fewer flights. Part 135 operations were down 8.6 percent year-over-year, meaning 121,551 fewer flights. This year started in decline, with a downward trend to kick off the New Year, but February saw a slight pickup of two percent, finishing off the second month of 2024 3.3 percent ahead of January. If the trend continues throughout the remainder of 2024, the numbers could be reflected in fuel sales, but ABSG predicts a flat year.
ABSG reported that FBO operators have different concerns surrounding the outcome of fuel sales, including the hangar construction costs and the state of the economy. When asked if the economy was headed in the right direction, 53 percent said no, 20 percent said yes and 27 percent were undecided. The top five main concerns among FBOs were the high cost of construction new hangars, which have been estimated to be as much as 30 percent higher than the prices in 2021; the effects of inflation and higher business costs, including higher overhead costs for labor, goods, services, insurance, facility upkeep and utilities; the push to replace 100LL with 100UL, causing many FBOs to be concerned over the potential costs of switching over to unleaded, as well as the tank farm/storage issues, fuel quality control, availability and the actual cost of fuel; the rising cost of ground support equipment repair and replacement; and finding and keeping qualified employees.
Based on the above factors and concerns, the FBOs predicted that 41 percent will see roughly the same number of sales, 30 percent will see an increase of one to four percent, 10 percent will see an increase of five to eight percent, five percent will see an increase of over eight percent and 14 percent will see a decrease in sales. ABSG also asked FBOs whether they planned to add more hangar space, with 47 percent responding no to any additional hangar space, 29 percent responding yes to adding box/storage hangar space, 13 percent saying yes to adding both T-hangars and box/storage hangars, and 11 percent saying yes to adding T-hangars. The FBOs reported expecting a slow decline in inflation in 2024 as the Federal Reserve nears its two percent goal but they do not expect a cut in interest rates until there is consistent economic data through at least two quarters for two price indexes, the Consumer Price index and the Personal Consumption Expenditures index.
The price of oil has mostly settled between $70 and $80 per barrel for WTI, which has caused Jet A prices to remain higher than the pre-pandemic levels. Nearing the Presidential election in November, ABSG reports that there may be some easing on the high oil prices, but the pressure from the constantly-changing geo/political forces and events could cause a moderate to large swing in pricing for the remainder of the year. ABSG reported that BizAv flight hours can be expected to remain flat and continue in a moderating trend until inflation and the high cost of crude oil are controlled.
The ABSG reported that higher interest rates over a longer period would eventually soften consumer spending and economic confidence, forcing businesses to trim labor costs. This would drive businesses to cut labor costs. The potential rise in the unemployment rate will make it harder to actualize a soft economic landing in the quest to quell inflation. The ABSG predicts that there will be a new normal to dictate the health of the FBO industry for 12 to 15 months.
"FBOs should operate as if cash were king," the ABSG report states. "Higher interest loans will continue to force FBOs to put off major improvements to infrastructure such as new hangars and terminal buildings. FBOs that are prepared to weather the next 12 months are those that watch their fuel margins closely. Keep steady and avoid deep discounting to attract business."