AeroGround takes shape at Munich

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January 1, 2011 marked the start of a new era for ground handling at Munich Airport. AeroGround Flughafen München GmbH was launched on this date as a 100% subsidiary of Flughafen München GmbH (FMG) and is offering a whole raft of ground handling services at Munich Airport. Siegfried Pasler, the Chief Executive Officer of AeroGround, speaks to us

Restructuring is complete at FMG and AeroGround has emerged as the new ground handling entity at Munich. But it is true to say that although the structure is new, it is very much a case of business as usual at Munich Airport where most flights are handled by the airport owned handling business.

AeroGround – in keeping with its predecessor – still offers a full-spectrum offer of ground handling services is in compliance with IATA AHM 810. In addition to ramp handling services, individual full-handling packages together with passenger (aerogate) and cargo (Cargogate) handling services are available. It is a question of traditional services being offered through a new structure rather than a totally new business proposition. However, importantly, the airport operating company has been relegated to the role of shareholder only and this is important in the future commercial success of the handling business.

New structures take time and energy to implement, and the situation at AeroGround is no different. All contracts with more than 100 airline customers have been transferred to the new operating unit. Importantly, AeroGround’s largest customer, Lufthansa, has signed a six-year agreement with the newly restructured handler. Lufthansa has a market share at Munich Airport of about 65%. From the point of view of Star Alliance market share, this figure rises to more than 70%.

In 2011 alone, AeroGround will complete more than 164,000 handling operations for Lufthansa. The handler is responsible for the ground and baggage handling services as well as passenger transportation and various extra services, such as crew transportation for all Lufthansa aircraft with the exception of the regional aircraft Embraer E190/195 and Canadair Regional Jet. Other significant contracts signed with AeroGround include a five-year deal with Condor and a two-year handling agreement with TUIfly.

So if contracts have been transferred and it is very much a case of business as usual, what are these commercial considerations that have prompted the new structure? “Personnel costs,” responds Pasler emphatically. Essentially, following the successful negotiation of a collective agreement between FMG and the ver.di union, which gave AeroGround the competitive structures it needed to operate successfully in the market, AeroGround was able to close the vital contract with Lufthansa that underpins its operation.

It really boils down to the fact that under the new arrangement the handler is able to sign more commercially viable staff contracts (which are usually only available in the private sector and not through the public sector which is where the airport operating company sits). With 2,500 staff contracts at stake, being able to shift over to more commercially viable personnel contracts has enabled AeroGround to become future-facing, commercially aware and competitive in the German ground handling market. The restructuring has also delivered the opportunity, points of Pasler, to pull together the aerogate and Cargogate service brands within the new subsidiary.

It is also important to remember that the new structure delivers a way of keeping the ground handling activities within the FMG Group and securing the jobs in ground services for the future. It additionally allows the long-term growth and development of the Munich hub.

Plenty has been at stake during the restructuring. Not only is the handling team large, but so too is the fleet of equipment – around 3,000 pieces of GSE are now part of the AeroGround operation. Importantly, the new subsidiary is voraciously learning the lessons of its parent – that efforts on redefining processes, keeping control of costs and thinking strategically are vital in a competitive environment. And let’s not forget, AeroGround is the second largest handler in Germany after Fraport so there is plenty to play for.

AeroGround has also made efforts to redefine its products. There are now two new profit centres in place. The first is called Terminal 1 where origin and destination (O&D) traffic is handled. These clients include the likes of TUIfly and Condor. The Terminal 2 profit centre is all about the hub operation which revolves around Lufthansa.

Of course any hub operation poses vast challenges with its large peaks in traffic followed by much quieter periods as the cycle of flights shift through their daily routines. AeroGround expects to tackle these challenges with fresh vigour and new personnel management strategies as a result of a new working time model.

Truth be told, Munich Airport is beset with challenges that go well beyond the restructuring of the ground handling business. A third runway is being built along with a new satellite facility to go into operation in 2015 to increase the capacity of Terminal 2 Airport as well as to add to the number of gate positions. The project is a response by FMG and Lufthansa, which jointly operate Terminal 2, to the dynamic passenger growth at Munich Airport. Terminal 2, which opened in 2003 and was designed to handle the hub traffic of Lufthansa and its partners, is expected to reach its specified annual traffic capacity of 25 million passengers this year.

The new building has already received final planning approval. It will be connected to Terminal 2 via an underground passenger transportation link, and will provide handling capacity for an additional 11 million passengers per year. The investment costs of €650 million will be shared by FMG and Lufthansa on a 60:40 basis as in the original Terminal 2 investment.

All of this means that there is even more pressure on AeroGround to “get the operation right” as Pasler puts it. For the next three or four years, Munich Airport will resemble a building site and yet business will continue with all stakeholders drawing on their expertise to accommodate the situation. Munich is a rapidly growing aviation market and the aim is that AeroGround will absorb a large part of this growth.

Despite the practical pressures, there continues to be airline pressure on pricing, a determined search for even more quality and an eradication of delays and misappropriation of baggage – both of which translate into a cost for the airline. On top of all this there is the ever present seasonal issue of competition for reasonably priced summer peak staffing. So the focus, says Pasler, has to be the rigorous use of KPIs to address delays and the adherence to SLAs to eradicate unnecessary transfer times for baggage and cargo transportation from the aircraft to the warehouse (98% on-time performance for all flights).

In the meantime, the six-year contract with Lufthansa delivers to AeroGround a lot of security and enables this new subsidiary to undertake future planning with significant confidence, new commercial vitality and a much stronger position in the market