AIRLINE PROFIE/CZECH AIRLINES
Severe financial pressures have made it imperative that loss-making Czech Airlines finds the best value-for-money ground services that it can afford.
“Value for money is always paramount when we are securing ground services on new routes,” remarked Daniel Sabik, a spokesman for the airline. “These are difficult times for airlines and we are having to make savings in all areas, including ground services.”
The state-owned Czech national carrier made a pre-tax loss of US$11.8 million in 2011, although it blamed the figures partly on its on-going restructuring programme and partly on a 40 percent rise in fuel prices. To alleviate its financial burdens, the airline decided to take out a US$130 million loan from state-owned company Osinek SA. But the decision provoked an investigation by the European Commission into whether the loan had been granted on preferential terms.
Fortunately, for Czech Airlines, the loan was recently adjudged to be admissible, and the company appears to be turning its fortunes around. As part of a three-year restructuring plan, it is focusing more on high-potential Eastern markets. Last year, it began new services from Prague to Baku in Azerbaijan, Lvov (Russia), and Donetsk in the Ukraine, as well as between Karlovy Vary and Samara. Flights were also added on sought-after routes to Moscow, St Petersburg, Samara and Kiev.
The expansion to the East, however, can prove problematical when it comes to securing economical ground services, Sabik said. “Problems arise when a ground handler has a monopoly of services. This doesn’t always happen, as there are many types of negotiations for ground handling. Sometimes one company provides all services; in other cases, we have agreements for each service with a different provider.
“But where there’s a monopoly, negotiations tend to be of the ‘take it as it is, or leave it’ variety. In this case, Czech Airlines has no space for manoeuvre and this type of monopoly can be one of our greatest expenditures. There are times when just opening a destination could be commercial suicide as we would not make any revenue because of the high fixed costs of ground services. We might have to wait a year or two to see if the situation changes.”
De-icing is one example of an essential expenditure, which can prove expensive if there is a monopoly supplier. “Without de-icing the plane cannot fly, so we have to purchase it for the cold winters in the East. But there may be one supplier who fixes the price. Even if there are two suppliers and we put out a tender, they tend to make very similar offers which differ by 2 or 3 percent only. They are in the best bargaining position and can make life hard for airlines. We have tough negotiations.”
Technical problems
Expansion to the East can also bring technical problems. Last year, Czech Airlines established a route at a major city near the Polish border, but the opening was plagued by an unstable internet connection. “We needed to connect from the new destination to the company’s DCS (Departure Control System) so people could book online, but it went down every five minutes. For a while, it was a total disaster. So now when we open a new route to an Eastern destination, the biggest requirement is simply a 100 percent working internet line without constant drop-outs!”
All of Czech Airlines’ ground services are outsourced to third parties. In Prague, these are carried out by the sister company, Czech Airlines Handling. Although also owned by the Ministry of Finance it is a separate enterprise that works for many other international airlines at Václav Havel Airport Prague.
Ground services outside Prague are organised by the Ground Service Control Management division at company headquarters in the grounds of Václav Havel Airport. Czech Airlines’ network of destinations is divided into four geographical areas. An area station manager takes charge of ground services for each area.
A senior manager from the Central Procurement Department working alongside the area station manager negotiates the ground services contracts for each region.
“Central Procurements has specialists available for each specific area, such as de-icing, or finding kerosene providers, so the senior manager from Central Procurement will be chosen according to the main topic of the negotiations,” observed Sabik. “In most cases, the choice does not depend on the location. But there are times when we will choose a manager who knows the culture well of a particular country.”
Czech Airlines’ policy is to search for ground services providers who can match three pre-requisites. “First, we are looking for 100 percent fluency and regularity in the provided services; second, we have to be certain about safety and security, and finally, there have to be reasonable costs and savings. It’s also vital that handling agents comply with our instructions, rules and procedures,” remarked Sabik.
Some changes to the airline’s ground services have resulted from membership of the SkyTeam Alliance, which it joined in 2000. For instance, Czech Airlines recently launched the SkyPriority project at Prague Airport. “It means that premium customers get priority check in, security and baggage recovery services. It’s the same concept at all SkyTeam airlines, whether in Prague, Amsterdam or Frankfurt,” he said. SkyTeam preferences were also behind a change of policy from the ‘weight’ concept to the ‘piece concept’ of baggage transportation two years ago.
Environmental influence
Environmental legislation has influenced the airline’s ground handling. Like every European airline, Czech Airlines has had to conform to more rigorous legislation and there are times when the local staff, especially in the East, lack the technical skills to fulfil those legal requirements. “We monitor this closely and if the local staff employees don’t have the necessary experience and skill, we use our own technical experts to oversee operations at the station,” he said.
Czech Airlines is moving into the future with more confidence. Last year, the company streamlined its operations. It transferred its subsidiaries Czech Airlines Handling, CSA Services, and Holidays Czech Airlines to Czech Aeroholding. The money that the airline obtained through these transactions was used to pay instalments on aircraft. Czech Airlines also trimmed costs by reducing its fleet from 39 aircraft at the beginning of 2011, to 31 by the end of the year. Now in its third year of restructuring, the company is focusing even more on reducing fixed costs.
It does, however, have expansion plans. It will increase the number of flights to Brussels, Budapest, Düsseldorf, Copenhagen, Milan, Nizhny Novgorod, Rostov-on-Don, Tel Aviv, Ufa, and Warsaw, for the 2012-13 winter season. The airline has also resumed regular air service from Prague to Berlin and Stuttgart.
There are also new long-haul destinations to Brisbane and Singapore, which are operated jointly with Etihad Airways. This winter season, which runs from October 28 to March 30, Czech Airlines will offer flights to 78 destinations in 44 countries.
“The new routes will require new ground handling operations, but we will never change the company’s fundamental requirements. The standards and the quality of our ground services have to stay at the same level regardless of cost pressures, or the setting up of new routes,” concluded Sabik.
