The International Air Transport Association (IATA) explains why efficiency gains and competition matter in the airline ground services market
Anthony Harrington, editor of AGS sister publication Executive & VIP Aviation speaks with Dimitrios Sanos of IATA who draws on responses from a range of departments as we look at the Association’s efforts with respect to ground handling and its response to the European Union’s proposed updating of its Ground Handling Directive.
Q: IATA provides consultancy on handling processes and best practice in ground services. To what extent is this consultancy called upon by the industry and, in IATA’s experience, what are the major issues that companies seem to have?
Usually airlines, airports and ground handlers ask IATA for information about best practices in the areas of ground handling license tender procedures and strategic partner selection, safety management systems, standards and procedures, risk management systems as well as (airside) safety issues. We also have a lot of demand for our training for the key operations on the ground (e.g. aircraft turnaround coordination, station management and so on) that can be combined towards an IATA Diploma in Ground Operations, Airside Operations and others.
Q: Who pays for damages in ground services can be a thorny issue. What is IATA’s experience here and where is the industry going?
The airlines pay for the majority of ground damages either through their insurance coverage, for significant damage, or directly from their bottom line for small amounts that fall below the airline’s insurance deductible. By significant damage we are taking about amounts over US$1-1.5 million. Examples of the direct costs include, of course, the cost to repair an engine, nose cowl or radar equipment – some of the most common, frequent and expensive damages, according to research conducted by IATA’s Risk Management & Insurance Department. An insured loss or damage usually includes labour, materials, handling fees, leasing costs for spare parts, ferry and parking costs and external survey costs.
‘Consequential’ costs that flow from the actual physical damage are not automatically insured, and this category encompasses: alternative transportation costs for passengers and crew, compensation associated with non-passenger revenue like cargo and mail, service delays at other stations, internal investigation costs, revenue loss, delays, disruption, and so on. Because the calculation of these amounts is less precise than the direct costs, sometimes a “loss of use” model is used to determine how much is reimbursable. IATA’s Airport Handling Manual (AHM) 660 provides guidance to airlines on the formula that can be used.
Why do the airlines pay for the majority of the damages? The standard model used in the industry is IATA’s Standard Ground Handling Agreement (SGHA), which has been in effect for decades. What drives the responsibility for damages is whether the handling agent intended to cause damage. If the agent did not, the airlines assume the loss.
A priority for the industry, however, is to reduce the total amount of damages, regardless of who pays for them. IATA’s initiatives – IATA Safety Audit for Ground Operations (ISAGO), IATA Ground Operations Manual (IGOM) and the Ground Damage Data Base (GDDB) – are designed to assist with that priority.
Q: Ground services is a very mixed sector with a large number of local players and only a few players who could hope to be called global. Does IATA see this situation continuing or is there a definite trend towards consolidation in the sector?
There will always be small local ground service providers (GSPs) as not all stations are of interest to the global players due to volumes and economic or political circumstances. With growing volumes and further liberalization the number of smaller, single station providers will decrease over time, but this will be a long process.
We don’t expect to see additional global players, as it requires major investment for a very low margin return. We rather expect further consolidation through the mergers of maybe two or three global players, and the integration of mid-size ground service providers..
Q: What is IATA’s take on the EU’s Ground Handling Operations Directive?
The airline industry has long awaited the Commission’s proposal, which will enhance the efficiency and overall quality of ground handling services through a further opening of the market.
Although the proposal constitutes a significant improvement on the current legislative framework, important issues still need to be addressed, including increasing the minimum number of providers at large airports, redefining what constitutes ground handling, and giving greater powers and legitimacy to the Airport Users’ Committee.
Q: What does IATA see the role of airport operators being as they assume their new duties as coordinators of ground services at their airports?
Overseeing ground handling operations at airports by airport owners/operators is not a new function. As providers and maintainers of the airport infrastructure, the airport teams have always had a vested interest in making sure that ground handling operations are safe and efficient at their airport. Coordinating multiple ground handling operations at major airports ensures the most efficient and effective use of limited physical space and resources.
Q: Is IATA convinced that a revised EU Directive on Ground Services will be successful in stimulating greater competition in the sector. Are there not sufficient initiatives already underway from the industry, given the moves going on in the sector towards consolidation?
The Commission’s proposal is an important step in the right direction. Further opening of the ground handling market is necessary to achieve the objectives of quality and efficiency in ground handling services at EU airports. In our official response to the Commission, IATA and AEA jointly suggested that at airports with more than 20 million passengers annually the minimum number of third-party providers should be four instead of three.
In addition, the definition of self-handling should be updated to reflect the evolution that has occurred in air transport since the adoption of Directive 96/67/EC; it should recognise the critical role of holding companies and commercial partnerships such as franchises, joint ventures, alliances and code-sharing. The inclusion of all services and infrastructure related to fuelling operations in the definition of centralised infrastructure would also contribute to protecting against excessive access fees.
Box out –
Comment from IATA’s Briefing, “Air transport Policy in the European Union: We can do better”. (This four-page briefing is available in full from the IATA web site: www.iata.org.)
Few industries share the regulatory complexity of the airline business. International airlines must comply with technical, safety and service standards in multiple jurisdictions every day. Over time, the complexity of this regulatory framework has increased considerably. Amendments or additions to it are not simple and result in difficult trade-offs between what are often conflicting policy objectives.
A thorough, open, and transparent discussion of issues, policy goals and commercially feasible options is the best way to achieve a lasting and effective result. The European Union would improve both its standing and the quality of its regulations by adopting a standard, open procedure to formulate policy and future regulations, in which all parties have access to all information at all times, and are regularly consulted. This would be a sign of the EU’s belief in its own policy and open government.
The EU has an opportunity to become a leading policy maker in aviation. A strong air transport industry will enable the EU to consolidate its competitiveness, create jobs and give all Europeans the opportunity to travel. To support Europe’s economic growth and have maximum influence across the globe, EU aviation regulators must:
- * Think globally and avoid the temptation of unilateral actions;
- * Provide opportunities for growth;
- * Ensure a level playing field, both globally and between modes of transport;
- * Intervene where market mechanisms fail or provide imperfect solutions;
- * Act with transparency and consultation;
- * Assess the economic impact of its proposals.