Cargo focus pays dividends for WFS

posted on 5th April 2022
Cargo focus pays  dividends for WFS

Global handler, Worldwide Flight Services (WFS), has ridden out the pandemic in reasonable shape with a concentration on cargo, acquisitions and keeping strong with core customers. Its chief executive talks exclusively to ARGS editor Mark Pilling

Craig Smyth was finally able to take a short break recently. Sealing a €950 million (US$ 1.1 billion) finance package, a standard practice that takes place every five years to refinance debt; working on the acquisition and integration of three businesses acquired by WFS over the past six months or so; and then the small matter of running a business during a pandemic has resulted in Smyth putting time off on the backburner.
ARGS interviewed Smyth at his UK home about the global company he runs – Worldwide Flight Services. A 30+ year career in aviation handling, with the last five-and-a-half years leading WFS, means the industry veteran has seen everything that can be thrown at this business.
“To say the last six months have been busy would be an understatement,” joked Smyth, a plain-speaking Scotsman, who joined Menzies Aviation as chief financial officer in 1993 and ran the business for 11 years before leaving to lead WFS. After re-charging his batteries, Smyth was ready to resume his monthly routine. This sees him spend two weeks travelling around WFS bases: one week in the Paris headquarters and one week in the UK. “We will be weaning ourselves off Teams and the digital meetings – I am looking forward to getting around the network and visiting customers,” said Smyth.
And as he prepared to clock up the air miles once again, it was clear that WFS had weathered the pandemic storm better than most handlers. The main reason is air cargo. WFS has a different business mix compared to other global handlers because its focus is first cargo and second passenger handling. “About 80% of our business is cargo and it takes up about 90% of our effort,” Smyth said.
A combination of organic growth and acquisitions has seen WFS double in size to annual revenues of €1.4 billion ($1.6 billion) since 2014 when it made its first bond offering, said Smyth. “In 2021 our revenue overall was close to the 2019 pre-Covid level, and the cargo ground handling business has earned the same as in 2019. However, there has been almost zero contribution from [passenger] ground handling.” This side of the business continues to struggle in terms of both revenue and profit.
Global investment firm Cerberus Capital Management acquired WFS in 2018, buying it from private equity player Platinum Equity.

Cargo staying strong
But as a critical service, cargo is strongly recovering. “In cargo our volumes have not only recovered, we are doing 15% more tonnes overall because of contract wins, improved market share. We’ve opened 15% more cargo capacity and have another 10% secured,” explained Smyth. “Our aspiration is to have another 30% of capacity online in the next few years.”
In Europe, WFS has expanded its cargo operations at Paris Charles de Gaulle, Amsterdam, Brussels and Liege airports, and has opened an off-airport warehouse at Cargo Point near London Heathrow.
Moving into Liege for the first time 18 months with what Smyth described as a “pop-up” operation has been so successful that WFS is staying on.
It began operating at Liege in early 2020 after the airport called for help to cope with the surge in freighter flights carrying shipments of personal protective equipment (PPE). WFS subleased half of a warehouse used by global strategic partner AirBridgeCargo Airlines (ABC) to handle business from its other customers, and in August 2021 signed a 10-year deal to handle ABC at Liege.
WFS has taken the opportunities afforded by the crisis to expand like this wherever possible. For example, it took over a cargo warehouse at Johannesburg airport in South African from the Lufthansa Group last year.
In the USA, which along with Europe is easily the largest of the WFS markets, the company has committed to operating a new state-of-the-art 350,000 sq ft cargo facility at New York JFK, which is scheduled to open at the end of 2023. “A facility of this magnitude and location will see WFS use its know-how as the leading cargo handler to deliver the best services to all industries that depend on air freight,” said Smyth.
It has also opened new capacity in Chicago O’Hare and in Atlanta. It won the tender to operate the airport’s new Cargo Building C in 2019. The 120,000 sq ft Atlanta facility is already full, Smyth said.
The decision to add markets is chiefly based on where the opportunity arrives to add capacity. Customers are looking for a consistent, high-quality product at the right locations. “At WFS we are so strong in Europe and the US, and we do operate uniquely as a network where cargo is very much more of a network proposition with an end-to-end connectivity product, the same SLAs (service level agreements) and the same confidence in delivery,” explained Smyth. “Our core business is with our top 15 customers, and we grow with them as they get bigger.”
Smyth was not being arrogant when he said: “It’s almost a case of ‘build it and they will come’. We are confident and humble in our ability to win business but we are financially disciplined in going about it. We back ourselves and that has been our track record.”
“When you focus on one service, and the WFS DNA is in cargo handling, you don’t complicate it by offering all sorts of other non-cargo services. We are striving to be better,” said Smyth. WFS has forty engineers across its network whose sole job is continuous improvement using tools like Lean and 5S. “We are focusing on our operational efficiency and are part way through that journey.”

Passenger handling plan
WFS’ strategy to expand its cargo footprint is clear. The passenger handling operation is also important, but the company is only active in certain markets on this side of the business. “We do not set out to conquer the world in ground handling. We look for business with high-volume leisure or low-cost carriers operating narrowbodies. We have done this is pockets in Europe and have been successful in North America,” said Smyth.
“For me, the story has been about nurturing the recovery of that business over the last couple of years while we grow in air cargo,” he noted. The passenger handling business will take more time to revive than cargo, and probably no earlier than 2023 or 2024. But: “We have still got the same contracts, the same ground support equipment pool and the same management team as before Covid, so the strategy is there to rebuild,” said Smyth.

US acquisitions
“When you look at our core strategy you look first at the things you can control,” explains Smyth. “You can grow the business organically, there are contract wins, you develop the network with new capacity and new airports, and you drive operational efficiency and cost-efficiencies to sustain and improve profitability. Then you look selectively at acquisitions.”
WFS’ first acquisition in 2021 was Paris-based R.A.HAND, a move that enabled it to extend its specialist handling services to freight forwarders in France.
Another business that came to the market and that WFS has managed to grab is Mercury Air Cargo’s operation at Los Angeles International Airport (LAX) at the end of 2021. “This creates a strong position in LAX giving us large airport warehouses,” said Smyth. Mercury is the largest cargo handler at the airport and began operations there in 1967. “We have been trying to buy Mercury for almost 30 years,” he joked, adding that he has personally known its former CEO Joseph Czyzyk for all that time.
Another US deal saw WFS buy Texas-based Pinnacle Logistics in September 2021, giving it a cargo handling operation in Dallas Fort Worth and Houston International airports. This acquisition has seen WFS doubling its business with key partner Amazon and has expanded its work with integrated cargo businesses at these important locations. The purchases of Pinnacle and Mercury were the first WFS made in the US since its purchase of New York-based Consolidated Aviation Services in 2016.
WFS will always be alive to acquisition opportunities in the handling arena, and while chances to enhance its customer-valued US and European networks are attractive, it has an eye on opportunities elsewhere. These could be in Africa, the Asia-Pacific, India, Latin America or the Middle East as tenders for new buildings are issued and handling licences come up for renewal, said Smyth. “We should be in some of these places to offer our network service to customers.”
WFS will always seek to offer network enhancements to its main cargo customers, such as Amazon, UPS and DHL in the e-commerce business and the likes of Atlas Air, Polar Air Cargo and Kalitta Air in the dedicated freighter field, as well as to network carriers such as Emirates, Air China and American Airlines. Its partnership approach to these relationships and the delivery of a strong, consistent service means it has a 90% plus contract retention rate, said Smyth.

Post-Covid reaction
Having been through many tough periods, such as SARS, the global financial crisis and the volcanic ash cloud, Smyth recounted telling his management team in February 2020 as the pandemic began to take shape that this time the impact could be as large as all of those challenges wrapped into one. And that is how it turned out.
WFS moved fast in the February-May 2020 period to change its operation as business dropped off, said Smyth. “Over those 10 weeks we made all the changes we needed to. Then it was a monitoring and governance task to manage any flights that were necessary, such as delivering PPE, pharmaceuticals and any cargo services that were needed – we were there to serve the industry.”
“We worked with Swissport, Menzies and Dnata collaborating on our messages to governments about assistance for our businesses and our people,” said Smyth. There was downsizing with the assistance of government-backed furlough schemes in various countries. At its lowest point, WFS was down from around 27,000 staff to just 12,000.
“It was a very challenging time for everyone, but our employees have been outstanding in their response to the pandemic,” said Smyth. “They have made such a positive difference for WFS in continuing to provide the best support to our customers while we navigated the crisis.”
Today, WFS is finding the US the first market to recover, while Europe is slower. The firm did not freeze the investments it was making in IT and labour deployment planning pre-Covid. “We have to come out of this a leaner and fitter organisation, as well as more efficient,” Smyth said. One of the changes brought about since the pandemic is a 15% improvement in productivity on a like-for-like basis in its handling operations, he added.
Another change Smyth has seen is a “new sense of purpose serving a broad spectrum of airlines” beyond the traditional stronghold of the network carriers. In the cargo world there is great activity from the dedicated freighter operators, the express parcel operators, and the direct e-commerce players. Freight forwarders, which have not traditionally operated aircraft themselves, have been establishing their own cargo operations, which has brought opportunities for WFS to capture their handling business. WFS has also seen the development of new products in the e-commerce and pharma worlds.
As it rebuilds in 2022, WFS is working hard too on its Environmental, Social and Governance (ESG) strategy. “This is a top priority for the senior teams, the board and the shareholders and we are working with PWC to refine that strategy,” said Smyth. Examples of WFS looking to lower its own carbon footprint include the construction of its own €3 million ($3.4 million) electrical power plant in France to run its 1,200 strong forklift truck fleet, and the introduction of biodegradable stretch wrap for cargo shipments in North America, reducing non-biodegradable plastic in landfills by the equivalent of 68 million bottles in one year. In addition, WFS’ new Chicago cargo warehouse will feature solar panels on the roof as its power source.
What does success look like for Smyth this year? His message is simple. “It is more of the same,” he said. “Winning more customers for our existing and new capacity, growing the network, doing as well as we have done in the past two years in bringing on new capacity, and carrying on with operational excellence.”