Canadian intercontinental airline Transat followed industry trends when it sold its ground handling service provider, Handlex, to Servisair last year.
Barbara Stewart, the carrier’s senior director procurement, says that the company had decided to focus on its core business. “We outsource everything other than in-flight services and technical operations. Ground handling is a tough business and there’s lots of competition, so we think it best to focus on what we know best.”
By dint of buying Handlex, Servisair has become Transat’s biggest provider of ground services, but there are many more. Stewart says that the company has around 250 separate contracts in place for passenger services, ramp services, security and bussing at a variety of airports.
There is a certain amount of complexity in the Air Transat business model, which is dependent on the seasonal nature of holidaymaking. Canada’s third-largest airline operates both scheduled and charter flights to 60 destinations in 25 countries. Its mandate is to appeal to the premium vacation traveller. This means that certain principal locations, such as London and Paris, are year-round destinations. But most of Air Transat’s summer flights carry holidaymakers to and from European airports, whereas most of the company’s winter flights provide the same service to the warmer South.
Air Transat exerts close control over ground handlers throughout its extensive networks. Stewart sees the role as crucial to the airline’s image. “Ground handlers are a key part of any airline’s business and that applies particularly to front-of-house passenger services. During flights Air Transat staff own the complete customer service. So, for passenger services, we want to engage companies that deliver the equivalent level of service. That means having good knowledge of the airline and its background, and being dedicated. It means we are seriously demanding of our ground handlers.”
Stewart insists that handlers offer dedicated passenger services whenever she signs an agreement. The only exceptions to this rule would be low-frequency destinations, such as some airports in the Caribbean. “But in principle, they are all fully locked in and dedicated staff. Generally, most of our handlers wear our navy blue uniform so we give them all the accessories of the airline’s corporate look. When a passenger checks in, they would not see them as a Servisair employee, but as an Air Transat one. This doesn’t mean they can’t work for other companies too, but we want the same staff every time so they are familiar with our product.”
When Stewart negotiates a contract with a provider at a major airport, she goes to meet the different handlers competing for the work face to face. “For example, for London and Paris, I went to see the station and look at their facilities. I also take a careful look at how they treat their staff. If they’re well taken care of and it’s a happy place to work then it will reflect in their services.”
Air Transat always lays out detailed requests for proposals (RFPs) when it comes to selecting handlers. These RFPs take into account the standards set out by IATA, but they are supplemented by Air Transat’s specific requirements, which pertain to qualifications, the training of personnel and the expectations of employees. “Our document is one of the most extensive in the airline industry. We don’t ever want them to be surprised by Air Transat’s demands so we tell them exactly what we want in the RFP. For passenger services, for example, we list what time we want the check-in counters to open, how long the passengers should have to wait in line and the number of complaints we deem acceptable per 1,000 passengers. Most handlers are very happy to comply as they want to match their costs to our expectations.”
Of course, the service level agreements (SLAs) have to contain a certain amount of flexibility. “They’re pretty standard from contract to contract, but we alter them based on local conditions. If we’re landing at remote gates and the baggage arrival is a long way away, it’s not reasonable to say they must deliver in 12 minutes, so we allow 20.”
There are monetary penalties if performance standards are not maintained, but these are rarely invoked. “We have plans for corrective action, but if they are not able to do it in the agreed timeframe then we use monetary penalties as a hammer. But we never want to take away money and we’ve only had to do this once or twice.”
The bottom line
The ground handling business is not always very profitable. Airlines have been struggling and trying to reduce their costs, often passing this belt-tightening on to the handlers. “It’s a tough business and costs for the airlines go up and down, but despite that we like to establish long-term agreements if we are really comfortable with a provider,” Stewart comments. “Our general contracts are for three years, but these can be extended to five in some cases. Or, if we are not happy with the selection of handlers and feel the market may change, we may go in with a two-year contract.”
She predicts that greater automation will lower ground handling costs for airlines. “Automation will change the market, primarily in Europe. With people using kiosks and online check-ins, traditional passenger services may change. In our contracts we have language stipulating automated online check-ins if possible, as it reduces manpower. So we have the ability to renegotiate terms during the contracts.”
Like Air Transat, low-cost airline Allegiant focuses on leisure travellers, but Allegiant flies only in the US. Its business model has a direct bearing on how it runs its ground handling services. The carrier has a network of 99 cities, consisting of 84 small origination towns and cities, and 15 vacation destinations, including prime spots such as Las Vegas and Orlando. The approach is working well. In October, Allegiant announced 18 new routes, 10 of which involve new cities.
A key focus of its business model is to keep costs low and Allegiant usually prefers to use smaller airports where landing fees are cheaper, such as Orlando Sanford International Airport and Phoenix-Mesa Gateway Airport. A reduced schedule also streamlines costs. By operating the vast majority of routes just two or three times per week, fewer crews are required and maintenance schedules are spread over longer periods.
In all the origination cities and some of the 15 destinations, Allegiant hires vendors to do all its ground handling. “They’re all non-stop flights so we don’t overnight airplanes or crew in our origination cities,” said Allegiant’s public relations manager Jessica Wheeler. “They all come back to base at the end of the night so we have no mechanics, or crew, based at the destination cities. We always hire third parties.”
Outsourcing ground handling makes business sense because of the low frequency of the network connections. “It doesn’t make sense for us to use direct employees because we have so few flights per week. Third-party providers can split their time between different employees, which makes it much more efficient for them and us. This makes sense even on our busiest origination cities, which have a maximum of eight to 16 flights. ”
There are a handful of handlers in the US providing the majority of ground handling services. On occasions, the airport does the ground handling directly. In some cities, Allegiant uses the handlers of a major legacy airline, such as American or Delta.
Rather than complicate Allegiant’s business, outsourcing makes it easier, Wheeler explains. “It simplifies things because if we open up routes in a new city we don’t need to go through the process of recruiting. We just go to the city and take people who have already trained in general practices and instruct them in Allegiant’s specific practices. We also have station managers on hand who work with our regional managers.”
As part of the drive to cut costs, Allegiant expects all airport passenger staff to be cross-trained. An agent will check in a customer at a ticket counter and give them a boarding pass. They will close the ticket counter 45 minutes to an hour prior to departure and head for the Transport Security Administration (TSA) control. As the passenger goes through TSA, the employee goes up to the gate so that when the flight comes in, the agent can offload the passengers and bags following the parking of the aircraft.
“There’s not one person always doing all of these jobs, but the important thing is they are all trained to do them all. We have a five- to eight-person team working a flight together, all of whom are multi-skilled. All our outsourced companies have to find staff capable of doing everything. It’s a more efficient use of time because we don’t have high-frequency departures. If you only have one flight a day there’s no reason to have someone sitting in a ticket counter just waiting around,” she points out.
Another particularity of the Allegiant approach is the use of in-house IT systems. Most US airlines use one of the very few back-end registration systems, which are leased from the same companies. But Allegiant builds its own systems from scratch. “It’s not a totally seamless jump for the ground handlers from, say, the American Airlines system to ours, but having our own system has benefits. We’ve seen some major Sabre computer technology crashes in recent years and that has affected lots of airlines using the same systems, but not ours.”
The enemy of the Allegiant model is monopoly ground handling services. Competition drives down prices. “Because of our relationships with vendors across the US, on occasions we’ve been able to leverage that relationship to place handlers into airports where they didn’t offer services before,” Wheeler informs.
Shadowing
Obtaining the best price from its ground handlers is also crucial to the business model of British airline Flybe. The Exexter-based low-cost operator flies more than 180 routes to 65 European airports, making it Europe’s largest regional airline.
In order to ensure it obtains the best deal for ground handling, Flybe produces ‘shadow bids’. Logistics teams work out exactly how much it would cost the company to do the handling with their own teams.
Jonathan Breedon, Flybe’s director of customer service, says: “We can use this information to negotiate with the handlers for the best price. It gives us an idea of whether their price is in the right ballpark. In theory, because of economies of scale they should come in slightly cheaper. Shadow bids are especially useful when one handler has a monopoly as it prevents them pulling the wool over our eyes. We have done ground handling in the past – the last time was in Guernsey a few years ago – and we know how to do it,” he said.
The shadow bids can only be put together for the British market, however. Continental airports are simply too distant and the logistics of choosing ground handlers is different. Lots of the smaller regional airports offer their own services. This is the case at the vast majority of small French airports, for example, where handling costs are included in the landing fees. Negotiations to find a handler are necessary, however, at some of the German and Spanish airports.
But 80% of Flybe’s business is in the UK at around 20 airports, where the three main providers are Menzies, Servisair and Swissport, although there are no current Flybe contracts with the latter. Menzies is the largest provider for the carrier, operating at around eight UK airports. Some small British airports, such as Exeter and Norwich, provide their own handling services and in Inverness, local company Dalcross acts as the service provider.
“We send out tenders to each of the handling agents saying exactly what we require in the station. For example, it might say we want the last bag guaranteed no more than 20 minutes after landing,” Breedon notes. “Speed is a big aspect for our kind of business, as lots of the regional flights are point to point and people want to arrive at the airport at the last possible minute. We work with the passenger service providers to make the process as smooth and seamless as possible for customers.”
Close relationships
The need to forge close relationships with the airlines is essential for today’s ground handlers, according to Andreas Vassilaros, projects director at pan-Nordic handler Aviator. “We are assessed on whether we offer a better service or a better price, of course. But it’s also about whether we will be a better partner. We work with customers closely in many places to get to know them and their product. This is especially true with our larger customers.”
The respective airlines’ requirements vary widely. There are lots of briefings and detailed procedural manuals to follow. “They can be very specific about what they want and how they want us to act, or some of them are not that specific so we get more freedom. It also depends what system of organisation they have. Some airlines have station managers in place and others don’t. A legacy airline will want a different experience to a low-cost one. The hard part as a ground handler is to see all these things and offer the differences required by the individual customers,” Vassilaros concludes.
