2018 was another busy year of international expansion for the Dubai-based ground handler and this year looks set to be a bit calmer
dnata has continued to spread its wings across the globe in the ground handling and cargo sectors by making various acquisitions and investing heavily.
2018 was a big year for the Dubai-based company as it expanded its operations in the USA and in other countries and by year-end, it grew its presence to 87 airports in 14 countries.
dnata though is certainly not finished yet and is targeting more growth in 2019, according to Stewart Angus, Divisional Senior Vice President for dnata International Airport Operations who spoke to ARGS about how business is and plans for 2019 and beyond.
“The last two years have largely been about the integration of our recent investments into dnata’s business model and about driving synergies,” Angus says. “It is important that you do not bite off more than you can chew. Buying companies is the easy part but integrating them is more complex.”
In the first six months of financial year 2018/19, the revenue of dnata’s international airport operations business was up nine per cent but it has been a challenging year as it integrated new acquisitions into the business. This was below the 2017/18 revenue growth of 14 per cent and over 50 per cent in 2016/17, when it grew substantially when it made acquisitions in the USA, Canada, Brazil, Italy and The Netherlands.
EXPANSION IN THE USA
The USA is major part of the strategy to grow business and since entering the ground handling market in 2016 by acquiring a local industry player, it has invested $35 million in facilities, equipment, training and technology, while continually expanding its operations.
In November last year, dnata continued to expand after launching operations at Los Angeles International Airport (LAX) and now provides ground handling and cargo services at 20 airports in the country.
The handler has invested US$8 million in infrastructure and resources at LAX, creating more than 350 local jobs. Serving six airlines, including Austrian Airlines, Iberia, Japan Airlines, Lufthansa, Swiss International Air Lines and Qantas, dnata handles 4,600 flights a year.
“With these acquisitions, some of them have grown quickly,” Angus says. “In the USA we won over 40 contracts in 2018. That represents significant growth and includes two new stations in Nashville and Los Angeles.”
He says dnata could have secured more airlines at LAX but made a deliberate decision to focus on providing high quality for the six airlines that it signed up, but he notes when it has more stability it may take on one, or two more carriers.
In 2018, dnata also started passenger handling operations at New York’s JFK International Airport with launch customer Copa Airlines, and handles about 364,000 passengers between New York and Panama City that the airline flies via its four daily Boeing 737 services.
The handler also established operations at Nashville International Airport and commenced services at Concourse G at San Francisco International Airport with Lufthansa Group and now serves over 60 airlines in the USA via 20 stations.
dnata looks like it is not finished yet in the USA. “I think there is scope to grow the stations and add more stations. Miami, Atlanta and Seattle are three big ones (airports) where we are not present. But there is also room for more organic growth in airports where we operate now too,” Angus says.
The ground handling sector is arguably the toughest aviation industry sector, due to intense competition and the continued battle to win and maintain airline and airport contracts.
Angus says the biggest challenge of all is that the sector is such a low margin business where spikes in costs have a big impact and can affect operations hugely.
In the USA, dnata has faced challenges with recruitment. Angus says it is a tough market, due to the difficulty in hiring labour as there is such low unemployment in Los Angeles.
“Our staff are earning several dollars more than our competitors and have better pensions and we recruited 350 people. As a result, our labour costs base is higher which means we have had to charge slightly higher rates,” Angus says. “Rates have historically been unsustainably low in this market. If rates are too low, we cannot invest in the product and equipment (training, GSE and systems).”
The recruitment challenge is indeed something that dnata is facing across many of its USA stations where there is high employment. “This is a unique challenge in the USA. The challenges to recruit and retain good experienced staff is as challenging as it has ever been,” Angus says.
He cites one of the main reasons for this is many states have introduced a living wage ordinance. In some cities wage rates have risen as much as 60 per cent at some airports. “The margins in our industry are tight so we need to pass this on to our airline customers if we want a sustainable business,” Angus says.
In order to recruit and retain good quality staff in the USA, dnata has focused on being the “employer of choice” and looked to differentiate itself over competitors, offering employees medical and dental benefits and pension contribution and offering the opportunity for progression by introducing a first line supervisors program.
But Angus says it is “not just about the money”. dnata has invested and improved facilities for staff, like where they have their coffee and lunch breaks and has also upgraded ground service equipment (GSE). “We have invested a lot in new GSE which has had a big impact on our staff,” he says. “We see significant improvement in employee engagement as a result of our investment in technology and processes.”
The USA is not the only North American market that dnata is expanding and focusing its energy on, as Canada is also building through its joint venture company GTA dnata which it owns 50 per cent of in partnership with GTA Aviation.
In November, it started a new long-term partnership with Air Transat at Toronto Pearson International Airport, providing ground and passenger services for 140 flights a week for the airline. GTA dnata now serves 12 airlines in Toronto, assisting 4,800 passengers and is moving 148 tonnes of cargo every day.
Angus says it has “expanded very rapidly” and the next target is Vancouver where it is aiming to open a ramp handling station, which all depends on securing business. Angus sees more scope to grow in Toronto and other locations like Vancouver and it is also “tentatively” looking to add more stations. “For us, it is about balanced pragmatic growth, which is what it will be. Our strategy is based around providing good quality services and good quality carriers and if you grow, you grow,” he says.
2019 AND AHEAD
As for what he sees into 2019 for dnata, Angus forecasts it will be another year of reasonable to moderate growth and it is all about integrating acquisitions and benefitting from any synergies.
The strategy he says though is to get away from biggest challenge which operators are facing in the industry that in his view is “commoditisation”. “We saw there was an opportunity for someone that was prepared to invest in their market and provide a slightly differentiated product. It is about continually delivering that strategy and achieving reasonable growth,” Angus says.
dnata has made a large number of acquisitions over the last few years, but is this something on the radar again for this year and the years ahead, or have we seen the last of the Dubai-based company flexing its muscle.
“I hope we will be successful in growing our business through the acquisitions we have made and make,” Angus says. “I do not see any game-changing acquisitions in 2019, but maybe some smaller tactical investments. Every time we buy a business and when we integrate, we always learn something beneficial and it has taught us something new.”
It seems we have not seen the last of the growth of dnata and it is open to any new global opportunities when they are too good to turn down, but for now the main focus is clearly on integration, gaining synergies and growing organically.