Since 1997, the provision of ground handling services in the EU has been covered by Directive 96/67/EC. This was introduced to open up ground handling services to competition, ending the existing monopolies that kept prices high and service standards low
As an indication of how much has changed in the European Union and the wider aviation market since the directive was signed, when ink was put to paper there were only 15 member states and the Euro was two years in the future.
Since then, there has been free competition for the majority of ground handling services at larger EU airports, resulting in more choice for airline customers. In turn, improved service levels, including sharper and quicker turnarounds, allow airlines more freedom to consider passing on savings to passengers and freight forwarders.
With some of the world’s busiest and more intense airport operations, ground handlers may not find a totally free market. Member states may limit the number of suppliers in certain service categories, such as baggage handling, ramp handling, fuelling and freight services. In these cases, the minimum number of suppliers has to be two and at least one of the suppliers has to be independent of the airport or the dominant airline at that airport. Some airlines choose to self-handle, with similar rules on competition applying.
Airline Services Handling is a UK ground handler offering various services including full ground handling, aircraft de-icing, cabin cleaning and dressing, exterior washing and interior cabin works such as carpet manufacture and seat cover replacement, and with operations at 12 UK airports, says managing director Nigel Daniel. In November 2014 and for the first time, the company moved into passenger and baggage handling at Gatwick Airport
Observing the competitive environment in European ground handling, Daniel sees a mixed story. He says: “Competition is not good in southern Europe as even where it looks like it meets the regulations, this is hiding issues. In northern Europe, it has driven down cost below breakeven and so trashed the quality in many airports and with many handlers.”
This year, Daniel is pleased to anticipate strong demand for the company’s activities. However, in certain areas of the business, such as aircraft presentation, competition issues mean it will be very hard to trade profitably. He says: “2016 will be a major challenge to make a profit in aircraft presentation due to the above. Demand is good, until the real price is offered to make a margin and then demand drops from many airlines.
According to Daniel, Airline Services, which provides a range of services to, among others, Monarch, Emirates, United, Turkish Airlines, EasyJet, British Airways, Lufthansa, Air Malta, Air Baltic, Aurigny, Ryanair, Flybe and Thomson, is typical in experiencing issues in recruiting high volumes of staff: “It is very challenging in many areas of the UK especially with the recent growth of the automotive industry and large scale on line sales distribution” he says.
Poland was not a member state when the directive was signed. However, earlier competition had been introduced into Polish ground handling, making the eventual implementation of the directive much simpler. That is the opinion of Tomasz Szymczak, a member of the board of Warsaw-based Welcome Airport Services.
Szymczak says: “The EU Directive 96/67 has been successfully implemented in the so-called new member states without major obstacles as some competition had been introduced already earlier. Our company was formed in 2000 as Warsaw Airport Services – from 2013 as Welcome Airport Services. It was the ‘ice-breaker’ at WAW Chopin Airport, creating duopolistic competition replacing the earlier monopoly of LGS (now known as LS Airport Services).”
At present, there is competition between Welcome and LS at John Paul II International Airport Kraków (KRK), Gdansk Lech Waesa Airport (GDN) and Katowice International Airport KTW). For five years, at WAW Chopin Airport, there have been three main players: Welcome, LS and Lithuanian handler BGS.
Szymczak says: “In general, the Directive created quite a liberal, open market situation in ground handling which was, in fact, the goal of the document. It did not envision one consequence – the openness of the EU market to strong players from the Gulf and Turkey who are aggressive economic players on European turf. This is especially problematic for established ground handling companies in the EU, such as Turkish competition at Budapest Airport (BUD) or Riga International Airport (RIX).”
Szymczak’s general business confidence is positive, though there are geo-political pressures that are creating issues for ground handlers, especially in Poland. Confidence is neutral in the legacy and low-cost part of Welcome’s business and rather pessimistic concerning its charter flight operations. This is due in part to Arab Revolution instability in southern Mediterranean countries, especially Tunisia, Egypt and Turkey.
He says: “These used to be popular summer destinations for Polish tourists. Now the drop (Jan 2016 compared to Jan 2015) is 95% in the case of Tunisia and around 70% in both other countries.”
In general, Szymczak is seeing an ongoing push for lower rates, especially from low-cost players, stability with some improvements among legacy carriers and also growing cost awareness among the Gulf carriers, which is a relatively new phenomenon.
Welcome’s airline clients across its stations include Wizz, IAG, AFKL, Emirates and easyJet. The handler is facing issues in attracting operational personnel, especially at the lower ranks. There is a more stability at upper echelons but pressure for better remuneration is ongoing, comparable to the situation in Western Europe, considers Szymczak.
He is of the opinion that after 20 years of existence and several unsuccessful developments, the directive is in need of revision. It is especially important that the regulation must reflect the open nature of modern EU business.
European and global
Since EU ground handling deregulation took place, there have been considerable changes in the ground handling market with ongoing opportunities to tap into new countries and stations. That is the opinion of Simon Messner, Swissport senior vice president ground handling Europe West, Central and East.
He says: “Driving innovations in key areas and standardising processes are main factors for Swissport to deliver the highest quality to customers, such as on-time departure and short baggage delivery times.”
While Swissport serves more than 200 million passengers worldwide and is present at major airports in 48 countries, the ground handling market will further develop in Europe over the coming years.
Messner says: “For Europe we observe a growing number of turnarounds and consequently a stable demand for ground handling services. Further outsourcing will support this trend. It will be key to have global solutions with standardised processes and exchange on a daily basis with the customer to drive efficiency and quality.”
Overall economic growth in the industry is positive for 2016, supported by continued low oil prices, strong demand for travel, and increasing capacity. The airline industry saw a good year in 2015 in terms of profitability and return on capital, he considers. However, there is some uncertainty given the political and economical turbulence in some regions, implying uneven traffic development and business across airlines and countries.
David Hiersche, managing director of Vienna-based ISS Ground Services, is of the opinion that the ground handling industry is in a state of flux at present, with the new rules being formulated as the market evolves.
He says: “In my opinion the ground handling market and the services will change. In some cases we have to rethink our services and the prices we offer. Tailor-made solutions will become more and more important, which forces more flexibility on the one hand and leads to more complexity in the business.
“Airlines need to distinguish what they pay for a specific service and what is included in the service. Services and the single prices behind a flat-rate pricing structure need to be more transparent. This would give airlines the possibility to adjust the services to meet the requirements and show them the possible savings.”
Twenty years after the signing of Directive 96/97/EC, Hiersche notes mixed levels of competition in the market. He says: “It depends on the airport you are providing services at. In some cases competition is driven by pricing. Airlines try to decrease their costs by reducing services or force their suppliers to provide the same services for a cheaper price. In this situation the competitors are destroying their price structure, which reflects less investment and negative results in their P&L.
“In other cases there is not enough volume for multiple companies providing the same services. For example at regional airports with fewer than 2 million passengers, the daily volume does not cover the costs of two or three providers. And then there are special cases where hardly any competition exists. The local top dog, like the airport provider itself, restricts access for any independent service provider who would like to offer services but cannot compete due to local restrictions.
“As an example, consider the pricing for facilities and infrastructure, which is sometimes not transparent, and the start-up costs, which are very high. A lot of money needs to be paid for office/warehouse rental which does not meet the requirements or even current standards – no air conditioning, old buildings etc – but there is no other option as these are the only facilities available for independent service providers.”
ISS provides ground operations at four Austrian airports as well as international stations. Its main business is aircraft cleaning (interior as well as exterior).
Hiersche says: “Due to the increasing numbers of low-cost carriers, the requirements have changed. Many airlines are reducing transit cleaning or have cancelled it to decrease their turnaround times and costs. Night-stop cleanings, in these cases, became more and more important, which gives us better staff planning opportunities and therefore better pricing options for the customer.”
ISS’s major clients are Austrian Airlines, NIKI Luftfahrt, Eurowings EU, Germanwings and Celebi Ground Services Austria GmbH. It is responsible for the transit and night-stop cleaning of Celebi’s customers at Vienna International Airport.
Elsewhere in Austria, Swissport International and Flughafen Graz have launched a joint venture: Swissport Cargo Services Graz. It offers a wide range of cargo services and is set to handle an estimated 10,000 tons of air freight every year for its customers – airlines and freight forwarders.
Graz Airport has one of the most modern, functional cargo infrastructures in the South-East Europe region and is Austria’s third-largest regional airport.
Competition is high
BGS (Baltic Ground Service) is a provider of ground handling, aircraft fuelling, liquid ADR logistics and training services as well as IT solutions. The company operates in Lithuania, Latvia, Poland, Russia and Ukraine. BGS supports both domestic and international air carriers in Vilnius, Kaunas, Palanga, Riga, Warsaw, Krakow and Katowice, as well as Ramenskoye, Boryspil, Kiev, Odessa and Lviv airports, handling over 2.4 million passengers and 12,700 flights annually.
In 2008, BGS became the first in Europe and one of 10 world ground handling companies to be awarded with the ISAGO safety and quality certificate for ground handling services. The company is also a member of IATA’s Ground Handling Council (IGHC) and an ISO 9001:2008 certified organisation.
Gytis Gumuliauskas, CEO of BGS, says: “Competition in the ground handling market is as high as ever. Without any doubt, the EU Directive adopted back in 1996 played a significant role in the process, but it is not the only factor. The ever-growing low-cost airlines have also contributed to higher competition in the GH market, as airlines of all types are pushing their costs down, forcing ground handling providers to constantly search for new price optimisation and added-value solutions. This includes development of various IT solutions for more accurate scheduling and resource planning, integration of LEAN methods, investment into personnel training as well as more flexible price rates for airlines serviced in several different airports by the same provider.
“Price is not the only factor in the competition since quality and safety of services remain highly important for the carriers. After all, ground handlers service passengers on behalf of a carrier, meaning that poor service levels will most likely result in passenger complaints and thus impact the carrier’s image. All in all, airlines definitely benefit from the current market competition, while for ground handlers it means a constant struggle for process optimisation and development of new services while ensuring a high level of safety/quality and flexible price levels.”
In the ground handling market, Gumuliauskas says: “We are delighted to have our customers’ long-lasting trust which is reflected by a strong demand for our ground handling services in current airport as well as the continuous growth of our annual traffic.
“It is no secret that the aviation industry is rapidly growing, and the shortage of experienced specialists is a topical issue not only for airlines, but for any other industry employer as well.
“Luckily for us, we are able to retain, motivate and offer our staff such working conditions as help us to minimise personnel defections. However, when it comes to business expansion, finding a qualified specialist may become a true challenge. One of the ways to support business development is to train our own, new ground handling talents who become skilful and loyal professionals afterwards.”
BGS services key international and regional airlines such as Aeroflot, Air Berlin, Air France, Alitalia, DHL, easyJet, El AL, Etihad Airways, flydubai, Lufthansa, Norwegian, Small Planet Airlines, Turkish Airlines and Wizz Air.
Aviator and Norwegian Air Shuttle are to extend their ground handling service contract at London Gatwick until October 2020, and include Manchester Airport (MAN) in the same agreement.
The move follows negotiations which commenced before Christmas 2015. Norwegian’s award comes at a time when the airline is increasing its operations at LGW with about 20% more flights. Following the decision Aviator will also take over Norwegian at Manchester Airport as from 1st May 2016. Currently, Norwegian has a daily service to any of the three Scandinavian capitals from MAN with a plan to increase these services.
Vanessa Branch, Aviator service delivery manager responsible for the Norwegian operations in the UK, says: “I am very proud of the hard work and dedication of the Aviator LGW team, which has gone a long way to help secure the Norwegian contract. Everyone should be very proud of their achievement.”
Cobalt Ground Solutions was formed on 1st April 2009 by the merger of two ground services subsidiaries of Air France and KLM in the UK – formerly Air France Services Ltd (AFSL) and KLM Ground Services Ltd (KGS). With a strong team of around 700 staff, it offers ground handling services at London Heathrow Airport Terminal 3 and Terminal 4 to a large portfolio of airlines.
Its most recent win has been ramp, baggage, and lost and found services forthe Virgin Atlantic Airways LHR Terminal 3 operation. The handler currently offers below-wing services to Delta Air Lines and Japan Airlines at LHR.