“Our 10-year track record (humble though we are) is pretty impressive by any standards,” Smyth considers. Revenue, for example, has grown from about £100 million ten years ago to about £800 million now. Menzies Aviation’s compound annual growth rate in terms of volumes currently stands at around 11 percent per annum, with underlying growth at about two percent per annum for the last few years, he said.
Last year saw the handler open 18 new stations across the globe, as well as successfully renewing 114 contracts and winning 66 new contracts. Its network covers 144 stations in 31 countries, serving 500 airlines and turning around one million aircraft a year. Smyth attributes Menzies Aviation’s successful, largely organic growth to “its customers valuing its best-in-class safety performance combined with excellent service and efficient costs”.
Menzies Aviation’s latest financial report cites Boeing and Airbus as stating that the world’s passenger aircraft fleet will more than double from the 2011 figure of 15,556 to 32,551 in 2031; over the same 20-year period, the global freighter fleet is anticipated to rise by 82 percent, from 1,615 to 2,938. Bearing this bullish forecast in mind alongside an increasing trend for airlines to outsource their handling requirements, plus growing low-cost carrier activity that has always depended on the outsourced model, Smyth is confident of continuing growth to come – perhaps underlying growth accelerating to four or five percent – even if the first quarter of this year has been relatively flat.
Right now, Menzies Aviation is looking at opportunities around the world. For instance, the biggest airport tender ever (42 airports) is under way in Spain; there are also licences out in Germany and Paris; and there are plenty of tenders out in the UK in the wake of the Swissport/Servisair merger. Smyth pointed out that Menzies Aviation has launched a new business in the US called Simplicity Ground Services, created to serve the efficient cost, high-value needs of low-cost and domestic airlines. In fact, Simplicity is active at five airports in the Midwest and recently won Delta in Detroit, the contract starting in April.
Menzies Aviation has also just opened in Namibia – and “there’s lots happening in Africa” Smyth hinted; he also mentioned India, Australia, New Zealand and South-east Asia as potentially interesting areas for growth. Overall: “There’s room for opportunism everywhere but we are being very targeted in our approach.”
So what exactly is Menzies Aviation aiming to achieve next? Smyth explained: “Our global market share is currently three percent and we want to double that over the next five years – largely organically but with the right sort of acquisitions when they become available. We have looked at 2,500 airports, considering GDP, country risk, number of local handlers, availability of local labour and the type of airlines operating there (especially the type of customer that’s going to give you 15 turnarounds rather than 15 customers each giving you one turnaround). We have profiled 150 of these that we are interested in and our target is to add 50 of the medium to large airports to our network over the next five years. 100 of these will be in new countries with the remaining 50 being located in countries where we already operate. We call this our ‘rifle shot’ approach because it’s very targeted.”
Menzies Aviation will aim to grow in several ways: by taking on scale customers; by winning licence tenders at airports; by acquiring companies with big customers or operating licences, like Desacol in Colombia which brought the strong LANTAM group into the Menzies Aviation fold as well as leading to a deal with Air France-KLM-Martinair in Bogotá – or like Skystar in Australia and New Zealand, which brought five new stations to the handler’s network; by providing its services on an outsource basis for airlines; and by selling ancillary services such as cleaning, fuelling, lounges or de-icing in addition to its core services. In this latter regard, the recent acquisition of ground handler Moose Aviation at Stockholm Arlanda airport added an extra revenue stream as well as strengthening Menzies Aviation’s presence in the region.
Going back to the Desacol acquisition, Smyth noted that the outlook for Latin America depends largely on the continuing development of its middle classes, as well as what the low-cost carriers do in the region. There are other locations there that Menzies Aviation will look at in the future. However: “We need to get Colombia integrated first before we look at anything else in the region and we’re about six months away from the programme being complete. We have put some of our Spanish team into Colombia to get things under way and we’re confident that our operations there will come out the same as any Menzies Aviation station anywhere in the world, to the same standards – but with a Colombian flavour. We like to bring people up within the organisation.”
For instance, Menzies Aviation has set up a scheme called the Senior Leadership Development Programme that aims to develop leadership skills in carefully chosen candidates through training and mentoring. The programme includes participation in the company’s Cross Cultural Team Challenge (CCTC), which for the last few years has focused on staging an annual football tournament in Bangalore in collaboration with the Parikrma Foundation, a charity that has set up free schools for the children of the city’s poorest families. As well as enriching the local community, the CCTC gives the Menzies Aviation candidates a chance to test and improve their leadership, teamwork and practical skills.
“Nurturing talent within the company is critical to our success over the next ten years; this is our scarcest resource and our greatest asset – especially considering our plan to expand. We need to prepare the next generation of management for our existing stations as well as the new locations we are looking to add,” Smyth pointed out.
As well as promoting development of its existing staff, the company is making good use of networking site LinkedIn (www.linkedin.com/company/menzies-aviation) to grow its pool of human resources.
A changing market
“This is a very fragmented market at the airline level and also at the ground handling level. But it looks like the Swissport/Servisair deal will kick start consolidation in the handling sector, and I think that’s a good thing,” Smyth observed.
He continued: “We’ve had alliances for many years and when it came to procurement there was always great hope of 20-odd airlines all shopping together. That would be good for them because they could buy in bulk and us handlers would give them a better rate, but it all tended to fragment before you came to the signing of a contract. But now you have groups like Air France-KLM-Martinair or IAG (BA, Iberia and Vueling) operating more as one unit, which is better for the airlines, who will achieve economies of scale from the handler passed on in rates. It will also make it easier for a handler like us to start up in a new airport where we’re not present because we won’t be trying to price something for five turns a day when our sweet spot is fifteen narrowbodies a day.”
Nonetheless, Smyth feels there will always be a place for smaller handlers, because it is relatively easy to do a very good job at a single airport. The problem, he said, is scaling up to cover several gateways: then, there are extra costs and complications relating to safety and operational management systems, IT and key account management that quickly separate the men from the boys. As for medium-sized handlers, they will have to choose whether they want to be consolidators – or consolidated. “If they are strong regionally they should do ok, but if they have a scattered presence over four or five countries they will be severely challenged.
“Airlines will always have choice of handlers – but it’ll be survival of the fittest, and I expect Menzies Aviation and Swissport to race ahead of the rest,” he affirmed.