According to Gary Chapman, president of Dubai-headquartered dnata: “Business remains intensely competitive and it is important to avoid being driven to commodity type pricing. If we are to deliver safe and a consistently high standard of service then we need to ensure we make a fair return that enables adequate investment in people, facilities and equipment. We have good traction and have received some pleasing feedback and accolades from our customers; gained new contracts in many of our businesses worldwide; and completed a number of ambitious projects,” he stated.
Among these, dnata has made some recent acquisitions across a number of its core lines of business, not just in ground handling. It has formed some joint ventures with partners, set up a new business at Clark in the Philippines and made progress on a number of key investment projects such as its dnata City at London’s Heathrow International airport.
Mervyn Walker, executive vice president operations at Menzies Aviation, noted that 2013 was a good year for the company. It met the financial expectations of its institutional shareholders, bettered its safety and security record of 2012 and completed three acquisitions.
However, he also said: “Airline procurement departments are doing a great job and we have had to balance the demands of our biggest cost, our labour force expecting small inflationary pay awards, and the airlines not wanting this cost passed on. It means we have to improve our productivity relentlessly every year while continuing to grow our customer base and number of stations.”
Barry Nassberg, group chief operating officer at Worldwide Flight Services (WFS) is perhaps a little more cautious than Chapman, but still optimistic. He commented: “We’ve seen some strengthening in our cargo handling markets, but it’s coming off a low base. Nonetheless, the emerging signs of slow economic recovery are helpful.”
Observing the trends
Nassberg expects that over the coming months, growth in individual markets will be slow, though he does not expect to see regression. “The consolidation of handlers in some markets is a challenge, making market entry more difficult in some cases. The opportunities are in expansion to new markets, particularly those opening to new handlers for the first time, and the development of new ancillary services,” he believes.
Chapman pointed out that ground handling is “always a competitive environment”, making quality of service and value for money essential to success.
He considered: “It does seem to be that the trend for airlines (and indeed airports) to outsource their ground handling operations is continuing, even in the North American market, where airlines have historically self-handled. KPMG estimates that, in 2015, 50% of ground handling will be undertaken by ‘independent’ handlers. This figure was 35% in 2007 and is expected to grow to 55-60% by 2020 – a clear trend and an understandable one when we consider the challenges of some legacy carriers. Global ground handling is estimated to generate US$50 billion in revenues a year – so it’s not an insignificant industry!”
Chapman highlighted consolidation – for example, the acquisition of Servisair by Swissport in December last year, which Swissport group president and CEO Per Utnegaard described as “an essential part of Swissport’s growth strategy” – as a trend that he believes will continue. Many markets, such as the Middle East and Africa, are still rather fragmented, so there is scope for further mergers and acquisitions among the numerous smaller players that exist in those regions, he said.
Opportunities
So what’s the next move? Nassberg emphasised that WFS is keen to develop further in those markets where its presence has, until now, been limited. “We’re focused on Africa, where three stations have been opened in the past 14 months, and at least one or two more are planned for this year,” he confirmed.
Elsewhere: “In the Middle East we’ll be opening our first station in Amman in early 2014, and expect more to follow. South America is another area of focus and 2014 will be the year we enter that market. We’ll be further developing our range of premium services, having opened Singapore’s first arrivals lounge just weeks ago. We expect to introduce this service offering at a number of new stations in the coming two years.”
Like Chapman, Walker is convinced that there will be more consolidation in the handling industry. “The Swissport/Servisair combination is good for the sector and we believe it will lead to many opportunities for Menzies,” he said. “Also, we have a large war-chest and expect to complete another minimum three, maximum five acquisitions in 2014.”
Menzies is continuing to invest heavily in new GSE, with a preference for electrically powered equipment where airport infrastructure will support this. The handler has also finished the development of its new real-time manpower allocation programme, MARS, and started to roll it out at Gatwick and Prague airports.
At dnata, Chapman said that while good business opportunities are always of interest, the company is “not seeking to grow and expand just for the sake of it”. He explained: “When we look for new business acquisitions we seek businesses which have good synergies with our existing core businesses. They must have the potential to provide a good return on our investment and, most importantly, we need to be able to see opportunities to further develop the business and bring it into line with our high standards.
“But it can’t be just about expansion. You have to continue invest, and invest seriously, in what you already have in order to maintain market position and ensure the very viability of the business… Put simply: you can’t stand still if you are to deliver a safe, reliable and consistent level of service across all the airports and to all your customers,” he concluded.
