Lufthansa is renowned for providing full-service, technology-enabled and well executed services to passengers. It is also well-known for fully outsourcing its ground services requirements to third-party providers. Jo Murray speaks to Nils Ecke, Vice President Product Management Airport & Passenger Services, and Oliver Widmann, Head of Commercial Airport Relations, Lufthansa, about the airline’s penchant for outsourcing the handling function and yet remaining firmly in charge of all the important parameters on the ground
Frankfurt and Munich are centres of excellence for Lufthansa. When it comes to introducing new processes, technologies and contractual arrangements, these two stations are at the cutting edge of everything Lufthansa sets out to achieve on the ground.
Of course Munich Airport has seen significant change in recent months with the formation of AeroGround, the new handling company that has been spun out of the airport. Widmann explains that at Munich two licences for ground handling have been granted: one is held by AeroGround; and the other is held by a new partnership between Swissport and Losch airport service GmbH – the latter is a family operated company, founded in 1990 and located at Stuttgart, Memmingen, Munich, Weeze and Berlin.
“Lufthansa has shifted 20% of its ground handling volume away from the airport towards this new ground handling organisation,” explains Widmann of the Munich operation. “This has created competition in terms of conditions and quality. We see that this works very well and we are satisfied with the situation.” The 20% of the volume Widmann is talking about relates to smaller aircraft which are more labour-intensive than larger aircraft types, he says.
Widmann explains that Losch has an employment model that is very attractive to Lufthansa – in essence the salary scheme is production-oriented. Partnered with Swissport – an expert in managing hub traffic – the marriage between Losch and Swissport at Munich is a winning one for Lufthansa. “The combination of a logistical champion on the one hand; and on the other hand a champion of working well with people and having an innovative salary scheme, is a model for the future. Now it is established at Munich, perhaps other locations will benefit from it in the future,” says Widmann. In fact AeroGround has similarly introduced more future-facing contractual arrangements vis à vis its staff (please see AGS June 2011, p .16) at Munich Airport.
It is unclear whether the 80:20 split is set in stone going forward, but one thing is certain at Lufthansa: ground handling is not core business and will not be taken in-house at any of its stations at any time in the foreseeable future. But with so much at the airline dependent on strong ground operations, how does Lufthansa keep its hands off these outsourced services and resist the urge to micro-manage?
Widmann responds: “This question has two sides to it: the contractual side and the management side.” Commenting on the management side, Ecke says: “It is true that the moment you start to work with a third-party handler your focus shifts from controlling to steering. But what we have found is that if you are focusing on and measuring the correct numbers, then the ground handling issue is easy to manage when outsourced.”
By way of example he says it is easy to count the number of pieces of luggage that are lost, to count the amount of time you have to wait for a piece of luggage to show up at the belt, and so on.
“We ask: what are the goals we want to achieve. For example: The common goal must be that you reduce the amount of lost baggage,” he says. “It is not only the kind of training you would teach a ground handler; they are professionals in their own right. It is all about focussing on the same goal.”
In terms of managing the contractual side of the relationship, Widmann points to the service level agreement and the incorporation into this agreement penalties for non-performance or short-performance. “You have to establish a statistical system to collect data and this data gives a juridical basis for the penalties,” says Widmann.
When asked what it is like to be Lufthansa when this huge and complicated airline goes shopping for ground services, Widmann responds: “We have clear parameters for what a potential provider to Lufthansa looks like. We look at safety standards, commercial sustainability and we, of course, look at the price level. But we have no black list – everyone is welcome to make us an offer – but we have clear parameters and criteria for what we do want and what we don’t want from a shortlist.”
Of course, in Germany, generally only two ground handling licences are issued at any airport, one of which is usually retained by the airport handler and only one further licence usually goes to a third-party handler. This can result in low levels of competition but can also result in innovation – as seen at Munch.
Competition aside, is there an inclination at Lufthansa towards the large network handlers who can propose multi-station agreements? Widmann says there is no benefit to Lufthansa in the network deal approach. “We look at each station for the best combination of price and quality,” he says, adding that the branded network approach may deliver benefits to a handler but not necessarily to an airline.
When it comes to relationship-building with the handler fraternity, Widmann says that partnership models between an airline and a ground handler are for the hubs like Frankfurt and Munich where there are complex transfer structures and integrated systems, shift models and passenger/aircraft flows to be managed. “At stations to which we fly two or three times a day, the requirements are not so high and therefore the integration needs are not as intensive,” says Widmann.
Ecke adds that the more complicated the station, the more desire for Lufthansa to introduce more technology-oriented products. “At the main hubs we have quick boarding gates which automatically enable the passengers to board by just using their cell phones with their boarding ID. The question on the product side is: what do passengers want; we are thinking about where the future of passenger handling is headed.”
Ecke says the future of passenger handling is definitely headed outside the airport. Check-in is either being performed at home or is not done at all, he says. “We are doing a test-run on a German route where you don’t have to check in at all; we do the check-in for you because there is no real value to the passenger in checking in 24 hours before the flight.”
He continues: “The next thing we are working on is a next generation self-bag drop – a machine where you can just drop your bag.” Essentially, passengers are able to print their bag tags as well as their boarding passes at home so that they can just drop their bags when they arrive at Frankfurt Airport – where a pilot scheme has been operating – at a covered area away from the check-in halls.
When it comes to buying technologies, Ecke says it is not about choosing a single supplier and installing a suite of products; rather Lufthansa is acquiring a mixture of technologies from various suppliers. However, Lufthansa is presently in the process of defining its future IT framework which revolves around migration to Amadeus. This huge task is mainly behind the scene; out in front in the airport environment there are two main initiatives which draw on new technologies. These are: improving the passenger experience and making travel easier; and the other is keeping passengers informed if things go wrong.
What of the future? Where is all this headed? Ecke says that the Frankfurt and Munich hubs are Lufthansa’s development centres for the way in which ground services will be performed elsewhere in its network where reasonable. But acceptance of progressive passenger and baggage services varies hugely by country. “The UK loves electronic support,” says Ecke. “Some markets do not. We watch how the customer accepts this. Honestly, I think it is always a question of time. Look at the acceptance of cell phones which is now a global standard product.”
Widmann concludes that the future will bring better logistical systems around the aircraft. “I think there is a lot of commercial potential in this,” he says. In the maritime world, much more advanced technology is used to bring together all the processes on the ground. “I think, in the future, the airline industry will follow this lead,” he says. “There is something for all parties to gain in terms of cost-savings, sustainability and passenger satisfaction.”