Mergers drive a consolidated effort

posted on 5th June 2018

As consolidation continues particularly amongst European-based ground handlers, Keith Mwanalushi discovers that these newly merged operations are looking to enhance efficiency while navigating through new regulations aimed at ensuring that ground handling operations in the EU remain competitive.

The trend towards consolidation in the ground handling industry is motivated by several factors, including overcoming barriers to entry, reducing market entry risk, and providing a fast path to achieving growth.

In Europe, specifically, airport operators typically issue ground handling licenses that act as barriers to entry by restricting the number of ground handling providers (usually up to three). For this reason, the only way to gain access to these airports is by acquiring an existing provider. A recent example of this is Swissport’s purchase of Flighcare Spain and Belgium from FCC Versia in May 2012, which allowed Swissport to offer ground handling services at important European airports like Brussels and Barcelona, among others.

Turkish handler Celebi now owns Fraport Ground Services Austria, a move that has boosted its European operations. “Celebi is mainly targeting to increase its exposure in high growth markets but also intending to enhance its foothold in Central and Eastern Europe,” says Athinia Kapeni, global sales and marketing director at Celebi. “Vienna Airport has quite a promising market but it couldn’t be capitalised by the former owner due to strategic reasons. Celebi is now expanding operations at Vienna not only by increasing our market share but also by introducing new services.”

Earlier this year, Swissport International, acquired Finnish ground handling company Inter Handling and sister company Inter Handling Turku, to accelerate the group’s expansion in the ground handling market. Inter Handling provides ground services at several locations in Finland including its biggest operation in Helsinki.

Juan Jose Andres Alvez, Swissport’s executive vice president of ground handling for Europe, Middle East, Asia and Africa, commented: “Inter Handling has a good reputation among customers, experienced management, and strong operational performance, making it a valuable addition to Swissport’s network. The acquisition will enable us to further improve efficiencies in our operations, add passenger handling services to our Finnish portfolio and add further stations to our network, allowing us to offer airline customers a full service portfolio in Finland and providing additional services for Inter Handling’s existing customers.” With combined annual revenues of around €7.5 million, the two acquired companies handled more than 19,000 flights in 2011.

Consolidation is often an effective mechanism to minimise the risks associated with opening a new ground handling operation since it gives the acquirer an established client base. The sales and marketing effort of starting a new operation is often seen as challenging, time-consuming and expensive. As new entrants have to be price competitive with incumbent ground handling providers to attract new clients, this generally means pricing at a loss since the new entrant lacks the required scale.

“Consolidation will enable handlers to serve global carriers more effectively in different markets”

Dirk Goovaerts senior vice president for Continental Europe, Menzies Aviation

Dirk Goovaerts senior vice president for Continental Europe at Menzies Aviation says ground handlers can achieve greater reach and faster growth through acquisitions than through organic growth. “Consolidation will enable handlers to serve global carriers more effectively in different markets.” He cites a few advantages of consolidation: increase of critical mass, ability to standardise services and processes in multiple markets, quick access to restricted markets, optimised back office activities and efficiency gains resulting into lower cost base.

“We have seen some handlers forced to consolidate because they are unable to survive alone financially,” observes Goovaerts. “The handlers backed by venture capitalists tend to consolidate with the aim to resell the business and cash the gain. For many years at Menzies, we have been able to deliver a consistent increase in revenue, driven by a mixture of organic growth and small to medium sized well targeted acquisitions in attractive markets.”

Within the last 12 months, Menzies expanded its operations via acquisitions in Romania, Kamino Cargo in Bucharest, Czech Republic, the airport ground handling division at Prague. In UK & Ireland, Menzies took over Flight Support with ground handling activities at Manchester, Aberdeen, Isle of Man and Guernsey.

Consolidation and alliances notwithstanding, there has been a growing trend in recent years for airlines to reduce the number of suppliers, including ground handlers. This has the tangible benefit of lowering administrative costs (and risks) associated with managing and overseeing multiple relationships. Large airlines are increasingly putting pressure on ground handlers to reduce handling rates in exchange for larger shares of their operation.

Although these trends are expected to lead to further consolidation of the ground handling market, analysts do not envision a day when major airlines will have single-handler deals since airlines like to encourage competition among their own suppliers as a way to control costs.

In December 2011, the European Commission (EC) announced a comprehensive package of measures to help increase the capacity of Europe’s airports, reduce delays and improve the quality of services offered to passengers, under a new ‘Airports Package’ plan.

At the time, the European Commissioner responsible for transport said: “Europe’s airports are facing a capacity crunch. If business and the travelling public are to take best advantage of the air network, we have to act now. Some 70 percent of all delays to flights are already caused by problems on the ground not in the air. On present trends, 19 key European airports will be full to bursting point by 2030. The resulting congestion could mean delays for half of all flights across the network. The status quo is not an option for airports in Europe. Faced with intense global competition, if we do not change the way we do business, we may not be doing business at all.”

In response, Celebi says that generally, it is necessary to develop model contingency plans in order to minimise the impact of lengthy tarmac delays through collaborative decision making and act as one body during the whole operations process.

“The ground handler’s solution to reduce delays and congestion depends on new technology implementation”

Athinia Kapeni, global sales and marketing director, Celebi

“More specifically, the ground handler’s solution to reduce delays and congestion depends on new technology implementation and more audits on performance,” stresses Athinia Kapeni. “Innovation in technology includes interactive real time management systems, ground equipment real time management system, fast check-in/boarding/ticketing self-machines, hand held tools for operations staff in order to better coordinate all functions, as well as centralised load control management to reduce load sheet preparation.” Overall, Kapani says ground handling efficiency should be improved in order to shorten turnaround time or improve turnaround time in cases of inbound delays.

At Menzies, the experience is that a large proportion of delays are caused on the ground, but not necessarily by handling agents, according to Goovaerts. “Delays are caused by numerous issues such as ATC (air traffic control) restrictions, originating in the air but affecting the time on ground, airlines planning shorter turnarounds with full services in order to achieve a higher aircraft utilisation, often these turnaround times are planned with no buffer for adverse weather conditions, such as de-icing in the winter season, or aircraft technical defect delays,” he explains.

Goovaerts does admit that ground handling delays can play a part, but at Menzies, such delays have been reduced “to almost zero, in cooperation with our clients, by the development of our RSMS operations software and such projects that focus heavily on the critical path of aircraft turns  providing greater  control over our operations and the related tasks key to a successful and compliant turn, reducing delays such as boarding errors and improving optimal coordination of all the turnaround processes.”

He further notes that benefits can be obtained from working in partnership with airlines and airports in order to obtain efficiencies, “an example is the Eurocontrol Airport Collaborative Decision Making ACDM project which we are already working on at some airports where we share operational information such as estimated departure times and stand numbers, this enables Eurocontrol to better plan the movement of aircraft in the air, airports to optimise aircraft movement on ground, and handling agents to improve resource planning with improved stand planning.”

The Airports Package proposals implemented by the EC are aimed at improving the efficiency and quality of services offered at EU airports by ensuring better coordination of operations at airports and by enlarging airlines’ choice of handlers available whilst at the same time protecting the employment rights of ground handling workers.

In respect to ground handling, the Commission outlined key measures to ensure that airlines have an increased choice of ground handling solutions at EU airports. The proposals introduce full opening of the self-handling market for airlines and at the same time they will increase the minimum number of service providers (in restricted services) from two to three at large airports.

The new EC regulation has been met with some scepticism – or at least for parts of the proposal. The European Regions Airline Association (ERA) say the draft regulation encourages unlimited access to the ground handling market at all airports and the ERA strongly supports this. However, the ERA indicates that it gives States the facility to restrict the number of ground handling companies at an airport to a maximum of three for airports with more than five million passengers a year, or to two for airports with between two and five million.

“Where this is applied, a selection procedure will be applied to companies wishing to offer ground handling services. The draft regulation is overly prescriptive in detail for this selection, which could deter new entrants and increase the cost of implementation,” cautions the ERA. In spite of this level of detail, the most important selection criteria of all – charges for services – is not included by the Commission and is not allowed to be considered. The selection process is supposed to be, according to the proposal, transparent – yet only the airport is allowed to see tender documents, so there is no transparency,” say the ERA.

The EC also adopted to give airports more control over the co-ordination of ground handling services and for the airport to act as “ground coordinator” of ground services. So does this change the way ground services are being planned at EU airports? Goovaerts does not believe so. “No, I think we are above current airport operational expectations, especially with regard to safety, security, quality and compliance. Menzies has invested greatly, both materially and in training, in recent years, in robust safety management systems and state of the art tools.”

He adds that the implementation of tools such as a safety and quality inspection application for iPhone enables the company to maintain greater visibility and oversight of operations in order to focus more effectively on the core business. “One case comes to mind where a large European airport is using our standard operating procedures as a template to create and improve their own,” concludes Goovaerts.