Route development and buying in ground services

posted on 5th June 2018

   As Anthony Beachey and Bernadeta Tendyra report, the quality, efficiency, effectiveness, profitability and safety of ground handling services can make or break a prospective route

Route development is the life-blood of the aviation industry, a means of promoting growth, securing profits and satisfying various constituencies. Ground handling services, by contrast, may seem like poor relations, an after-thought when route decisions are being made. Ground handling can represent as little as two to three per cent of the global costs of establishing a new route; hence, airlines tend to opt for the the latter before considering the ground services to support it.

Why are new routes created and which factors predominate? “Much depends on from whose perspective they are being considered,” says Chris Cain, strategic airport consultant and Associate Director of Northpoint Aviation Services.

“From an airport’s perspective, they’re looking to maximise the utilisation of their assets, getting as many passengers through as they can within defined performance standards, whilst optimising ancillary revenues while they do so. From a stance that’s not purely commercial, airports also serve their local communities, look to provide them with access to business and leisure destinations, and to present opportunities for movement of goods by air – in other words, they serve a wide range of purposes. From an airline point of view, they’re looking to identify routes that will perform commercially for them, based on their business model and the operational parameters they have, slots they have access to, where their aircraft are based, whilst optimising aircraft utilisation; again, it’s all about securing return on investment because aircraft are very expensive assets. An additional layer of complexity is added by the competition there is between airports to attract limited airline capacity. Most airlines have bases and typically, though not exclusively, will focus on serving markets that seem likely to produce the highest yields from them. So when they go to the route conferences, they will compare one airport’s market and commercial offer against everybody else’s to see which airport offers the best option for deployment of their aircraft.” In these complicated negotiations, Cain regards good ground services are an essential prerequisite for an airline, but not a key determinant of route development decisions.

Consultancies such as Cain’s aim to analyse underlying demand to identify potential market opportunities, using a variety of sources of data. This can include catchment areas (i.e. where passengers live or work), where they are flying from and to, the kind of routes they are using or would like to use, whether they are travelling for business or leisure, economic factors such as the existence of high GDP centres, the presence of particular businesses that are international in character, major tourist attractions and many other factors.

Identifying network gaps or under-provision is the key objective. So, for example, connecting rapidly growing emerging economies to the wider world represents a major opportunity, while access into London from the UK regions is what Cain describes as a “hot political issue,” given the lack of capacity at Heathrow and other London airports such as Gatwick. British regions often also wish to acquire access to one or more US or European hubs, and/or another in the Middle East such as Doha, Dubai or Abu Dhabi. “Most airlines do their own in-house research of routes but they look to airports and people that are often working on behalf of airports in order to present the opportunity.”

The current recession on the one hand, and the rise of low-cost airlines on the other, have nevertheless affected route development. People are flying less because they have less money to spend, although Cain also cites the major impact of Air Passenger Duty, particularly on British domestic and international long-haul flights. High fuel prices in turn can also make certain markets too marginal, prompting airlines to reduce frequency or find other, more viable routes. Stephen Ayres, Communications Manager at Exeter International Airport in Devon, UK, points out that a master plan for the airport, compiled in 2007, envisaged over 3,000,000 passengers by 2030 “but the assumption is that that figure is way off because of the recession…” Exeter has nevertheless secured Sharm el-Sheik this summer, and a 20-year-old link to Toronto is back in May. “It is a matter of continually talking to the operators of the airline and making sure that they have confidence in our ability to put passengers on seats from this south-west region,” says Ayres.

Low-cost airlines have meanwhile stimulated markets, particularly leisure-based ones, where they previously did not exist, and such carriers now access a range of destinations at larger airports on a direct basis. “They’ve created competition and wherever there’s competition, everybody has to be more efficient and that usually means that passengers can fly routes more cost-effectively,” says Cain.

New technology such as video conferencing, rather than stopping airline and route development, has stimulated opportunities by allowing businesses to operate on a global scale and “may even have some impact in encouraging travel,” Cain argues. The rise of the Internet has meanwhile facilitated ticket price comparisons and simplified booking procedures, thus helping to stimulate markets and routes. Technological changes have also made aircraft quieter and more fuel efficient, and/or capable of serving longer, thinner markets (such as the 787 and the forthcoming A350), allowing direct services that previously involved hubs. New aircraft models can also take off and land on short runways, further promoting business opportunities. “The technology of aircraft is still evolving …and it’s one of the things that radically change the market on a periodic basis.”

How significant are ground services to airlines contemplating new routes? Murray Williamson, Air Canada’s General Manager, Commercial Operations, Europe, Middle East, Africa and India, is concerned that sometimes, the ground handling aspects appear to be left until last, after all the other strategic areas have been settled.

Williamson is clearly considering the potential loss of commercial advantage. “It would be nice to dangle a bit of a carrot and say, “We’re thinking of flying into x, y and z; can you give me some competitive rates?” He points out that his bargaining position is inevitably eroded once an airline announces its new route, particularly to destinations with just one or two ground handlers.

Williamson also sells ground handling services at London Heathrow and buys them in everywhere else; hence, he is in competition with other ground handling companies. “It’s quite a high-cost business because you are looking at expensive equipment such as pushback tractors, and there is a number of ground handling companies around; they could be different at every station you go to. There are the big guys of this world, the usual handlers seem to pop up in most locations, but mainly we choose to negotiate station by station, although we do have some global ground handlers that look after us in multi stations.”

Air Canada offers ground handling services at Heathrow “really to utilise the troughs in our own operations; we’re self-handling, we have up to 12 flights a day, so for example, I would utilise operational down time of staff and resources to offer cost-effective ground handling to third party carriers to offset our costs and provide incremental revenue where possible.”

Selling such services is contingent on the recipient being in the same terminal as Air Canada and fitting into the latter’s work plan. Airlines execute ground handling in a slightly different way to pure ground handlers, Williamson points out.

London is also highly competitive, says Williamson. “It’s predicated around or has become more predicated around which alliance you’re in, in other words which terminal you’re operating out of. There are five or six ground handlers at the moment and I think that if you’re a new airline coming into Heathrow – if that were possible – you would be able successfully to get the best price by going around the houses.”

Don Hunter, recently retired from Oman Air after 43 years in the aviation industry, describes as “absolutely true and … very frustrating” the ‘reactionary’ approach to new routes and ground services. Hunter, who also spent nearly 20 years with Cathay Pacific and worked for Virgin Atlantic, is concerned about safety as well as profitability. He cites an example from his time with Oman Air, which in 2011 was seriously considering flying to Khartoum and was at an advanced stage in the tendering process. However, the airline’s audit team and flight engineering staff had doubts about the safety aspect of operations in the city, and the airline eventually abandoned the planned route.

In 2011, Oman Air also came close to launching operations to Moscow’s Domodedovo or Sheremetyevo airports; however, Hunter insisted on a ground handling input “because operating in Russia is difficult at the best of times, and some of them are monopolies and some places you’ve got a bit of competition, and I took the unusual step of actually going up myself… when it came to Moscow and difficult places, whether they are difficult from a safety point of view or difficult as an operational environment, it needs to be represented at a fairly high level.”

Hence, security and competition vis-à-vis ground handling services can vary from one destination to another. Competition laws prevent monopolies within the European Union; moreover, as Williamson points out, the more advanced nations have greater choice in ground handling terms “mainly because that’s where people want to fly to and therefore that’s where the volume is, that’s where the profit is for ground handlers.”

Smaller, regional airports tend to arrange check-in, baggage-handling, fuel provision etc in-house “and until you hit two million passengers, you aren’t required to offer competitive ground handling services,” says Chris Cain. “For medium and larger airports, it’s important that your ground handling operates efficiently, that it’s cost-effective because otherwise it will affect overall charging levels and that could affect the perception of the airport and whether airlines can operate from it.” Exeter Airport’s Stephen Ayres indeed speaks of a “one-stop shop… when we’re talking to airlines, we do say there’s a great deal of flexibility because we’re all working to the same operations director… we are just taking delivery of getting on to £300,000 worth of new catering outlets… so that’s something that an airline would presumably want to look at…”

Williamson cites price, service, quality, standards and above all, safety as his criteria for judging potential suppliers, based on IATA’s IOSA safety and training protocol. “They can do the service, they can do it really swiftly, but if they can’t do it safely and if they can’t do it without damaging my aircraft or injuring their own people, then I don’t want to do business with them.” Airlines are unlikely to invest in the launch of operations until a potential route has been recognised as a safe environment.

Don Hunter refers to Cathay’s “very mature” and “very robust” new route start-up process, where every stakeholder in the airline had a “voice that was listened to when it came to ground handling, because it doesn’t matter in mature places like going to Singapore or going to Bangkok … but it does matter when you’re going to an airport that is a really difficult, operationally challenged environment that all stakeholders are involved in.”

Most mature airlines follow a broadly similar process. Each tends to send a team of ground handling and ground operations experts to the established airports once a year or once every two years, to carry out audits of existing operations. An airline may then consider launching a new route, whereupon it will send the team to assess a number of handling agents according to a checklist mirroring that of the standard annual or bi-annual audit. This covers training records and manuals, weight balance training, weight balance documentation and inspection, operational performance on the ramp, observation of turnaround in terms of vehicle safety, driver discipline and the condition of the equipment, and as well as discussions with other carriers regarding safety issues.

Nevertheless, the process can vary from airline to airline. Hunter points out that mature carriers understand the risks of getting things wrong from a security and/or operational point of view: “…it’s not really about check-in counters, it’s about safety on the ramp and weight balance and all of the really important technical side rather than the soft side of it.”

Standards of ground handling can indeed vary around the world. Hunter cites the example of Zanzibar Airport, to which Oman Air recently returned after having pulled out for a number of years because of airfield problems: “…the runway was breaking up and the fencing around the airport wasn’t adequate, so there were sheep and goats wandering around the place. The airport authority has spent a lot of time and effort putting that right, so we decided that we’d take another look at it from an operational point of view, and they’re very resource challenged there in terms of facilities but actually they do a pretty good job.” By contrast, in December 2011, Oman Air started flying to Zurich, “…the other end of the spectrum where you know that everything is going to run like clockwork and there are lots of options – I think we had three bids there and they were all operationally tip-top.”

Hunter also rightly points out that the official running the ground handling element of an airline’s operation, as the nominated post-holder with the regulator, ultimately takes responsibility for safety issues on the ground, both at the home station and everywhere else: “…if he gets it wrong, he’s the guy who goes to jail, so there’s a great need really to get it right, and not to go with a ground handler that doesn’t make you happy.”

Regular ground handling conferences bring many key players, together, including ground handlers, handling agents and airlines, and often raise various issues such as safety and tendering, while presenting ground handling opportunities. As Hunter points out, “that’s got to be good for the industry, and it’s got to be good for the country, which may be struggling with ways of raising their standards.”