The ground handling world is changing fast. In Europe, the liberalisation of the market that began in 1999 has led to a host of new providers, but the big players remain dominant. Meanwhile, there are near monopolies in markets like China and India, but the global ground handlers are determined to break those markets open
For airlines, choosing ground handlers in such a complex market, where different rules apply all over the world, involves a lot of logistical planning and great care. There are more than 1,000 ground handlers worldwide chasing their share of an US$80 billion market. The rapid expansion of operators is down to a number of factors, according to the International Air Transport Association senior consultant Stuart Matheson.
The most obvious reasons are the liberalisation of the European market and the rapid expansion of both tier one and tier two airports in Asia, as well as other parts of the developing world. But a less obvious, though equally important, factor is the rise in the number of companies offering leased GSE equipment. “That gives the smaller players the opportunity to get all the hardware they need at a fraction of the up-front cost of buying it,” says Matheson.
The headline figure of 1,000 ground handling businesses also conceals the different character of many of the companies. “There’s a trend towards customising services so that number of 1,000 includes self-handling companies and a lot of sectional specialists, such as in ramp cargo, checking in passengers or in-flight management,” says Matheson. “Even when ground handlers enter the market, they might not get work for one or two years as the existing handlers have long-term contracts.”
Making the right choice
Nevertheless, the global industry as a whole, despite some areas where monopolies still exist, offers more choice than ever before. For the airlines, having a wide choice doesn’t necessarily make it advisable to chop and change providers often, however. Matheson says IATA members around the world have flagged up problems with some of the newer providers. Sometimes, it’s better to stick with the devil you know rather than chasing a cheaper deal, he says.
“Ryanair has a healthy relationship with a handful of ground handlers and they won’t change provider unless there’s a major issue even if they could land cheaper deals. They haven’t put out a request for proposal (RfP) in the UK since the early 2000s. Similarly, EasyJet started out with Menzies and they still have the vast majority of their contracts with them in the UK.”
TAP Portugal, which flies to 33 countries worldwide, recognises the need to select ground handlers with the utmost care, especially in such a complex, changing market. TAP airport services director Anabela Lopes says TAP’s analysis of the options is exhaustive whenever it begins a new route. Even when there is a monopoly provider, or one dominant player, TAP carries out in-depth analysis to confirm the handler is capable of complying with all the airline’s requirements.
“The selection of ground handlers carries a high degree of risk,” she explains. “We operate in a variety of international locations and we don’t always require the same services. We have a complex network of both first- and second-tier suppliers and the failure of a single stakeholder in the supply chain could affect our entire operation. Ground handling is a key differentiating factor with respect to safety standards, customer satisfaction and operational efficiency. That is why an open tender process is of the utmost importance.”
TAP’s checklist of the qualities it requires in a ground handler includes compliance with international industry standards and certifications, the relevant experience and equipment, a good reference from any Star Alliance partner airlines that have employed the ground handler, and high marks on an operational assessment test. Finally, the cost of the services has to be competitive, although a low price won’t necessarily be the deciding factor.
“A handler selected on price alone might provide poor quality of service and there would be a rise in safety incidents on the apron. Failures impact customers directly and damage the airline’s reputation. We have to find a delicate balance between ensuring the best price against the highest handling standards,” Lopes says.
In some regions, TAP uses an international ground handler that it employs in multiple locations. But even when TAP has worked many times before with a provider, the selection always involves a rigorous open tender process. “The same handling company can give totally different levels of quality at different stations,” observes Lopes. “Because we don’t automatically select a provider we know, it’s not uncommon for us to use smaller providers to get the right balance between price and high standards.”
IATA provides a means of benchmarking ground handlers using its ISAGO accreditation, which can confirm the ability, safety record and viability of bidders. Above all, the airline has to make sure the handler has a solid safety management system in place. IATA’s Matheson says airlines need to consider carefully what equipment they would need for daily operations. This includes the IT interface and how it will integrate with existing facilities.
A further important consideration, Matheson says, is that the management of an RfP for a new ground handler will take up a lot of valuable staff time. Airlines are already in the throes of running elaborate businesses. For an RfP, they will need to examine carefully data, documentation and operational requirements. This is bound to be a drain on resources and to carry it out effectively, it needs to be well planned in advance.
After a licence is awarded, there will be a significant change to operations, he continues. A new supplier will need managing within the company’s network of ground handlers. A ‘bedding in’ period is inevitable and there’s not always a perfect fit. However, if the RfP has been carried out stringently and the providers understand precisely what is expected of them, the changeover should be as smooth as possible.
“There are always dangers in changing providers. That’s why due diligence is so important,” Matheson says. “Independent experts are also very useful in assessing potential providers. They can identify weak areas and ensure successful integration with existing suppliers and networks.”
Location, location, location
Mikko Tainio, Finnair head of ground operations, says there are different factors at play depending on where the ground handling takes place. In Finland, Finnair has little room for manoeuvre in choosing providers outside the capital of Helsinki. The airline is present at 15 smaller Finnish airports and there is only one provider available, the state-owned Airpro. “In theory the market has been opened up to competition, but the bigger providers won’t invest because the volumes are so low,” he says.
In the rest of Europe, however, especially at the major airports, there is a greater choice than ever before and Finnair will consider different providers. Mostly, however, it uses Swissport and Menzies and, on occasions, Aviator and dnata. In selecting a new provider, Finnair uses its own audit department to weigh up the options. “We never use independent assessors if we are considering changing providers. We will change suppliers if the relationship is not functioning well and it doesn’t cost that much money to change. But, in general, long-term relationships are better for everyone,” he believes.
In the US, where Finnair is expanding its long-haul operations to San Francisco, it has a tendency to trust the bigger companies. “It depends on the station, but we’re not a big carrier so we can get more leverage if we build relationships with the larger companies at multiple stations,” he says.
Finnair’s major long-term strategic goal is expanding operations in the Asian market. It recently announced new routes to Tokyo and Hong Kong, although the main focus is on China. The intention is to double Asian traffic in the next few years and Finnair has ordered 19 new A350s to add to its fleet of 72 aircraft. Most of the extra capacity is designated for long-haul flights to Asia.
For the moment, the ground handling market in China is a near monopoly through local players such as China Airlines. The situation is similar in Japan, where Japan Airlines is a dominant provider. The Asian market, however, is gradually opening up to competition, according to IATA’s Matheson.
“In Asia, we’re seeing joint ventures emerging between big providers like Menzies and dnata and smaller local providers,” he remarks. “The larger companies gain local knowledge and access to restricted markets and the local providers gain credibility and widen their horizons by partnering with established names. At IATA, we’re working with clients looking to establish joint ventures in India. India has to open itself up to competition; it’s a monopolistic market and ground handling rates there are still among the world’s highest.”
There are other significant trends in the global ground handling market that will begin to impact airline choices, says Tainio. One is an emerging tendency to look for deals with big providers across several stations rather than striking agreements with a multitude of providers. “It’s partly about pricing, but it’s mainly a governance issue. If an airline wants to introduce new concepts for ancillary revenues, customer services and safety, it’s easier to do those things with one key account manager for several stations,” he points out.
A second trend that will help the major suppliers to entrench their dominant market positions is the digital monitoring of performance. “Monitoring used to be done monthly, or sometimes weekly if there were delays. Airlines would also look a lot at customer satisfaction surveys to see how well providers were doing and it was a slow process. But now it’s possible to monitor customer experience live and get feedback that requires an instant response from the handlers,” Tainio says. “This gives the bigger players a competitive advantage as they can work out how to do the digital monitoring for one station, then do the same thing at 100 stations. They have economies of scale that smaller companies don’t have.”
Changes in the management structures of airlines are also affecting expectations, according to Matheson. The days are gone when airline managers used to sit down regularly with ground handlers to plan operations, he notes. There’s now a tendency to devolve more of the management functions to ground handlers. “In Thailand, for example, Air Malaysia is doing away with the historic model of having a team of airline managers and handing the roles to ground handlers. In Europe, we’ve seen a lot of this. We might see one check-in open for bag drops. Many passengers travel with just hand luggage and go straight through security so a lot of transactions that took place at the check-in desk are being transferred to the gate and point of departure. A passenger might not see a handling agent until half an hour before the plane leaves, whereas it used to be two or three hours.”
Lopes says the main challenge for ground handlers is to keep up with the rapid pace of change in the age of ‘smarter’ services. “Ground handling needs to go along with all these industry developments, such as web and mobile check-in, self bag drop and self-boarding. The industry can improve efficiencies by using real-time business intelligence. Resource management technology can improve operational awareness and teach providers how to use assets more effectively.”