Despite facing challenging market conditions, Menzies Aviation is optimistic about its future as a standalone aviation services business company, writes Will Hayes.
This year may have seen the demise of Britain’s oldest travel company in Thomas Cook, but Menzies Aviation, one of Scotland’s oldest and largest companies, is still alive and kicking in the airline industry.
In its first full year operating solely as aviation services business, Menzies Aviation has weathered a turbulent 2019 to emerge in a positive frame of mind about the future. Giles Wilson CEO of parent company John Menzies plc spoke to ARGS about his strategy for developing the business and the challenges it faces.
“One or two customers have obviously had some difficult times and we’re very sad to see a few of them gone – the likes of Thomas Cook, for example,” says the Menzies boss, who made the step up from chief financial officer earlier this year. “So it is tough, but the basic economics of what we do is still very exciting.”
It may be exciting, but it has certainly looked challenging at times over the past year. Factors such as the US-China trade war, the global grounding of Boeing’s 737 Max jets and a general market slow down saw the company fall into losses in the first half of 2019 and sent Menzies shares hitting a 52-week low in July.
“Of course, this is the first year of being a pure-play aviation business, so it’s a big year of change for us,” says Wilson, quick to point out that 2019 was always likely to be unpredictable for Menzies, following the sale of its newspaper and magazine distribution arm in September last year. “So the drive for us is about setting ourselves up for the next five years, it’s not just about what 2019 is about.”
The issue of staff retention is noted as a problem for Menzies, as it is across the ground handling industry as a whole, although this is something Wilson says the company is actively trying to change.
“Our biggest cost is people, and our biggest challenge will always be retention of people. We work in an industry, in a number of markets, where at the moment, unemployment is at record lows. So the cost inflation is coming through that, which you always have to talk to your customers about as it pushes cost into the industry.
“We’re heavily focused on rolling out a new leadership programme. It’s not just about the pay for people, it’s about all the other things, be that recognition, the ability for a career, being able to recognise flexibility.
“We believe fundamentally that you should be paid the right amount for what you do and we believe that if we can be innovative, we can be efficient and we can look after our people, we can provide a better service.”
In theory, the future does look brighter for Menzies, as well as the other ground handling market leaders. The industry has a history of fragmentation, but the trend is towards consolidation and greater outsourcing of aviation services by airlines.
“If you look back five years and you now look forward five years, I think that trend will continue,” says Wilson, adding: “and I believe that’s the right thing for the industry.”
“We are now dealing with a change in the markets we are working in. In Europe particularly, you’ve got the EU 261 [Flight Compensation Regulation], the fine mechanism which has obviously cost our customers a lot of money, you’ve got new carbon composite aircraft – these are much more delicate and if there is an incident they tend to be a lot more costly – or create delays.
“So I think the more you can invest into fewer, more professional handlers, the better the industry will become and I think that’s where it will go.”
One area in which smaller players may find it hard to keep up is innovation and technology, something Menzies has a persistent focus on, says Wilson.
“We have spent a lot of money over the past few years on our systems and processes, on IT, WorkBridge, telematics… we’re always continually investing in our systems and processes and I think we’ve got some market leading systems.
“So we continually invest, we don’t stop that drive…I think the big thing for us is about making sure the innovation is what’s needed,” he says.
Many would argue that what is needed in 2019 and onwards is a move towards more sustainable practices and technology, following the global ‘green revolution’ which has normalised discourse around climate change catastrophe.
“The drive is away from diesel to green, to electric, and you see that all the time, where the airport infrastructure allows it. So obviously we have to work around the airport infrastructures as well,” says Wilson.
“We use a lot of electric tugs, and I think as a rule we try to buy electric as the top priority where we can – both for the green side and for the longer term, because there’s less things to go wrong with them.”
Although the environmental agenda is undoubtedly shaping trends in the ground handling industry and beyond, the instability of global politics has arguably played a greater role in affecting cargo volumes, with the US-China trade war a notable example.
“I think the general comment about political uncertainty is it drives economic uncertainty and economic uncertainty does drive people to spend less,” says Wilson.
“So of course you are going to get impacted…but we are also a global business, so we have got some markets that are doing really well.
“We must make sure that we balance that and we grow the business and take the opportunities where those come. I do believe that airlines will look to the more professional service that is part of that and that will play into the hands of the bigger players as well.”