The provision of aircraft ground handling defines the way an aircraft is looked after while it is on the ground and for much of this time it will parked at a terminal gate of an airport, waiting to board the airline’s biggest asset – the fare paying customer.
In the past 20 years the way passengers are treated at the world’s airports has changed beyond recognition, and we all hope that it has changed for the better – although at the same time the numbers travelling have soared beyond all previous expectations and keeping pace with present day growth patterns has been quite a challenge.
The next 20 years will see further growth – think back two decades to what the forecasts predicted then and you can weigh up in your own mind how accurate most current growth predictions might be for tomorrow’s industry.
It makes the ability to see ahead a very important asset for the ground handler. Those who can actually see the future are going to be much better equipped to handle whatever tomorrow brings than those who simply predict the future.
From its home base in Dubai, dnata has grown to become an internationally acclaimed ground handling agent. Commencing operations in 1959 as the Dubai National Air Transport Association with just five staff, dnata has played a significant role in the development of Dubai airport and the company now has a solid operational presence at 20 airports across eight countries.
According to Jon Conway, divisional senior vice president of dnata’s airport operations in Dubai: “It is quite clear the trend for airlines and indeed airports to outsource their ground handling operations is continuing, even in the North American market, where airlines have historically self-handled.” He points out that KPMG – one of the largest professional services companies – estimates that in 2015, ‘independent’ handlers will undertake some 50 percent of airline ground handling.
Conway notes: “This figure was 35 percent in 2007 and is expected to grow to 55-60 percent by 2020. It is a clear trend, and an understandable one, when we consider the challenges of some legacy carriers. Global ground handling is estimated to generate US$50 billion a year – not an insignificant industry!”
Barry Nassberg, group chief operating officer at global ground handler WFS (Worldwide Flight Services), which provides passenger services from check-in through to boarding at over 50 airports globally, points out: “Airlines will move more and more towards a focus on their core business. The successful handler will emerge as much more of a partner than a contractor, taking on a broader range of activities on the ground. We will need to be flexible and creative,” he adds.
“The two largest ground handlers in the world – Swissport and Menzies – together only have a market share of 7 percent, so there’s plenty of available business to go after,” observers Mervyn Walker, the UK based executive vice president operations at Menzies Aviation. The airlines will continue to outsource but where airlines with large bases can achieve productive collective labour agreements there will always be a place for self -handled hubs and bases.”
At dnata, Conway goes on: “The Airline Services Association [ASA] – a global trade association for the handling community – is working very hard with IATA/ICAO/EASA/EU and others to ensure we have a mutually beneficial airline/handler relationship, where airlines can enjoy safe, secure, good quality service at a sensible price which enables appropriate investment by the ground service providers.”
According to Luzius Wirth, vice president corporate operations at Zurich headquartered global ground handler and aviation services provider Swissport International: “More than half of the ground handling market is still self-handing. The remaining market is very fragmented with many small and local players. Swissport believes that airlines will continue to focus on their core business and hence the current trend of outsourcing ground handling activities will continue and the market for ground handlers will continue to grow.”
Cost cutting worries
“There cannot be much doubt that airlines will continue their past practice of trying to drive cost out of the business,” Nassberg at WFS remarks. “With a constantly decreasing payback, can the ground handler continue to provide an acceptable level of quality, safety and service? No, he cannot. The handlers that will develop as full service partners on the ground will need to realise a fair profit and return on their investment.”
Nassberg asserts: “Those airlines with a more progressive approach already do understand that, and they’re seeing the payback. Those that see it as a commodity see only an ever-downward spiral in product delivery.”
Stewart Angus, divisional senior vice president of dnata’s international ground handling businesses, adds: “It is interesting to observe how several industries have suffered major calamities as a result of service providers cutting corners in response to pressure on yields from the industry buyers – the horsemeat debacle in Europe is arguably an example of this.
“As an industry, we have to take responsibility for ensuring we do not go down the same path. At dnata, we are increasingly resisting any pressure from the airlines to reduce rates, as we want to be able to continue to invest in our business, which ultimately benefits them in the long run. And we can only do this by keeping pace with inflation.
“At the end of the day, you can never truly avoid the reality that you get what you pay for,” he maintains.
Swissport’s Wirth observes: “We believe that the pressure on price will continue while the expectation on service and quality will continue to increase. This requires companies such as Swissport to continuously review operational processes to increase productivity and to establish lean and efficient support processes by eliminating non-value adding activities. Swissport’s answer to this is a continuous improvement programme called ‘Swissport Formula’ – it is the definition of the way we work.”
Mergers and acquisitions
Our interviewees were asked if they believe that ground service providers will continue the process of merger and acquisition, creating larger global groupings. “In short – yes,” dnata’s Angus agrees. “As long as airlines continue to put pressure on handlers’ yields, we have to expect that the number of handlers will reduce as some fall out. This is inevitable, but also essential if the handlers are to gain economies of scale.”
Nassberg at WFS says further consolidation and globalisation is inevitable. “It’s the only way to achieve the economies of scale that airlines are looking for, as well as the ability to become the full-service partners that are the handlers of the future. Just as with airlines, there will be global operators. There will also be room for niche players in selected markets,” he adds.
“Consolidation I think may speed up this year,” says Walker at Menzies Aviation. “We have over US$150 million earmarked for acquisitions, so we plan to be a consolidator and not a consolidatee.
“The large handling agents can give one point of contact for, in our case, over 140 stations globally and growing. I would love to say they are all exactly the same, but of course they are not but in every one the message is the same; safe and secure, look after the customers and the staff and the shareholders and continue to grow.”
At Swissport – which is active at 192 stations in 38 countries on five continents – Wirth considers: ““We strongly believe that industry consolidation will continue and a few truly global players will emerge but there will always be room for niche players. The benefits from consolidation in this industry will be the improved service quality and professionalism in service delivery – both ultimately lead to benefits for the airlines and their passengers.”
He remarks: “Only a small share of the market is currently covered by global ground handlers and we don’t see the risk that a market consolidation will lead to disadvantages for the airlines. More the opposite will become true: the quality of the available options will improve.”
Wirth goes on: “The current trend will lead with no doubt to a consolidation of the industry with some global, highly professional players such as Swissport and regional/local players. Large players will be forced to improve every step of the process to deliver highly reliable services on a competitive price – however; there will always be the local player offering lower prices. The question here will be whether the quality they deliver consistently meets the high expectations of an airline.
“Additionally, the effort of an airline to individually tender, negotiate and manage contracts for each station should not be underestimated,” he says. “Given the cost pressure airlines are facing, we see a trend towards global ground handling agreements.”
Wirth says: “Large ground handlers – such as Swissport – benefit from outsourcing and price pressure: We are able to improve our operational processes worldwide through best-practice sharing and reduce our overhead through standardized support processes. Both activities lead to a higher and more consistent quality of services. A carrier receives the same high-quality service in station A and B. This is what they are looking for today.”
Seeing the benefits to be gained from introducing more effective IT systems to ground handling procedures: “We are working hard to improve our processes with innovative IT solutions,” says Angus at dnata. “As an example, we are currently trialling two iPad Apps which allow us to manage the dispatch function real time at the aircraft side and to track mishandled baggage in a way which is much more friendly to the customer.”
For Menzies, Walker comments: “We have a large IT team and budget – my boss says too much. IT solutions are increasingly important for time and attendance, allocation, rostering, revenue collection and ensuring that all GSE maintenance stays current.
“Prices are not going up very quickly, I wish they were: he notes. “We just have to be more productive, continue to grow, make good use of IT innovations and think of new ways of doing things so that we stay ahead of the budget.”
At Swissport, Wirth observes: ‘We see huge benefits in introducing more effective and integrated IT systems to our procedures. DCS is one area where we see a wide range of customer requirements driven by their own systems. The training effort and limitations in staffing flexibility are not helping our cost reduction effort. However, Swissport is leading the way in e-services. Our customers benefit from proven applications for check-in kiosks and our web check-in tool is widely used”
Nassberg adds: “We’ve chosen to focus on helping drive the movement to e-freight, given our position as world’s largest air cargo handler. The cargo side of the business is well behind the passenger side in this area. The potential savings are massive, when you consider the mountain of paper produced each day by forwarders, airlines and handlers, with some documents virtually unchanged for decades. This is another example of how a handler can contribute to an airline’s profits, rather than its costs.”
Whatever the future may bring in economic terms, many of the world’s major ground handlers concur that that there can be no bright prospects lying ahead for those who do not pay close attention to ground entry staff recruitment and the training of these people as the company’s staff for the future.
Companies are only as good as their staff and some of the most important employees in the company are the team leaders, supervisors and turnaround coordinators, notes Walker at Menzies Aviation: “New staff now have the benefit of e-learning modules so that quite a bit of the training can be interactive and on line. I do agree with BA and the 70/20/10 rule with 70 percent on the job, 20 percent online and only 10 percent in the classroom.” He adds: “Our 18,000 staff are the key asset, our staff turnover is at an all time low, but we always have space for new team members with the right ‘can do’ attitude.”
Dnata’s Angus agrees that companies are only as good as their staff. “You have touched on a passionate subject!” he exclaims. “dnata has introduced a lot of initiatives … to increase the level of engagement with our staff. As an example, every new dnata employee starts their induction on day one with the same introduction course. Best practices are shared across our global network of ground handling businesses and initiatives to allow knowledge-sharing between staff working in different locations have proved valuable.”
At WFS, which has over 20 years of experience in ground handling and passenger assistance, Nassberg says: “In cargo handling, we’ve grown from being a minor player to the world’s largest. It’s come from an unwavering commitment to the particular needs of this segment, rather than seeing it as a secondary business. In terms of geographic area of activity, it’s Asia. We took a non-traditional view of the industry, and focused on businesses that support airports and infrastructure, rather than core ground handling. This opened new markets, and today some of our largest stations are in Asia.”
In Switzerland Wirth adds: “Training is one of the areas where Swissport is investing a lot of time and effort and it is an integral part of Swissport Formula. We have developed a very detailed technical training programme with worldwide standardised content for all our staff. This standard training approach underlines the earlier point that our customers receive the same service in all our stations – because people are trained the same way.”
At Menzies Walker says: “This is still a people business. After 20 years in the business, I still find myself surprised – and humbled – by the dedication and care which our staff show to get aircraft away on time every day … they take the job seriously but also know how to have fun. I am very lucky to be part of it.
hat I do not like is ex
pensive ground services equipment from manufactures who are not keeping up with the demands of ground handlers who need to eek out that last 1 percent from their business.”
For WFS Nassberg concludes: “Just like the Hard Rock Café, we love all and serve all. The fiercest rivals in the air sit side-by-side on the ground and it’s up to us to make each one feel like they’re our only customer. When that works well, it’s brilliant. What do I hate? It’s the only business I know where the buyer gets to write the contract. Someday that will change!”
Economy of scale
The biggest savings a ground handling agency creates for an airline is the economy of scale; the ability to provide a flexible workforce; equipment which can be shared over several operations and facility costs which can be shared across several contracts. This is the opinion of Donna Blanchard, vice president business development for New Hampshire-based Air General. The handler has 21 locations in the USA.
In order to secure a strong future for the industry, she says: “A sensible price needs to be earned by the service provider in order to hire quality people with the right skills to do a great job for each customer.”
The handling agency can work with the airline to keep costs down by providing a menu of differentiated services. Blanchard says: “So, for example, if the airline requires more highly skilled passenger service agents to look after their VIP customers, the service provider can hire a more highly qualified category of agent for this work, and spend more money to train them on the specific skills required as long as they can recover this additional expense in the pricing model. Other basic and simple services which do not require this high degree of skill can be charged at a lesser rate.”
Ground handlers much also keep updated on the newest technologies and be prepared to find solutions for deploying these tools to remain innovative.
Blanchard says: “These tools often represent a large financial investment and service providers will find themselves needing to turn business away if they are not compensated sufficiently to be able to look after their employees well, maintain a safe and secure operation and still earn a fair profit.”
UAE-based Apogee Operations, with operations in the Middle East and CIS countries, is convinced that the “the future of the airlines ground handler and the airline ground services provider is strongly connected to the future of airlines,” says Moaiad Alkhateeb, operations manager.
He says: “As airlines grow, the ground handler and the ground services provider will consequently grow in order to cater to the airlines’ needs.”
Decreasing payback for the airlines must not affect the level of quality and must be watched and checked by airport authorities. There are minimum requirements the ground handler must fulfil in order to continue operations and if the ground handler doesn’t fulfil the minimum requirements, their service level will be questioned by related authorities, believes Alkhateeb.
He is positive about future for the sector: “The airline ground services industry is growing. More attention and care must be given to ad-hoc flights.”
Whether ground service providers will continue the process of merger and acquisition, creating larger global groupings “depends on the market needs. For sure, if this happens, it will restrict the choice for the airline; however, we don’t think this will be a phenomenon, at least in the near future,” he says.
Little local difficulties
Michael Richter, managing director of AeroGround Flughafen München does not hold his punches in considering the difficult state of the ground handling sector in Europe.
He says: “We observe a direction in this business that seems to be already problematical. Ruinous competition is [happening], especially in the passenger services, where the market is already fully liberalised and the margins are very low at around three percent.”
The process of merger and acquisition in the sector will continue. Because of that, the fight for market shares will be even harder between the service providers if the new European ground services directive, with more concessions at bigger airports, is established. However, in the near future, Richter does not see the likelihood of any restriction of the choice for airlines by this development.
He says: “The question is: what kind of choice the airlines will have in future? With the planned new European directive, the further liberalisation of ground handling market, with its former aim to differentiate on the ramp, for example at product level, to increase quality and to decrease the prizes, is an aberration.
“Since the airports will have to assure a certain quality level in future, the airports will have to establish departments to monitor and manage the quality and to introduce regulations and a catalogue of penalties. That means that even higher costs that airlines will have to bear could occur at airport infrastructure costs.
“For the service providers, the business might be even less attractive. Since ground handling is a very labour-intensive service, the increase of the “competition” will take place, at a regulated quality level, substantially over the personnel costs. The average income has already fallen by 20 to 30 percent within the last couple of years. I believe this is not a sustainable business model, especially for Germany as a social market economy with its high standards for workers and its quality approach. In the end, quality and safety will suffer.”