There are four large, primarily full-service airline groups in Europe. Air France-KLM, International Airlines Group (IAG), Lufthansa Group and SAS Group have all grown over the years through mergers and/or acquisitions.
IAG is the most recently formed airline grouping in Europe, having started trading in early 2011. It comprises the UK’s British Airways (BA), Spanish carrier Iberia and low-cost carrier Vueling, plus short and medium-haul subsidiary Iberia Express, the cargo-carrying arms of BA and Iberia, and UK domestic and short-haul carrier British Midland International (bmi) – the latter formerly part of the Lufthansa Group.
In the months following the creation of IAG, while handling costs rose, joint airport handling procurement offset these increases to some extent, as the Group synergy programme took effect.
BA flights at Heathrow, Glasgow, Manchester and Edinburgh are handled by UK-based Menzies Aviation, which began passenger services, ramp handling and lounge and ticketing services for BA and BA CityFlyer at these locations in 2012 – adding an extra 19,500 flights per year to its portfolio.
Menzies was already well established with other carriers at all four stations, and had in fact been providing ground handling services for bmi at Heathrow since 2010 – but once bmi was converted to the BA AOC (air operator certificate) it was by no means guaranteed that the existing contract there would be retained. Andy Boyd, senior vice president UK and Ireland at the handler, said after the award of the contract: “It’s a testament to our operations department, and the talent of the LHR (London Heathrow) ramp team, that has consistently delivered great service to bmi, that BA has had the confidence to award us its business in T1.”
More recently, Menzies began a three-year passenger handling contract for IAG’s Vueling in Madrid on 5 August 2014, adding a new station to the handler’s network.
BA itself provides ground handling services both for its own flights and for external clients. In September last year it was selected to provide technical handling services for Qatar Airways B787 flights at Edinburgh; BA also began providing maintenance services for the Middle Eastern carrier’s A380 flights at Heathrow in October 2014. (Qatar Airways bought a 10 percent stake in IAG earlier this year.)
Iberia Airport Services, meanwhile, is the handling arm of BA’s sister carrier. It provides ramp, passenger, operations and cargo handling services for over 200 clients at 41 airports across Spain, as well as at Malabo and Bata airports in Equatorial Guinea. Customers include IAG airlines BA, Iberia and Vueling.
Mutual strengths
Air France-KLM came into being in 2004, with the merger of Air France and KLM Royal Dutch Airlines. The group also includes Martinair, which provides cargo-carrying services in addition to the freighter flights offered by the two other airlines. Air France and KLM each run their own operations from their respective hubs in Paris and Amsterdam but their procurement divisions – including the procurement of handling services – have been merged.
According to Peter Schelvis, group chief procurement officer at Air France-KLM, the procurement organisations of Air France and KLM “were combined in September 2008, taking full advantage of their mutual strengths”. Air France-KLM Procurement is responsible for the acquisition of goods and services for the whole Group.
Schelvis explains: “The procurement organisation generates added value through cost-effective solutions directed at connecting internal departments and external suppliers. Our mission is to secure a sustainable competitive advantage for the group, derived from cost leadership and procurement professionalism. Our suppliers play a vital role in achieving our corporate goals. Forging beneficial supplier relations, contributing innovative solutions and reducing overall costs serve as a solid foundation to optimise benefits for the group.”
In July 2014, Air France awarded a five-year cargo and mail handling contract to Paris-headquartered Worldwide Flight Services (WFS) at the French capital’s Orly airport, adding to a further four contracts gained with the airline over the preceding 12-month period (Nice, Bordeaux, Strasbourg and Marseille). WFS began cargo handling for Air France at EuroAirport Basel-Mulhouse-Freiburg in October last year as well.
New opportunities
Lufthansa Group includes the German flag-carrier, Lufthansa, as well as Swiss International Airlines and Austrian Airlines. Other carriers in the Group are Brussels Airlines, Germanwings, German regional airline Eurowings (which operates on behalf of Germanwings), SunExpress, Edelweiss, and JetBlue plus other businesses such as Lufthansa Technik.
Large airline groups may commence new operations themselves in order to diversify their offerings and customer base, rather than acquire existing carriers to achieve that end, and this has leads to opportunities for handlers too. Following the Group’s launch of Germanwings in January 2013 – the low-cost airline taking over Lufthansa’s direct European flights not using Frankfurt or Munich airports – a new multi-year contract was awarded to Swissport International for the provision of ground handling services at Birmingham, Geneva, Helsinki and Madrid, with effect from October of that year. The agreement includes check-in, baggage handling, load control and ramp handling among other services.
Philipp Joeinig, executive vice president Central Europe at Swissport International, commented: “A key feature of the collaboration with Germanwings will be a high degree of customer focus and innovation that we intend to bring to the operation. We see a great potential for continuing to expand this partnership in the future as well.”
As in the case of Menzies Aviation with BA, this relationship with one part of the Lufthansa Group could lead to more business for Swissport, not just with the initial customer but also with other divisions.
And the Lufthansa Group is also active in ground handling on its own account. One of its subsidiaries is Lufthansa Ground Services Portugal, which has been offering station representation, administration and supervision, passenger handling, ramp supervision and ticketing since 2011. The company, active at Lisbon, Oporto and Faro airports, evolved from Lufthansa’s ground operations division and provides handling services to Lufthansa itself within Portugal (and some airports in Spain) as well as fellow Lufthansa Group carriers Brussels Airlines and Swiss.
Strategies
Further north, SAS Group is focused around the Scandinavian market, comprising as it does Scandinavian Airlines (again providing passenger and cargo capacity), Blue1 and Widerøe. Blue1 (known as Air Botnia until 2004) became a wholly-owned subsidiary of the Group in 1998, while SAS became a majority shareholder of Widerøe the following year. The Group’s handling division, SAS Ground Handling, is present at over 30 airports across Denmark, Norway and Sweden. It serves SAS itself as well as other carriers including some of those that form part of Air France-KLM, IAG and Lufthansa Group.
Well after an airline group is established as such, the drive for synergies and improved efficiency across all members continues. For instance, in its first-quarter report for 2015, SAS Group laid out a number of strategic priorities; these included improving efficiency in its own ground handling services.
The report states: “To ensure increased cost-base flexibility and provide enhanced conditions for Ground Handling’s operations to grow, SAS initiated the outsourcing process of ground handling services and as a first stage, 10 percent of the shares in SAS Ground Handling was sold to Swissport. Intensive efforts have been ongoing with improving the efficiency of and automating operations, as well as creating preconditions for additional cost measures. This means, for example, that checking-in will to a greater degree be carried out via SAS’s digital channels, which accounted for more than 60 percent of the number of check-ins during the first quarter of 2014/2015. In total, increasing the efficiency of ground handling services is expected to generate an earnings impact of about MSEK 200 (US$23.6 million).”
Parallel developments
The trend for consolidation, of course, has been just as noticeable in the handling sector as among airlines in recent years, and Swissport’s stake in SAS Ground Handling is just one example of this tendency for handlers to buy into each other, if not take each other over outright.
Other deals that are perhaps more significant include the acquisition of Brussels-headquartered handler Aviapartner by WFS in 2012, with each company continuing to operate under its own established and well-recognised brand.
More recently, 2014 saw Swissport acquire Manchester’s Servisair, expanding its network to cover 255 stations in 44 countries. In this case, it appears that Servisair is being rebranded under the Swissport identity.
According to Australia-based CAPA – Centre for Aviation, which provides aviation market intelligence, analysis and data services: “we aren’t yet down to a handful of full service/network airlines and a single LCC (low-cost carrier) in different global regions, as has long been forecasted; neither has there been a similar degree of consolidation in the ground handling world, where a ‘top 10’ that would have a stranglehold on the segment was predicted.
“Part of the reason for that, according to Tim Ornellas [publisher of Ground Handling International], is there is a distinct lack of homogeneity amongst the ground handling community, unlike the airlines. A surprising number are in the nature of small, long-established independent family firms that have made and secured their reputation at one airport or a small number of them.
“For many ground service providers though, those at the other end of the scale from Swissport/Servisair, the world’s largest [ground handling] company, industry cost pressures remain, with margins narrowing and cost‐sensitive airlines still seeking to drive out all other sources of cost through tighter commercial contracts that also transfer liability.”
The lack of economies of scale among smaller handlers means they could still find themselves being taken over by larger companies in order to survive – whether they continue to operate under their own brand (viz, Aviapartner) or are brought into line with their new parent organisation (as in the case of Servisair).
