Improved handling

The private sector is starting to enter the ground handling business, but it largely remains a closed shop.

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By  Colin Baker Published  April 11, 2006

|~||~||~|Worldwide, ground handling has tended to lag the airline industry when it comes to liberalisation. While established airlines are feeling the heat from low-cost competition, the status quo is still going strong in many of the world’s airports. There have been moves to liberalise ground handling in certain parts of the world, notably in Europe. The big, multi-national ground handling companies have been trying to establish worldwide networks on the back of these moves. They have made little headway in the Middle East, however. “The region is still very fragmented. You don’t have any truly regional ground handlers,” comments Gary Chapman, president of Dubai-based Dnata. “The international players have struggled to make inroads. The Middle East and Africa are regions where, for historic reasons, there are a lot of one-off operations particular to each airport.” Most estimates of ground handling’s share of an average airline’s total cost base come in at around 2-3%. So, it is fair to say that the sector hasn’t always been top of the list when airline boardrooms seek ways to cut costs. With many airports having firmly entrenched monopolies, supported by sympathetic regulatory regimes, airlines have, by-and-large, chosen to concentrate their cost-cutting initiatives elsewhere. In any case, carriers are not only concerned with the price of ground handling. “Cost is not the only concern. Airlines are just as interested in standards, quality and service levels,” says Chapman. The most notable example of liberalisation in the region is National Aviation Services (NAS), which has been serving Kuwait International Airport since late 2003. The company started out catering for KLM’s needs, and now includes the likes of British Airways, Emirates and Jazeera Airways among its customers. Airlines in the region appear more than happy with this development. “There has been a fairly substantial reduction in ground handling rates in Kuwait,” reports one airline. “Beforehand, the only ground handler was owned by Kuwait Airways, and they were very expensive.” The airline source adds: “There has not only been a reduction in costs. There has also been an improvement in service levels. Since NAS came along there has definitely been a more competitive environment. Before that, we had a sole provider that was not too responsive to the requirements of the customer.” The nascent low-cost airlines that are springing up in the region would seem to be a nice fit with NAS. When signing a ground handling agreement with NAS late last year, chairman and CEO of Jazeera Airways, Marwan Boodai commented: “We share the same values of quality and efficiency, in addition to being pioneers in what we do. This partnership proves that the private sector can enter the aviation sector and achieve high-efficiencies and quality of service.” NAS managing director, Bara’a Al-Roumi, also sees common cause with the low-cost business model. “Jazeera Airways, being an airline based on a low-cost business model, will be able to maximise on cost efficiency without compromising on the quality of service. We are sure that we will be able to add value to their operations in Kuwait.” NAS is providing Jazeera Airways with passenger services, cargo services and ramp handling services. The development of the low-cost sector in Saudi Arabia, where two-or-three low-cost carriers are believed to be in the offing, also seems to be having a knock-on affect. One airline, branded Sama, is set to start flying this summer. Chapman at Dnata says that there are corresponding moves at airports towards moving from single handler environments to offering two or three alternatives. “Liberalisation and low-cost airlines are changing the dynamics,” explains Chapman. “They have got to have the infrastructure to support these moves.” There are moves within the Kingdom itself to privatise Saudi Arabian Airlines, with non-core activities, including ground handling, being turned into separate profit centres. However, the move towards a more liberalised ground handling environment in Saudi Arabia is not expected to happen overnight. “The gestation period will be very, very long,” notes one airline source. “There has been so much talk for so long.” In general, airlines are not faced with a swathe of different choices when it comes to ground handling in the region. “In a lot of jurisdictions, you don’t have the choice. The legislative environment is quite restrictive,” notes Chapman. While the competitive environment within airports may be limited, Chapman points out that airlines can take their business to other airports. “If an airport is too expensive there is always that risk,” he says, pointing out that Dubai, Abu Dhabi and Sharjah, for instance, are all in close proximity to each other. For passenger services, of course, airlines are unlikely to take such drastic action, as passengers will want to fly to particular destinations. However, this is not the case for cargo, Chapman notes. Looking further afield, airlines certainly appear to be interested in the prospect of dealing with less handlers than they have in the past. “The trend is clear,” says Stephan Beerli, Swissport executive vice-president marketing and sales. “Airlines want to simplify their business and make it less complex. We get more-and-more requests for multi-airport deals.” The globalisation of the airline industry is also seeing airlines attempt to gang together to try and hammer-out alliance-wide deals with ground handlers, but with only limited success. “Alliances cannot sign up for all their members. There is no common cash box,” notes Beerli. Even so, it appears that airlines are doing all they can to try and use their alliance muscle. “Airlines are increasingly showing up as an alliance, presenting themselves as one group and trying to purchase ground handling on behalf of the alliance,” says Beerli. He points out, however, that there are huge differences in terms of requirements, procedures, volumes and aircraft types. “There is a point where the airlines are no longer in harmony, and follow their own strategy. Not every airline has the same product. To a certain extent, they are competing,” Beerli continues. “You can put all the check-in counters together, but at the end of the day, airlines will look after their own needs.” There are, however, some examples where alliances have managed to agree deals with ground handlers. Aviapartner, for instance, handles all the SkyTeam carriers at Munich, and three one world carriers — British Airways, Cathay Pacific and Iberia — at Amsterdam. German/Spanish handler Acciona has the contract for oneworld carriers at Frankfurt International. There are sound reasons, however, for the major airlines to try and gang together on ground handling. Pressures to cut costs, even in only fairly minor parts of the cost base, have increased greatly since low-cost carriers arrived on the scene. And the latter have not been shy when it comes to negotiating hard bargains. Beerli claims that the advent of low-cost travel has not had a dramatic affect on the ground handling business, however. “Airlines have different business models, but at the end of the day, ground handling is ground handling. The basic parameters are the same for everybody.” He does add, however, that low-cost carriers are only interested in the vary basic elements of ground handling. Even if ground handling costs are small, technological developments are enabling airlines to revolutionise the way they view this part of their business, particularly through the use of self-service check-in kiosks. Research by airline IT provider SITA, suggests that nearly a third of carriers have dedicated kiosks, with the proportion expected to rise to half within the next couple of years. Much of this is centred on home markets, but common user kiosks are rapidly increasingly in popularity. Within three years, just over half of airlines expect the majority of their passengers to use self-service kiosks, at least in their home markets. Mal Murphy, station operations procurement manager at British Airways, says that carriers find that kiosks, particularly common user self-service (CUSS) kiosks, are becoming increasingly attractive. He notes: “This reduces airline costs, improves efficiency at airports and, in a self-service environment, helps passengers understand how to use the machine through a common and standard interface.” The International Air Transport Association (IATA) has been strongly promoting CUSS as a way for airlines to save money. Murphy says, however: “It is only now that CUSS has become a reality that carriers, ground handlers and the equipment suppliers are starting to wake up to the business and implementation issues.” He adds that airport companies have been quick of the mark in realising the potential of providing this new and lucrative option, and in some cases seem keen to impose a monopoly on the activity. “The outcome in airports such as Brussels and Manchester may set the tone for implementation strategies in the rest of Europe,” he warns. “This should be of concern to airlines and ground handlers alike.” “The concept that airport companies may take control of CUSS and, in time, perhaps control of all self service check-in activities at an airport should be both a great concern and an affront to our sense of natural justice. For an airport company to declare itself the monopoly provider of self service is nothing less than the denial of choice to the carriers and an attempt to stifle competition in a supposedly open market to ground handlers.” The latter are, however, themselves rapidly taking advantage of the self-service concept. In early March, a new web-based check-in IT application developed by SITA for Swissport was launched, with the first customer being SWISS, which is using the system for 19 destinations. The Swissport-SITA alliance is also seeing the introduction of Swissport-branded kiosks on both sides of the Atlantic, programmed to serve up to 60 airlines, including SWISS. Francesco Violante, CEO of SITA INC, comments: “The SITA-Swissport partnership is very important for the air transport industry as a whole if we are to meet the targets for CUSS set out in IATA’s programme for ‘Simplifying the Business’. Our aim is to accelerate the take-up of self-service IT tools by both airlines and airports on a per-use basis which makes these tools accessible for all. The industry cannot afford a proliferation of expensive variants of the same tools.” Bruno Riesen, CIO Swissport International explains: “Some 5,000 SWISS passengers have already used web check-in in discreet trials that have been going on since December. Both Swiss and Swissport are very pleased with the results and the customer feedback. "Web check-in is based on the very latest software technology as used in common-use self-service kiosks. Passengers flying on Swiss can go to www.swiss.com and check in for their flights. They can choose their seat, print their boarding pass, and then simply go to the drop-off location where one of our agents will print their baggage tags and take their luggage.” Chapman says that the introduction of CUSS is going at a slower pace in the Middle East. “It is largely a matter for the airlines,” he says. With liberalisation beginning to show its face, it will be only a matter of time, albeit maybe quite a long time, before they are the norm.||**||

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