It's been a lean few years in the ground handling sector. The ongoing downturn has meant that belts have had to be tightened across the whole industry.
Heading into 2013, what can airlines expect? With many haemorrhaging cash, savings will continue to feature high on their agendas - and handling contract prices will certainly be scrutinised. However, with ongoing concerns over ground damage levels and the extent of handler liability, carriers may well find that working more closely with their handler will reap rewards. After all, 2012 has seen the LATAM Airlines Group host an awards ceremony for its most efficient handlers; and the carrier cannot, surely, be the only one to appreciate that aircraft handling is a two-way street.
Similarly, the independent handler voice is becoming louder and louder under the aegis of the Airport Services Association. Airlines would perhaps do well to monitor its progress, as the organisation gains critical mass.
Handlers aren't akin to airlines, though. While some carriers have fallen by the wayside, Chapter 11 bankruptcy filings has resuscitated no small number across the Atlantic. Handlers, lacking a safety net, go bust. The luckier ones may get absorbed by the bigger fish but since the industry runs on wafer thin margins and labour is cheap and plentiful, in the main, it's not too great a problem to start up an operation from scratch, provided you have a customer or two in the wings.
Faced with their partners, the carriers, which have been anxious to cut operational costs to the bone, handlers, who have always been at the sharp end of the equation, are feeling the pinch more now than ever.
The service level agreement (SLA) has taken on a whole new meaning: some handlers see it as a stick wielded by the carrier to enforce its wish list, while others believe it to be a moveable feast, something that is signed yet morphs as the months pass, with requests for new services, and not necessarily with any pecuniary incentive. And over all this hangs the spectre of rising oil prices: this hits handler and airline alike, but the handler has more difficulty in absorbing the cost.
The current handling landscape is a complicated one to write about, since geographically it's diverse and statistically it's something of a desert. If there has been one region to have benefited during the past 12 months, it is arguably Africa. Passenger volumes and cargo have risen there, contributing to handler optimism. Some airport authorities (such as Accra and Nairobi) have invested heavily in their airports, as more and more interest is shown by carriers. Oil and gas have boosted Accra's stock; and oil, too, has brought more business to Lagos, for example. Certainly, domestic and international airlines are waking up to the vast potential Africa has to offer. The only fly in the ointment is that the infrastructure is not keeping pace everywhere. The signs are, though, that this expansion will continue during 2013.
The Middle East, also, has reported encouraging levels of activity, although this has not been across the board. That said, handler Dnata, which has been busy expanding its international reach, has made investments throughout its network to stay at the forefront of the game.
Jon Conway, divisional senior vice-president, notes that Dubai is about to become the world's third busiest international airport, and so reality is about keeping up with the growth of the home-based carriers, Flydubai and Emirates. "Infrastructure is being developed as quickly as possible, but we always seem to be playing catch-up. Our main challenge is to continually seek ways to find product innovations to differentiate ourselves from the competition to keep one step ahead in order to win new business and retain existing customers." He observes wryly, too, that there are usually several ground handling companies for sale at any one time.
Asia is something of an enigma. In China, better regulation is desired, since the country's airport infrastructure and operating systems have been hard pressed to keep up with the growth in demand being experienced.
"More emphasis on safety is required," says ST Tan, deputy general manager at Beijing Ground Services. "Better cost management also figures: there's the puzzle of low handling rates against a growing demand for additional and/or better service. Getting qualified staff and provision of training with a limited budget remains a problem."
While it is true that there is more and more interest in air travel, here handlers have been left with an old-fashioned modus operandi. It's not all about passengers, though: Hong Kong Air Cargo Terminals is still playing catch-up with freight volumes, although this has not prevented the specialist from investing heavily in its COSAC-Plus cargo management system in anticipation of an upward market swing.
Cargo, of course, has long been the bellwether of the whole aviation sector: when the freight graph climbs, the passenger traffic soon follows. Cargo, though, remains stubbornly below pre-recession levels. Worldwide Flight Services' executive vice-president, Barry Nassberg, reckons that lower entry levels to the market are not helping. "It's a challenge for us to retain operations on a higher delivery level. Labour and recruitment remain difficult, especially in improving economies; and training is an ongoing necessity. And Service Level Agreements? They are excellent - when based on reality."
Freight aside, handlers have had a tough time of it, and announcements like that of Cathay Pacific, which is to mothball some of its fleet, have not helped. However, in Singapore, Changi has witnessed increasing levels of regional traffic, which has helped the two main handling incumbents; and in the Philippines, the outlook is reported as bright.
India continues to be a case apart. Independent handlers have long flirted with Indian companies to gain a foothold in this country but only comparatively recently has a measure of success been achieved. Here, joint ventures have been hamstrung by the pendulum of Indian bureaucracy and the miles of red tape, not to mention an established protectionism where jobs are concerned.
Simon Ng, senior vice-president marketing and corporate affairs at AI/SATS, says India needs to continue with its growth policy and any slowdown will have an adverse impact. He says: "The country has to continue with implementing transparent and consistent business policies and make doing business in India as painless as possible. It also has to ensure that the cost of doing business is kept low, so that companies can have meaningful returns: this entails keeping forex stable and inflation down."
While the USA reels under the effects of the economic crisis, there has been evidence of task and function divestment by some carriers. In particular, the catharsis that is Chapter 11 has prompted American Airlines to outsource as it puts together a renaissance plan. Although North America is still dominated by the airport handler and airlines that self-handle, nonetheless the independents such as Servisair, ATS, WFS, Menzies and Swissport have all been making progress there.
Finally, Europe, the most mature market in terms of handling liberalisation, has seen plenty of handler acquisitions and the occasional withdrawal (see chart). Athina Kapeni, global sales and marketing director with Celebi, says the challenge is in growing and meeting customers' expectations to the full.
"In 2013, our task is to further enhance our global presence and offer increased, added value networking solutions to our customers. We plan to participate in the tenders in Spain and at Frankfurt, and it will be a challenge for us to get there," she says.
The big news in Europe has been the much-anticipated revisions to the elderly 96/67 EC handling directive. The original Brussels document went some way towards opening up the handling market in Europe, although some stations merely paid lip service to its recommendations: this led to an uneven playing field, much criticised by independent handlers.
The revised proposals were released late last year but were not met with universal approbation. More handlers at an airport, which was one recommendation, whilst good for competition, does not necessarily equate to better service. Other points covered service levels and contract length. As anticipated, on 12 December the European Parliament rejected the revisions, referring the document back to the transport committee for further amendment. However there is hope that a compromise package will be put forward in the not-too-distant future.
LESS IS MORE?
A glance at the timeline shown here reveals that acquisition has been the name of the game for the big market players. Menzies, for example, which came off the high street and into the airport sector in the late 1990s, has shown that strategic planning reaps rewards: careful positioning has given it a global operation in a comparatively short time, and it now operates in almost 30 countries.
Others, such as Swissport, have ebbed and flowed in their world coverage: what was once an exercise in flags pinned to the map is now more a case of spotting niches and gaining a toehold, coupled to a long-term vision. The company's president and chief executive, Per Utnegaard, feels that there is ongoing uncertainty over the eurozone, which continues to affect economies in Europe and around the world, leaving many major economies stagnating and businesses reluctant to invest.
"This continues to have an effect on airline passenger numbers and yields, and air cargo volumes remain depressed, with yields under even greater pressure. Challenging conditions in many airline markets around the world mean that airlines continue to face pressures to reduce their costs, and, inevitably, their suppliers' costs. In this kind of environment, in order to stay competitive, we need to reduce our global cost base in all countries and all offices," he says.
Consolidation is a word much used in the sector and while the biggest six handlers continue to grow, nonetheless there always seems to be room for a fledgling operation. Carriers, of course, are not always looking at employing the independent handler; and the airport handler, with the quasi-monopoly, persist within this arena. The 96/67 EC Directive ought to have addressed all this.
But it's not all a story of acquisitions and mergers. Lufthansa has been in the news of late, with rumours circulating about the carrier's likelihood of selling off a stake in its catering arm, LSG Sky Chefs. While the airline is seeking synergies and is attempting to reduce the complexities of its operation, the airline denies any imminent step in that direction.
Also, IATA has been vocal in many areas of interest to the handler, not least those concerning ramp safety and certification. However, its recommendations have not all been smoothly implemented.
Faced with a colossal ground damage bill every year, airlines have been keen to find a solution. To this end the association rolled out a safety audit programme for ground operations, which saw handling operations undergo a full safety audit. However, if handler feedback is to be believed, this certification, once gained, has done little to decrease their customer (airline) audits.
In a similar vein, IATA's ground operations manual concept has been an attempt to standardise ramp procedures, again with an altruistic aim. However the subject matter, through both its complexity and vastness, continues to baffle those bent on uniformity. Finally, IATA's ground damage database, after several years' which it took to be compiled, has yet to be disseminated among the handling community.
GREENER AND LEANER
Although airlines have their own green agenda, that of the handler cannot be overlooked and without doubt there will be occasions where the two parties will need to co-operate on environmental issues.
The momentum for a greener handling operation started years ago in the USA but even there, progress becomes patchy as you travel from west to east. Handlers and airports have benefited from grants, though, and the movement has subsequently crossed the Atlantic. Yet, in the absence of overarching legislation on what ought to be used on the ramp, diesel power reigns supreme. However, around Europe there is tangible evidence of alternative, friendlier fuels in use, particularly at airports such as Schiphol. In Asia, the pressure on a cleaner ramp has yet to materialise, although this is only a question of time.
Investment in green solutions on the part of the GSE manufacturer continues apace and indeed it is a rare supplier now that has no environmentally friendly solution within its portfolio. This can be as simple as a set of solar-powered steps or as complex as TLD's new TaxiBot, which does away with the need for an aircraft to use an engine while taxiing.
While this is all very positive, the fact remains that going green brings little or no physical benefit to the handler, so it becomes yet another financial hurdle to vault.