This year will be a busy one for European ground handling. By January 2001, most of the region's airports must have opened their doors to competition, ushering in a new era of choice for airlines in services ranging from ramp handling to ticketing and even fuelling.
The European Commission wants ground services to be liberalised at all European Union airports that cater for two million passengers - some 35 airports. The process, which stipulates that at least two parties must bid for every licence, attracted the interest of a great many companies, but the field is narrowing to a limited number of highly focused, well-financed and globally ambitious third party suppliers.
These include Europe-based suppliers such as SAirGroup's Swissport, Lufthansa Group's GlobeGround, Servisair and AviaPartner. US independent players Ogden Aviation and Airport Services International Group have also been active, but Ogden's parent is now selling out of the business, and Airport Services is targeting fuelling which in Europe, unlike in the USA, is still dominated by the oil companies.
There is still much of the estimated c11.5 billion ($11.5 billion) ground services market to open up in the next year. Well-organised unions and political considerations make it difficult to introduce market discipline or change ownership in this highly labour-intensive industry. Aeroporti di Roma (ADR), for example, has been engaged in a protracted dispute with local unions over staff cuts resulting from the airport's ADR Handling joint venture with US handler Ogden. The matter is being complicated further by Alitalia's own streamlined efforts for self-handling, which cannot absorb ADR's now obsolete personnel. Meanwhile, local courts in Germany have been accused of delaying the opening of Frankfurt to competitive tender.
Liberalisation is coming, however, and the benefits for airlines are potentially enormous in quality and cost. Carriers faced with expensive and inefficient monopolies will soon see these give way to specialised ground handlers with global coverage. National flag carriers that have been controlling the market in their hub airports will be forced to allow their competitors to choose the ground handlers they want. Airlines will also be in a strong position to negotiate the type and price of service they get.
Liberalisation will cut prices by 20% in Europe, with the proportion of airline costs accounted for by ground handling falling from 15% to 12%, according to consultants Roland Berger &Partners. The company calculates that the arrival of US independent Ogden at Amsterdam has knocked prices down by 35-40%, while in Stockholm and Gothenburg, the entry of another independent player, French-owned Servisair, has brought airline costs down by 15-20%.
In the UK, which began deregulation before the European Commission's intervention, competition is particularly fierce. At London Gatwick, airlines in the Airport Users Committee recently selected four handlers out of 10 who applied for licences, and at neighbouring Heathrow there are eight suppliers.
But some people think deregulation at Europe's leading hub may have gone too far. "There are perhaps too many operators," says Alex Verougstaete, chief executive and part owner of ground handler AviaPartner.
An attempt by UK airports group BAA to reduce the number of suppliers at Heathrow to six was blocked by the Civil Aviation Authority, but the matter was resolved by market forces. In November, Aer Lingus, faced with competition in a market where margins are typically no more than 4%, sold its ground handling operation to global market leader Swissport.
Airports compete
The intensity of competition and the emergence of specialist firms are raising the stakes for airports that want to compete in this market, such as Paris, Frankfurt, Munich or Rome. According to Roland Berger, one major European airport predicts that the end of its monopoly will reduce its ground handling revenue by 50-70% and it will have to cut its costs by 27% to break even in the liberalised market.
The consultants believe ground handling is not a "core competency" of airports, which will need to concentrate their resources on buying and managing hubs internationally. If they do remain in the market, they will seek joint ventures with independent suppliers, similar to August's ADR/Ogden deal.
Although airlines stand to gain from deregulation in terms of costs, the jury is still out on whether it will improve quality.
According to Wendy Nichols of Roland Berger, some monopoly ground handlers - notably in Germany and Austria - already have a reputation for high standards, but at airports that have fully opened up to competition "there does not seem to be a noticeable increase in quality". This, says Nichols, is despite the fact that airlines choosing a supplier declare that "quality has the final say".
| Major players in ground handling | |||
| Turnover | |||
| Supplier | Ownership | HQ | million $ 1998 |
| Swissport | SairGroup | Switzerland | 625 |
| Frankfurt Airport | Frankfurt Airport | Germany | 486 |
| Ogden Aviation | Ogden Corp | USA | 310 |
| Servisair | Penauille | UK/France | 305 |
| GlobeGround | Lufthansa Group | Germany | 260 |
| Aviapartner | Verougstaete family (75%) | Belgium | 243 |
| ADR Handling | Aeroporti di Roma/Ogden | Italy/USA | 221 |
| Worldwide Flight Services | Castle Harlen Partners III | USA | 220 |
| ASIG | Ranger Aerospace | USA | 170 |
| Note: Ogden Corp is selling Ogden Aviation. Swissport Turnover includes Dynair and GlobeGround figures include Hudson General, both of which were acquired in 1999. Source: Annual reports | |||
Performance measures
Some of the bigger third party handlers are seeking to prove their claims of superior service standards by setting targets and measuring their performance. Servisair has come up with an array of performance targets and measurement methods, ranging from the proportion of baggage items tagged correctly, to time-sensitive criteria such as check-in opening and closing times.
"We want to get away from anecdotal evidence," says Servisair sales and marketing director Keith Purdom. "There is now very much a focus of moving to hard measurable systems. 'Give us a quote for ground handling' doesn't really do it any more. It's like saying 'give us a quote for a car'."
Some suppliers, such as ASIG, are seeking to prove their standards through globally accepted, non-industry-specific quality schemes such as ISO certification programmes.
But many operators, particularly new entrants, appear to need external guidance on the specifics of ground handling, says Roland Berger's Nichols. "There is a great deal of confusion at the moment in the European market as to how to define a service level agreement and what it should dictate, and if we do have a service level agreement, how to control its implementation."
The International Air Transport Association (IATA) says common worldwide standards are essential if airlines are to enjoy the full fruits of deregulation. IATA has come up with a "framework" service level contract and a system of measuring performance that should be verified by outside consultants.
So far there have been few takers - most of them are in the UK and the Far East - but IATA believes the system will spread. "It's a marketing thing," says Colin Temple, a former employee of GlobeGround who is now a member of IATA's Airport Services team working on implementing the project.
"If you have a certificate from IATA which says you've got a system that measures performance and your competition hasn't, you tend to tell your customers about it," he adds.
Temple says consolidation will also help spread the IATAsystem as the major groups adopt the performance and measurement standards in every airport they use. "We anticipate that the overall effect will be to raise industry standards."
Ground handlers appear to support IATA's efforts but, as with the association's well-established standard ground handling contract, they see it as a "starting point" from which to negotiate a tailor-made contract between client and supplier.
Airlines hold on to hubs
Until competition spreads further and suppliers provide proof of a quality service, carriers will not rush to leave the ground handling market.
Roland Berger predicts that although the airports' share of the European ground services market will have halved to 20% by 2003, airlines will maintain their share of about 40%.
Competition is encouraging airlines to move out of the ground handling market, however. "Airlines do self-handling because they are not happy with the price and service level," says Aviapartner's Verougstaete.
Observers say there is little room and time for another Swissport or GlobeGround to emerge and both of these companies are likely to be floated by their airline holding companies within three years. Growth in self-handling is on the cards, however.
The airlines' chief concern appears to be ensuring an efficient, seamless service at their main hubs, particularly in services involving direct contact with the customer. This is why British Airways, normally enthusiastic about outsourcing and already benefiting from a wide choice of established third party suppliers, is fiercely holding on to ramp handling at its London hubs - it recently won a seven-year licence to handle at Gatwick.
KLM, likewise, sees ground services at its Amsterdam hub as too important strategically to outsource to a third party. "In general, deregulation is producing better choice and value to airlines," says the hub. "But we like to keep a firm grip at Amsterdam."
Source: Airline Business
