Aviation Services, Service Distribution and Ground Handling

special report:serVices2013

JaNUarY 2013

Economic diffi culties faced by the airline sector are having signifi cant knock-on effects on the service companies which rely on it fi nancially. And tensions are rising among industry players as more details emerge about IATA’s vision for its New Distribution Capability

SPECIAL REPORT SERVICES

� ightglobal.com/ab January 2013 | Airline Business | 21

22 Bums on seats How IATA’s New Distribution Capability to improve airline product merchandising is creating a stir

28 Hard to handle Ground service providers feel the pinch as commercial aviation goes through tough times

31 Customer loyalty Why there is growing recognition among airlines that frequent � yer programmes are a means to an end, not the � nal objective

CONTENTS

All our special reports are available online at fl ightglobal.com/airlines

Rex

Feat

ures

� ightglobal.com/ab � ightglobal.com/ab

your purchase history, before they give you a price? This really does start to cross the line.”

Amadeus is also concerned about person-alisation, but from a different angle. Its group communications director, Stuart Brockle-hurst, refers to the concept above as “total polling”. He says: “If you are going to have to interpret data on every individual customer, there must be a reference back to the airlines’ systems and one of the concerns we have is that there will be vast increase in hits and traf-fi c onto the airlines’ websites. It could impact smaller airlines harder as they might not have the infrastructure in place to take the addi-tional traffi c to their website.”

The complexity of distribution, as well as the contradictions with NDC, become evident at this point. Amadeus and other technology providers that host airline websites will pre-sumably see providing the additional IT capac-ity needed for NDC as a business opportunity.

IATA, while not referring specifi cally to Sabre’s concerns above, insists that the regula-tory and legal issues surrounding NDC, although diffi cult, are still manageable. “When-ever there is a big change in an industry, there needs to be a collaborative approach to tackle the technical and business adoption issues. But we also need to make sure that the facts are shared with the government, and the over-rid-ing message we will deliver is that this is pro-consumer. To do this, we need a single voice for the industry which includes airlines, corpo-rate buyers, travel agents,” it says.

Corporate travel is still an important source of income for many airlines, says Tony Berry, director of industry and fare distribution for HRG – one of the big four global travel manage-ment companies that have been part of the pre-paratory discussions. “From an HRG perspec-tive, we welcome this,” he says. “IATA has taken on the responsibility to deliver global standards and airline members see it as an opportunity to

Distribution is one of the many topics airline boardrooms are debating around the globe, and IATA has been on the case for some time. This year it

launched what it thinks is the answer – the New Distribution Capability (NDC).

Work had been ongoing behind the scenes for a year or so, before the NDC was formally launched at the IATA World Passenger Sympo-sium in October. Pilot airlines for the scheme are scheduled to be announced in early 2013.

“The NDC will enable airlines to offer more options to customers and to reach them seam-lessly across all distribution channels,” IATA says. “Airlines will be able to recognise these customers and therefore provide tailored offer-ings, as they already can for those customers who go directly to airline websites.”

The NDC will use open XML standards, which means that airlines can present their product to third party distributors in a more effi cient, accessible and open way than is cur-rently possible, according to IATA.

Aleks Popovich, IATA’s senior vice-presi-dent of industry and fi nancial services, says: “NDC is about growing the revenues for air-lines,” he says. “It is not about reducing the costs of distribution.

“At its own website, the airline is in control of its own content. The challenge the industry faces is to extend this control across agency and other third-party channels. The basic goal of NDC is to open up merchandising to apply across all distribution channels.”

GETTING PERSONALIATA’s relationship with global distribution sys-tem providers (GDSs) has been lukewarm at times, and many industry participants initially saw the NDC as a GDS bypass. However, Popo-vich insists that this is not the case: “We are aware that the GDSs are working hard to improve their merchandising products, but there are real limits as to what they can achieve. The GDSs have been designed for pricing and selling classes. They are not designed for the richer dialogue that is now commonplace in the industry and what travellers expect.”

Nonetheless, the GDSs are concerned about NDC. Shelly Terry, vice-president of airline merchandising for Sabre Travel Net-work, is arguably the most vociferous in her concerns about NDC. “We have been involved with IATA on NDC since the outset. Our observations are based on a detailed analysis of everything IATA has said, and put simply, we don’t see how it would work without sacrifi cing fare transparency, limit-ing comparison shopping and compromising data privacy rights.”

Terry’s biggest concern is in response to IATA’s comments about the personalisation of offers: “Why do you need to tell an airline your marital status, what nationality you are,

SERVICES DISTRIBUTION

January 2013 | Airline Business | 2322 | Airline Business | January 2013

SPECIAL REPORT -HEAD

The launch by IATA of its New Distribution Capability to improve airline product merchandising has set the cat among the pigeons, as GDSs voice concerns over privacy rights, systems integration and third-party costs

■

■

Xxxxx xxxxx xxxxxxx IT, read our analysis with Lion Air chief executive Xxxxxxx Xxxxxxxxxx fl ightglobal.com/??????????

REPORTMARTIN COWEN LONDON

BUMSON SEATS

“IATA is not a pricing engine. I don’t think it could do it on its own”

BRANNON WINNChief commercial offi cer, Vayant

Rex

Feat

ures


your purchase history, before they give you a price? This really does start to cross the line.”

Amadeus is also concerned about person-alisation, but from a different angle. Its group communications director, Stuart Brockle-hurst, refers to the concept above as “total polling”. He says: “If you are going to have to interpret data on every individual customer, there must be a reference back to the airlines’ systems and one of the concerns we have is that there will be vast increase in hits and traf-fi c onto the airlines’ websites. It could impact smaller airlines harder as they might not have the infrastructure in place to take the addi-tional traffi c to their website.”

The complexity of distribution, as well as the contradictions with NDC, become evident at this point. Amadeus and other technology providers that host airline websites will pre-sumably see providing the additional IT capac-ity needed for NDC as a business opportunity.

IATA, while not referring specifi cally to Sabre’s concerns above, insists that the regula-tory and legal issues surrounding NDC, although diffi cult, are still manageable. “When-ever there is a big change in an industry, there needs to be a collaborative approach to tackle the technical and business adoption issues. But we also need to make sure that the facts are shared with the government, and the over-rid-ing message we will deliver is that this is pro-consumer. To do this, we need a single voice for the industry which includes airlines, corpo-rate buyers, travel agents,” it says.

Corporate travel is still an important source of income for many airlines, says Tony Berry, director of industry and fare distribution for HRG – one of the big four global travel manage-ment companies that have been part of the pre-paratory discussions. “From an HRG perspec-tive, we welcome this,” he says. “IATA has taken on the responsibility to deliver global standards and airline members see it as an opportunity to

Distribution is one of the many topics airline boardrooms are debating around the globe, and IATA has been on the case for some time. This year it

launched what it thinks is the answer – the New Distribution Capability (NDC).

Work had been ongoing behind the scenes for a year or so, before the NDC was formally launched at the IATA World Passenger Sympo-sium in October. Pilot airlines for the scheme are scheduled to be announced in early 2013.

“The NDC will enable airlines to offer more options to customers and to reach them seam-lessly across all distribution channels,” IATA says. “Airlines will be able to recognise these customers and therefore provide tailored offer-ings, as they already can for those customers who go directly to airline websites.”

The NDC will use open XML standards, which means that airlines can present their product to third party distributors in a more effi cient, accessible and open way than is cur-rently possible, according to IATA.

Aleks Popovich, IATA’s senior vice-presi-dent of industry and fi nancial services, says: “NDC is about growing the revenues for air-lines,” he says. “It is not about reducing the costs of distribution.

“At its own website, the airline is in control of its own content. The challenge the industry faces is to extend this control across agency and other third-party channels. The basic goal of NDC is to open up merchandising to apply across all distribution channels.”

GETTING PERSONALIATA’s relationship with global distribution sys-tem providers (GDSs) has been lukewarm at times, and many industry participants initially saw the NDC as a GDS bypass. However, Popo-vich insists that this is not the case: “We are aware that the GDSs are working hard to improve their merchandising products, but there are real limits as to what they can achieve. The GDSs have been designed for pricing and selling classes. They are not designed for the richer dialogue that is now commonplace in the industry and what travellers expect.”

Nonetheless, the GDSs are concerned about NDC. Shelly Terry, vice-president of airline merchandising for Sabre Travel Net-work, is arguably the most vociferous in her concerns about NDC. “We have been involved with IATA on NDC since the outset. Our observations are based on a detailed analysis of everything IATA has said, and put simply, we don’t see how it would work without sacrifi cing fare transparency, limit-ing comparison shopping and compromising data privacy rights.”

Terry’s biggest concern is in response to IATA’s comments about the personalisation of offers: “Why do you need to tell an airline your marital status, what nationality you are,



SPECIAL REPORT -HEAD

The launch by IATA of its New Distribution Capability to improve airline product merchandising has set the cat among the pigeons, as GDSs voice concerns over privacy rights, systems integration and third-party costs

■

■

Xxxxx xxxxx xxxxxxx IT, read our analysis with Lion Air chief executive Xxxxxxx Xxxxxxxxxx fl ightglobal.com/??????????

REPORTMARTIN COWEN LONDON

BUMSON SEATS

“IATA is not a pricing engine. I don’t think it could do it on its own”

BRANNON WINNChief commercial offi cer, Vayant

Rex

Feat

ures

� ightglobal.com/ab

clarify the future of distribution.”HRG is still proud of its roots as a business

travel agency, but also sees itself as a technol-ogy provider in its own right. “We have around 300 developers working for us, so the possibili-ties of introducing NDC into a mature booking process are exciting,” says Berry.

HRG works directly with big multinationals, and Berry says clients are increasingly after detailed management information about travel-lers’ habits and patterns. A recurring challenge for both parties is capturing details of spending at all stages of the trip. “Some airlines sell ancil-laries at the point of sale, while others are more interested in downstream sales,” he says.

“From a TMC [travel management com-pany] perspective, NDC looks like it will bring all ancillary sales into the time of purchase and the TMC can therefore make sure the ancillar-ies fi t into company policy. The TMC therefore becomes a more effi cient gatekeeper.”

Another part of the project to be resolved is cost to IATA members and the cost to third par-ties wishing to use the IATA advance passenger information (API) to sell content on behalf of airlines. The fi ner details are still being worked out, but offi cial statements indicate that “the costs will vary from one pilot to the other and depend upon each carrier’s existing solution and there will be no cost to companies who do not wish to participate in NDC.”

INTEGRATION NEEDEDSome travel technology specialists wonder about the economics of developing a new set of standards. Brannon Winn, chief commer-cial offi cer of airfare search specialist Vayant, says: “What IATA is trying to do is put the content in a central place. It’s been talked about before but no-one has agreed what that central space will be. IATA has stepped for-ward and made that decision for the industry, but the industry also includes the aggregators, third parties, tech companies who need to have access to the NDC data and have the abil-ity to integrate it into existing products.”

He was interested to hear more about the project, in particular the pricing element of what IATA appeared to be proposing. Vayant currently buys in prices from ATPCO and the GDSs “at a signifi cant cost” to integrate fares into its shopping tool. “IATA is not a pricing engine,” he says, and “I don’t think it could do it on its own. There’s a huge investment involved. ITA Software has spent a decade on it, we’ve spent fi ve years, GDSs 20 years and more. IATA would need a partner.”

Popovich insists that “generating revenue for IATA from this is not an objective”, adding that “the business case for NDC is driven by the business case for the industry and the ben-efi ts it can deliver. With electronic miscellane-ous document (EMD) and e-ticketing, IATA lost revenues, but this was over-ridden because of the obvious advantage to the industry.

small allotment of seats on certain routes, par-ticularly from regional airports where we can-not operate our own aircraft profi tably. So EasyJet will replace in-house fl ying on some existing routes, but also operate new routes from airports where we have a presence.”

Green is also looking with fresh eyes at the airline side of Thomas Cook. “One of the fi rst big pieces of work we did was look at how much air capacity there is out there with other carriers.” Her argument is that if Thomas Cook can operate a tour operator business more profi tably by buying in seats on another car-rier instead of operating its own fl eet, it will.

Debus declines to comment on NDC, but says he is aware that GDS is an important distribu-tion channel for Thomas Cook airline Condor.

BEST OF WORLDSExpedia is another well known brand that gives airlines another option for distribution. Expedia Affi liate Network (EAN) is a stan-dalone unit of Expedia that provides partners, including airlines, with an API to connect to and sell Expedia negotiated inventory. EAN gives airlines the chance to become tour opera-tors without a fi nancial commitment to hotels.

Chris Wallis, EAN’s director of partnerships for EMEA, says that EAN has a best-of-both-worlds relationship with its parent company. “The quality of the inventory and the rates we offer is better than the GDSs because we have Expedia behind us.” But maybe more relevant is the “detailed knowledge of retailing sci-ence. It’s not just about the tools and rates, it’s the science behind how the product is best displayed in order to convert.

Barry Landes, airline partnership director for EAN North America, adds that airlines could capture loyalty from the hotels via offers and incentives. “We saw one client get an 80% hike in conversion rate when we offered bonus miles for travellers who booked a hotel at the same time as buying their seat.”

Fuel, staff, maintenance are bigger costs for airlines than distribution, but do not generate revenues as such. One problem identifi ed by Sabre about NDC is ironically, “that is just about distribution”. Terry explains: “NDC doesn’t appear to have any connection with how the airlines deliver to the traveller what they have sold. And there doesn’t seem to be any mention in the NDC about disruption man-agement and other operational concerns.”

The word collaboration has been empha-sised in NDC discussions between stakehold-ers. But Terry signs off with the observation: “Yes, we have collaborated, in that we have participated and been part of the discussions. But just because we collaborated doesn’t mean that we agree with it.” ■

Earlier this year, IATA identifi ed “reducing IATA’s service fees and charges to members by $6 million” as one of its 2012 priorities. Popov-ich says: “We understand that airlines are going through a tough time so there is no reason why we shouldn’t too. The $6 million reduction comes through making our existing services more effi cient, by keeping a grip on internal costs and by looking for additional sources of revenues. It is a separate issue from NDC.”

NDC is not the only distribution issue at the moment; changes are afoot in other channels. Another third party distribution for airlines is tour operators. Europe’s big two, Thomas Cook and TUI, are signifi cant airlines in their own right. Thomas Cook’s fi nancial diffi culties have been widely reported and it recently appointed Christoph Debus as head of airline strategy. Debus is tasked with looking not only at Thomas Cook’s own airlines, but also its “purchasing of third party capacity in the tour operator and scheduled businesses.”

The third-party capacity is relevant for air-lines. Earlier this year, Thomas Cook announced a deal with EasyJet, paying up front for a number of seats – believed to be 80,000 – for its summer 2013 schedule. Although it only repre-sents 3% of Thomas Cook UK’s summer capac-ity, it could be a sign of things to come.

So much so that Thomas Cook’s recently appointed chief executive Harriet Green con-fi rmed: “When we think about fi lling demand, we look at the long queue of low-cost carriers and other airlines interested in our 23 million passengers a year. The EasyJet deal is us testing the water, at no huge impact, and it is likely to be a pilot which will be built upon.”

Debus adds some colour to the EasyJet deal. Thomas Cook will use EasyJet not only to help it operate existing routes more effectively but also for incremental traffi c. “We’ve taken a

For more join the debate at the Innovation and Technology in Distribution conference:fl ightglobal.com/distribution


January 2013 | Airline Business | 25

BRENDAN SOBIE IN LONDON

TWO DECK HEADLINE HERE PLEASE

Text here please or bold up text to break up orBox text indent

CROSS HEAD

“We’ve taken a small allotment of [EasyJet]

seats on certain routes”CHRISTOPH DEBUS

Head of airline strategy, Thomas Cook


wide Flight Services’ executive vice-presi-dent, 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 recruit-ment remain diffi cult, especially in improv-ing economies; and training is an ongoing necessity. And Service Level Agreements? They are excellent – when based on reality.”

HARD TIMESFreight aside, handlers have had a tough time of it, and announcements like that of Cathay Pacifi c, which is to mothball some of its fl eet, have not helped. However, in Singapore, Changi has witnessed increasing levels of regional traffi c, which has helped the two main handling incumbents; and in the Phil-ippines, the outlook is reported as bright.

India continues to be a case apart. Inde-pendent handlers have long fl irted 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 infl ation 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-han-dle, 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 occa-sional 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-

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 fl y in the ointment is that the infrastructure is not keep-ing pace everywhere. The signs are, though, that this expansion will continue during 2013.

The Middle East, also, has reported encour-aging levels of activity, although this has not been across the board. That said, handler Dnata, which has been busy expanding its interna-tional reach, has made investments throughout its network to stay at the forefront of the game.

Jon Conway, divisional senior vice-presi-dent, 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 fi nd product innova-tions to differentiate ourselves from the com-petition… to keep one step ahead in order to

win new business and retain existing custom-ers.” 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 coun-try’s airport infrastructure and operating sys-tems 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 Bei-jing Ground Services. “Better cost manage-ment also fi gures: there’s the puzzle of low handling rates against a growing demand for additional and/or better service. Getting qual-ifi ed 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 bell-wether of the whole aviation sector: when the freight graph climbs, the passenger traffi c soon follows. Cargo, though, remains stub-bornly below pre-recession levels. World-

SERVICES HANDLING


It’s been a lean few years in the ground handling sector. The ongoing downturn has meant that belts have had to be tight-ened across the whole industry.

Heading into 2013, what can airlines expect? With many haemorrhaging cash, sav-ings will continue to feature high on their agendas – and handling contract prices will certainly be scrutinised. However, with ongo-ing concerns over ground damage levels and the extent of handler liability, carriers may well fi nd 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 effi -cient handlers; and the carrier cannot, surely, be the only one to appreciate that aircraft handling is a two-way street.

Handlers, lacking a safety net, go bust. The luckier ones may get absorbed by the bigger fi sh 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 han-dlers 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

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 way-side, Chapter 11 bankruptcy fi lings has resus-citated no small number across the Atlantic.

“Quote and quote and quote, four lines is

probably maximum length to be interesting”

QUOTE – PERSON NAMEQuote – person details

■

REPORTALWYN BRICE LONDON

Ground service providers are feeling the pinch as commercial aviation goes through tough times, but airlines that work closely with the industry are likely to gain the most

HARD TO HANDLEfor 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 diffi culty in absorbing the cost.

AFRICAN HOPEThe current handling landscape is a compli-cated 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 benefi ted during the past 12 months, it is argu-ably 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 air-ports, as more and more interest is shown by carriers. Oil and gas have boosted Accra’s

IATA has been vocal in many areas of interest to

the handler, not least those concerning ramp safety and certifi cation

Some handlers see the service level

agreement as a stick wielded by carriers to

enforce a wish list

Lufth

ansa


wide Flight Services’ executive vice-presi-dent, 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 recruit-ment remain diffi cult, especially in improv-ing economies; and training is an ongoing necessity. And Service Level Agreements? They are excellent – when based on reality.”

HARD TIMESFreight aside, handlers have had a tough time of it, and announcements like that of Cathay Pacifi c, which is to mothball some of its fl eet, have not helped. However, in Singapore, Changi has witnessed increasing levels of regional traffi c, which has helped the two main handling incumbents; and in the Phil-ippines, the outlook is reported as bright.

India continues to be a case apart. Inde-pendent handlers have long fl irted 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 infl ation 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-han-dle, 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 occa-sional 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-

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 fl y in the ointment is that the infrastructure is not keep-ing pace everywhere. The signs are, though, that this expansion will continue during 2013.

The Middle East, also, has reported encour-aging levels of activity, although this has not been across the board. That said, handler Dnata, which has been busy expanding its interna-tional reach, has made investments throughout its network to stay at the forefront of the game.

Jon Conway, divisional senior vice-presi-dent, 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 fi nd product innova-tions to differentiate ourselves from the com-petition… to keep one step ahead in order to

win new business and retain existing custom-ers.” 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 coun-try’s airport infrastructure and operating sys-tems 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 Bei-jing Ground Services. “Better cost manage-ment also fi gures: there’s the puzzle of low handling rates against a growing demand for additional and/or better service. Getting qual-ifi ed 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 bell-wether of the whole aviation sector: when the freight graph climbs, the passenger traffi c soon follows. Cargo, though, remains stub-bornly below pre-recession levels. World-

SERVICES HANDLING


It’s been a lean few years in the ground handling sector. The ongoing downturn has meant that belts have had to be tight-ened across the whole industry.

Heading into 2013, what can airlines expect? With many haemorrhaging cash, sav-ings will continue to feature high on their agendas – and handling contract prices will certainly be scrutinised. However, with ongo-ing concerns over ground damage levels and the extent of handler liability, carriers may well fi nd 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 effi -cient handlers; and the carrier cannot, surely, be the only one to appreciate that aircraft handling is a two-way street.

Handlers, lacking a safety net, go bust. The luckier ones may get absorbed by the bigger fi sh 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 han-dlers 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

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 way-side, Chapter 11 bankruptcy fi lings has resus-citated no small number across the Atlantic.

“Quote and quote and quote, four lines is

probably maximum length to be interesting”

QUOTE – PERSON NAMEQuote – person details

■

REPORTALWYN BRICE LONDON

Ground service providers are feeling the pinch as commercial aviation goes through tough times, but airlines that work closely with the industry are likely to gain the most

HARD TO HANDLEfor 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 diffi culty in absorbing the cost.

AFRICAN HOPEThe current handling landscape is a compli-cated 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 benefi ted during the past 12 months, it is argu-ably 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 air-ports, as more and more interest is shown by carriers. Oil and gas have boosted Accra’s

IATA has been vocal in many areas of interest to

the handler, not least those concerning ramp safety and certifi cation

Some handlers see the service level

agreement as a stick wielded by carriers to

enforce a wish list

Lufth

ansa


anticipated revisions to the elderly 96/67 EC handling directive. The original Brussels docu-ment went some way towards opening up the handling market in Europe, although some sta-tions merely paid lip service to its recommen-dations: this led to an uneven playing fi eld, 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 oper-ation in a comparatively short time, and it now operates in almost 30 countries.

Others, such as Swissport, have ebbed and fl owed in their world coverage: what was once an exercise in fl ags 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 uncer-tainty over the eurozone, which continues to affect economies in Europe and around the world, leaving many major economies stagnat-ing 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, inevita-bly, 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 offi ces,” he says.

Consolidation is a word much used in the sector and while the biggest six handlers con-tinue to grow, nonetheless there always seems to be room for a fl edgling 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 Direc-tive 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 carri-

SERVICES HANDLING

30 | Airline Business | January 2013

INDUSTRY’S HANDLING HIGHLIGHTS SINCE 2000 2000: Menzies acquires Ogden

2001: The Vinci Group acquires WFS

2001-2002: Servisair (then Penauille Polyservices) buys GlobeGround

2002: WFS acquires the SEN Group. Menzies acquires GlobeGround UK’s cargo operation, Fr8 in Holland, the cargo operation of Wyng at Heathrow, and Jardine’s ground handling operation. Candover buys Swissport

2004: Dnata buys CIAS; WFS creates Bangkok Flight Services; Swissport acquires Groundstar

2005: Ferrovial buys Swissport from Candover; WFS acquires France Handling; Swissport gains licence at Changi

2006: Menzies acquires major shareholding in Top Service and buys Aeroground; Swissport buys ShinMaywa Ground Services

2007: Aviapartner acquires Aero Ground Services; Çelebi starts operations in Hungary; Jet Aviation is acquired by Dnata

2008: WFS buys a stake in British Airways Regional Cargo; Servisair buys GMD Handlair; Menzies acquires ground handling operations of Novia and cargo handling operations of Airline Cargo Resources

2009: Swissport exits Changi; Aviance UK sold to Dnata and Servisair; Dnata buys Plane Handling

2010: Aviapartner acquires SAT; Dnata acquires Alpha Flight Group

2011: Çelebi opens cargo warehouse at Frankfurt and acquires Fraport Ground Services Austria; the Independent Airline Handling Association becomes the Airport Services Association; Swissport is sold to PAI Partners; Aéroports de Paris sells a major stake in Alyzia handling

2012: Menzies buys Prague Airport Ground Handling; Shanghai Airport Authority, Shanghai Airport, Air China and Cathay Paci� c form the SIAS ground handling company; ASIG buys PLH Aviation and Dryden in Canada; Swissport acquires Flightcare and Inter Handling; Menzies buys Flight Support; Aviapartner is bought by WFS; SAS announces sale of its handling arm

Read how Dubai-based Dnata is looking to further expansion opportunities:fl ightglobal.com/Dnata

er’s likelihood of selling off a stake in its cater-ing 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 con-cerning ramp safety and certifi cation. How-ever, its recommendations have not all been smoothly implemented.

Faced with a colossal ground damage bill every year, airlines have been keen to fi nd 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 han-dler feedback is to be believed, this certifi ca-tion, 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 stand-ardise ramp procedures, again with an altruis-tic aim. However the subject matter, through both its complexity and vastness, continues to baffl e those bent on uniformity. Finally, IATA’s ground damage database, after several years’ which it took to be compiled, has yet to be dis-seminated among the handling community.

GREENER AND LEANERAlthough airlines have their own green agenda, that of the handler cannot be over-looked and without doubt there will be occa-sions 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 benefi ted 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 pres-sure 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 benefi t to the handler, so it becomes yet another fi nancial hurdle to vault. ■

■


SERVICES LOYALTY

January 2013 | Airline Business | 31

Ravindra Bhagwanani is managing director at Global Flight, a specialised FFP consultancy. Together with Airline Business, Global Flight organises the annual Loyalty conference

NEW FLEET EDITIONCUSTOMER LOYALTY

It is not easy to distinguish one single glo-bal trend among airline loyalty pro-grammes. For many their frequent fl yer programmes (FFPs) are characterised by their own individual challenges.

This can range from the requirements for joining an alliance, as Xiamen Airlines and Shenzhen Airlines have just done, to merging two programmes as LAN and TAM are about to do, to generating cash for survival by spin-ning off the FFP, as in the case of Air Berlin.

But aside from such pressing issues, which often push more strategic considerations off the radar, there is a revival of a more customer-cen-tric approach in loyalty departments around the world. The days when airlines thought only about themselves when developing their loyalty programmes seem to be over.

Airlines have lagged behind other sectors in getting the message, but they are starting to understand that loyalty programmes are not an objective in themselves; they are part of the total customer experience management and part of an even wider customer-relationship manage-ment. The real role of loyalty programmes can only be understood when looking at things from the customer’s point of view.

The use of tablets, with stored passenger- and frequent fl yer information by cabin crews at British Airways, recognised in the awards at the 2012 Loyalty conference in Berlin, and American Airlines are classic examples in this area. But even without such considerable investments, there is plenty of room for smaller airlines to act in a customer-centric manner.

Middle East Airlines (MEA) is one such niche carrier, with a reputation of deploying total customer experience, resulting in a strongly loyal customer base. However, Chadi Abou Daher, MEA’s director of customer serv-ices, warns this is not easy: “At MEA we rec-ognise that our passengers’ top priorities are recognition and rewards. Yet they may scale them differently, and their expectations keep evolving, which could put some stretched loy-alty programmes under a strain.”

He cites online tools, airport-priority serv-ices and a generous reward programme as key

elements in MEA’s strategy to enhance the customer experience. There are opportunities in these areas to do things in a cleverer way by putting the customer in the heart of things.

Airlines have also started to reconsider some of the basics of loyalty programmes. Most FFPs reach out to only 20-30% of an air-line’s unique customers. This raises the ques-tion how relevant they are in their current form are for the majority of their customers.

Many airlines are working to extend their reach, for example, by introducing new instant-reward options, such as Etihad’s con-version of any mileage amount into cash loaded to a virtual credit card.

Increasing the penetration rate of FFPs not only helps to exploit upsell potential, but also helps build a more comprehensive database.

There is also a need to fi nd cost-effi cient ways to better serve less frequent travellers. While that investment risks not delivering such a direct return, creating a good reputation has indirect benefi ts, especially in a world where social media is ever more prominent.

Some low-cost carriers such as JetBlue, AirAsia or Cebu Pacifi c have built up a strong

reputation for good customer experience, but traditionally do not approach the topic from the FFP angle. These carriers often joined the FFP game late, so their initiatives have their origin in an honest customer orientation. Combining the best of both worlds, using such efforts with a closer strategic link to their loy-alty strategy, would yield even better results.

Strengthening such customer focus will obviously be well received by passengers. But customers identifying more with an FFP will also contribute higher revenues to an airline, so any such revised strategic orientation will defi nitely pay off for airlines.

It is time not to reinvent loyalty, but to recall what the basic element of any success-ful loyalty strategy consists of – customers accepting it. And thereby, MEA’s Abou Daher’s advice might be worth more than any-thing else: “The key is to keep it simple.” ■

■

FLEET FORECAST UPDATEThe latest six-monthly update to the Flightglobal Commercial Fleet Forecast 2012-2031 will be available in April. The report provides a detailed forecast for the

likely size and shape of the world airliner � eet during the next 20 years. For more information go to:fl ightglobal.com/forecast

Global Flight’s Ravindra Bhagwanani on why there is growing recognition among airlines that frequent fl yer programmes are a means to an end in the customer experience, not the fi nal objective

FORECAST DELIVERIES BY REGION 2012-2031

Africa

South America

North America

Asia Paci� cChina

Europe

Middle East

11,936Total forecast

airlines deliveries

SOURCE: Flightglobal Commercial Fleet Forecast

TAKE YOUR SEATS FOR LOYALTY 2013Chadi Abou Daher, Middle East Airlines’ director of customer services, is among a number of top level industry speakers at the Global Flight/Airline Business-organised

Loyalty 2013. The event will be held on 25-27 February 2013 in Dubai. For details of the programme and how to attend visit: Loyalty-conference.com

Flightglobal InsightQuadrant House, The Quadrant, Sutton, Surrey, SM2 5AS, UKTel: +44 20 8652 8724 Email: [email protected] Web: www.flightglobal.com/insight