Too Many Cooks?

If its public face is impressive, the work going on behind the scenes is no less formidable. The ground support companies have a lot to live up to as the award-winning gateway surges toward the 50-million passengers per annum (mppa) mark but seem to be taking the task in their stride. For example, Hong Kong Air Cargo Terminals Ltd. (Hactl) — operator of SuperTerminal 1 at HKIA, the world’s largest single air cargo terminal — has recently become one of the first companies to be registered under IATA’s Safety Audit for Ground Operations (ISAGO).

Reflecting the industry
Ground handling companies at HKIA are being spurred on by competition. Much like their airport and airline partners, the fight to maintain and increase market share is a fierce one and only the best will survive.

“At HKIA, there are over 20 ground handling agents providing a range of aviation-related services including ramp operations, aircraft maintenance, cargo handling, airline catering, aviation fuel refilling and more,” informs an Airport Authority (AA) spokesperson. “We do not set an optimum number of agents for various services. We intend to provide users of the airport with a choice of service providers and ensure there are sufficient service providers to meet the needs of airport users.

“For example, there are three ramp handlers and three aircraft line maintenance operators at HKIA,” he continues. “In general, these services are non-exclusive and the Airport Authority would introduce additional operators, dependent upon the operational and market needs of the time.”

The Airport Authority believes that by encouraging healthy competition, ground handling agents will compete with each other on service quality and pricing levels, thereby providing their customers with better service at a more competitive price.

During tender assessment, it evaluates the business proposal of franchisees/licensees, including bidding price, technical strength and manpower. Any contracts require the operators to meet a list of key performance indicators (KPIs) beyond the individual Service Level Agreements. A comprehensive monitoring system ensures there are no slackers.

The AA is even heating things up a little. In a recent “renewal” exercise, it included a requirement for using environmentally friendly equipment in its contracts. It has also updated some of the Key Performance Indicators and the spokesperson reveals “new standards will be introduced as necessary.”

Too hot to handle
But is it all becoming too hot to handle for the ground handling agents? Recent activity suggests so. Last year Menzies Aviation pulled out of Hong Kong, selling up to Singapore Air Terminal Services (SATS) for a reported HK$18 million (US$2.3 million).

SATS has taken full control of the passenger and ramp handling services for 11 airlines including Federal Express, Cebu Pacific, Air Canada, Orient Thai and Asiana Airlines. The company already provides cargo services at the airport and believes growing its share of the market will give airline customers a more coherent and efficient product.

Hong Kong Airport Services Ltd. (HAS) has also seen value in consolidation. It recently integrated with Hong Kong International Airport Services Ltd. to form one of the largest ground handling services companies in Asia. At HKIA, it provides passenger handling for 13 airlines, and ramp and cargo services for 37 airlines. On Dec. 1, 2008, it became a wholly owned subsidiary of home carrier, Cathay Pacific.

The “bigger is better” philosophy is not unique to HKIA. It can be seen on the global stage, with giants such as Swissport still viewing consolidation as a long-term trend, putting targets in Japan, South Korea and China on its Asian wish list.

Swissport recently pulled out of Singapore Changi. The company won some significant contracts as the new third licensee but not enough to make it pay against two well-established players, suggesting that size and significant market share really are all-important right now. If Swissport — for all its expertise and experience — can’t compete profitably, then there must be something in the theory.

The timings here may provide a clue to the story. Swissport started in Changi in 2005 — good times; it closed in 2009 — bad times. Maybe consolidation, size and significant market share are temporary strategies. They are not right per se — but they are right for now.