Under a cloak of darkness at O’Hare International Airport in Chicago, Total Airport Services Inc. runs much of its deicing and additional ground handling services of cargo freighters for a weekly schedule of about 55 flights.
It’s a practice the company has grown accustomed to at the airport since 2007 when it entered the location with its first contracts. Through the challenging climate, the company has continued to perfect its operations, achieving an on-time performance of 99.8 percent for the past three quarters.
Yet the rough economic environment has shadowed much of the operational gains. Though the company has grown its business since its introduction at O’Hare, it has seen a 20-percent reduction in flights — turning the focus to the bottom line.
“We’ve seen a big, big reduction in the amount of traffic throughout the whole system, not just Chicago,” Denny Eichenbaum, senior vice president of TAS. “It’s everywhere. Everyone is dealing with the exact same problem we are. We’re not unique in this.”
Ubiquitous Challenge
The fuel crisis in 2008 led North American carriers to striking losses and slashed capacities. Industry estimates have expected the struggle to continue well into 2009.
According to the International Air Transport Association, the airline industry is estimated to lose $2.5 billion in 2009, with international carriers primarily feeling the hurt and expected to follow suit in the slashing of capacities.
Though IATA estimated that North American carriers could profit with its current capacity schedule, 2009 has shown further plans for downsizing of flight schedules and staff.
It’s a financial calamity hitting just about every part of aviation, including ground handling companies that must support fewer flights. The recent months have seen large players announcing their departure from locations where business has no longer proven fruitful.
With Total Airport Services offering diverse services such as warehousing and facilities maintenance at separate locations, its O’Hare operation has been hardest hit.
Location Growth
Total Airport Services is comprised of 350 employees throughout nine locations in North America, and provides such services as fueling, GSE maintenance and airport terminal services. The company began operations at O’Hare with contracts for deicing and ramp handling services for three international carriers for a total of 18 flights per week.
It has since seen substantial growth at the location, picking up additional contracts in 2008 and now providing services for a total of 10 international carriers.
Though the company has managed to grow, it’s seen about a 20-percent reduction in capacity as the carriers have slashed its schedules. Expecting business for about 70 flights per week, the company is servicing an average of 55.
“Still it’s a substantial growth from when we were handling 18 flights a week, but still not as many as we thought we would be doing right now,” says Jack Evans, president of Total Airport Services. “Now what we’re being told and what we see happening is that the current schedule will continue probably through the first six months of 2009, and then we’re hoping that things start picking back up.”
Eichenbaum says the reductions have come as a result of carriers trying to contain costs. “A good example is China Eastern at O’Hare. Although not one of our customers, they have shut down their operations flying into Chicago right now and they’re trying to regroup,” he says. “We’ve had some carriers that used to fly five, six flights a week into Chicago reduced down to two or three.”
“We’ve had some customers do temporary reductions … that have reduced from their normal eight flights per week down to four per week. That lasted for a month or two. Now they are back to their regular schedule with periodic cancellations, based on their load factors, ” Eichenbaum says.
A Lean Model
With the reductions, the business at O’Hare has remained viable due to the company’s small size and flexible business model, according to Gerald Kolasch, vice president of TAS. “We tend to include our locations in a lot of the business decisions we make as a company and pass the bottom-line responsibility down to the local management. But at the same time, we work very closely with our locations in a supportive role on the corporate side,” he says. “I think that makes a difference because … our local management looks at it as if it were their own business. It’s their own money that’s earned and spent and with that responsibility comes awareness, which in turn leads to better decision making and better customer service. Ultimately, that benefits the entire company.
“As a small company, you do have the advantage of being flexible and being able to respond to situations and market changes a lot faster, a lot more precisely,” he says. “That’s exactly what we’ve been doing: preparing for economic slowdown.”
Cost Consideration
The financial hardship of its customers has prompted the need to provide quality service at less cost. “It puts more pressure on us as the middle guy to try to maintain that quality of service and stay profitable,” Evans says.
Eichenbaum says the company is exploring every financial aspect of its operations — from facilities and insurance costs to pay cuts. “All those things that are kind of fixed-cost items that we’ve taken for granted over the last few years,” he says.
“We’ve gone back to all our local management and asked them to come up with some creative out-of-the-box-thinking ideas to reduce cost or save money and we have conference calls twice a week with all of our locations to monitor the business itself and to discuss a lot of these different ideas,” he says. “So we’re really aggressively pursuing the possibilities of what may have to be done if the market continues to downsize.”
The company has avoided major layoffs up to this point. “It’s stayed pretty much the same and what we’ve tried to do, as I think most American companies, is to trim back some hours, try to find some more efficiencies, hold down overtime but keep people employed and hope that this turns around so that when the carriers do come back, we’ve still got the same people on board and we’re ready to crank up their hours again,” Evans says.
Cautious Growth
The question has become whether or not to pursue growth. “It’s really risky right now to take on a customer who has a real nice fat schedule that is definitely got to be feeling the impact,” Eichenbaum says.
“Maybe we just hold tight,” he says. “We look at opportunities as one off and if we do go into a negotiation, that the negotiation has to consider some kind of protection in there for us that if they downsize or move out of the market that somehow we get reimbursed or compensated for costs that we may have generated to start up that piece of business. And if they’re not willing to accept those terms, we’re not willing to take the contract.”
Should we just tighten down our situation right now, just not look at new business, see what happens with the economy moving forward or do we go hog wild and try to go after every piece of business out there?” he says. “I don’t think that would be too smart of a business model right now to try and aggressively grow in an industry and markets right now that are potentially very volatile.”
All industry estimates and best guesses considered, the future of the industry has remained shrouded. “We’re hoping that given the recent stimulus package that we’ve seen the bottom of the market with the recession and coming back, as I think everybody does,” Evans says. “We’ve got our fingers crossed and are cautiously optimistic that the government is actually doing something that will turn things around.”
