To many airlines, it’s the best response to today’s competitive, cost-driven industry. Cooperating with your rival — even going so far as to combine companies — provides economies of scale, access to precious slots and routes and the chance to secure expanded market share at a global level.
To many ground handlers, however, it’s a response that spells trouble. Christine Karels, communications manager at Aviapartner, admits consolidation in the airline market generally leads to lower volumes. “This trend can be a concern,” she says.
Karels points out that profitability isn’t necessarily dented, however, but rather depends on the strategy adopted by the airlines in question. “It’s like when airlines review their fleet mix types, and start using smaller aircraft. This does not always mean a proportional loss in revenue for us, as we can put less staff on a smaller aircraft, for example.”
Nevertheless, the sheer extent of airline consolidation will inevitably affect the ground handling market.
All the major alliances are alive and well and there are merger talks aplenty. For example, Lufthansa and TUI are reported to have agreed on the main points of a merger of their TUIfly and Germanwings airlines.
Meanwhile, Delta and Northwest are in deep discussion and Alitalia has just agreed its sale to Air France-KLM — itself in the merger vanguard. The deal has some way to go though with Italian unions fighting hard to stop suspected cutbacks, particularly at the Milan Malpensa hub. Air France-KLM is also interested in taking a stake in any tie-up between Delta and Northwest. The carriers are all part of the SkyTeam Alliance and Air France and Delta on the one hand and KLM and Northwest on the other already have antitrust immunity from their transatlantic codeshares.
There’s plenty of negotiating being done in the Asia Pacific region too, with Singapore and Cathay Pacific reportedly interested in securing a foothold in China, which itself always has an eye on consolidation of its airlines.
“As liberalization comes and ownership restrictions go, consolidation is all but inevitable,” opines Philip Harnden, executive vice president, commercial, at Menzies. “This issue is probably on the agenda now more than ever before.”
The question is whether this represents an opportunity for ground handlers or a severe limitation on future prospects.
Harnden is in no doubt that it’s the former. “Weaker airlines will go and there will be some mega-carriers with a massive global presence,” he explains. “These huge networks mean that longed-for global deals for ground handlers are finally on the horizon.”
Such agreements would certainly transform the industry — creating some big winners and losers. For the winners it would usher in a new business model, more efficient and almost certainly more lucrative. “Lots more can be done with a global deal,” Harnden agrees. “There’s standardization, for example. This would lower costs and increase familiarization with check-in systems, reservations and equipment. In short, it would mean lower costs, a much better service and a stronger partnership with the airline client.”
For the losers though, it could represent oblivion or, at best, a position on the sidelines of the market.
Not surprisingly then, all the major ground handling companies are positioning themselves to respond to airline mergers and acquisitions. Exactly what is the best strategy, however, is open to question.
Harnden says this isn’t too much of a problem seeing as the ground support market is — and always has been — very much in flux. “It’s a peculiar industry in that if it didn’t exist the way it does, you certainly wouldn’t invent it that way,” he says. “However, it means that change is nothing new and so in that respect the market isn’t changing at all!”
KLM has changed its approach to purchasing ground services by forging what it considers a breakthrough global procurement agreement. June/July 2004 The difficult financial situation that...