Make It Large

The ground handling market is consolidating with the major players, maneuvering frantically to ensure their share of the spoils.

For the future, Dnata will continue to focus primarily on the Asia-Pacific region although Angus notes “if a good opportunity arises, we will pursue it.” He continues, “We would consider further expansion in Europe but I expect that most of our development will still be in the Asia Pacific region.”
Despite Dnata’s growth, Angus doesn’t believe the market will eventually be shorn of its host of smaller players. “I think there will continue to be consolidation, but there will always be a role for the smaller players,” he remarks. “In my experience, all airlines want to be certain that their handling agent will be flexible to meet their specific requirements and will deliver for them, day in, day out. In this context, many airlines feel more comfortable dealing with a competent medium-sized local player, rather than a global corporate.”

As such, Angus says Dnata’s focus for the time being is on working with the local management teams to maximize the synergies of its newly acquired businesses in Switzerland, Australia and China. “We now have some excellent businesses in our stable,” he notes. “The most pleasing aspect is that we have developed a cadre of high-caliber general managers who are passionate about their work and delivering the highest level of service to their customers. We hope to expand further if the right opportunity arises, but we certainly don’t have any intention to grow as large as our global competitors.”

Core activities
In Asia, Singapore Airport Terminal Services (SATS) expects the global trend toward consolidation in the ground handling market to continue, mirroring the events and strategic alliances in the airline industry. To meet this future challenge, it intends to persist in expanding its joint ventures and acquisitions.

Recently, together with Air India (AI) and Indian Airlines, it has agreed upon a seven-year concession with GMR Hyderabad International Airport Limited to provide ground handling services at the upcoming Rajiv Gandhi International Airport. The facility is scheduled to start operations in March 2008.

The venture follows on from SATS’ deal with Air India for ground and cargo handling services at the new Bangalore International Airport. That airport is expected to open one month after Hyderabad, in April 2008.

President and CEO of SATS Ng Chin Hwee says, “Within a relatively short span of time, we have learnt a great deal from shared mutual expertise and experience in our respective fields. Passenger and air cargo traffic in India’s major cities, including Bangalore, is expected to grow by more than 25 percent in the coming years and we are committed as a partnership to bringing our collective capabilities together to create a world-class ground handling operation at Bangalore airport.”

SATS has some 18 investments in international markets, mainly across the Asia-Pacific region. Countries served include China, India, Indonesia, the Maldives, the Philippines, Taiwan and Vietnam.

It has also widened its scope to the Middle East, signing a two-year collaboration agreement with Qatar Aviation Services in February 2006 to provide management services at Doha International Airport in Qatar.

The company says it intends to make acquisitions that will enhance revenue growth, operations and profitability. Its belief is that as airlines hone their focus to core activities, any ground handling subsidiaries will inevitably be surplus to requirements. SATS will actively explore opportunities to acquire these businesses, if suitable, for its long-term growth plans.

Indeed, there are already rumors of such a trend. A Danish newspaper reported that SAS was considering a sale of all or parts of its ground services division to Menzies.

Although Menzies has firmly denied the story, it is a sign of the prevailing attitude in the market. Menzies, incidentally, recently agreed to buy part of the ground handling arm of Finland’s Finnair.

All about money
Of course, this is all really about finding the best way to make money in an industry characterized by low profit margins. “We would love to see a healthier profit margin scenario, like the airports and other aviation industry players, but we believe that the competition remains tough,” concludes the Swissport spokesperson. “In general the ground handling industry is very dynamic and the market environment is not stable enough for a long-term calculation.

“In other words, as long as a carrier can cancel a contract within 60 days and the ground handlers are not able to adjust the cost accordingly, the actual situation will not change dramatically.”

That is, not unless global consolidation does occur. If that’s the case, the balance of power might shift slightly, the three or four players having far more bargaining strength. Airlines might want flexibility in their provider, but they also want cost-effective quality. Over the next few years, the industry will find out if they prefer to ‘make it large.’

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