All Together Now

The 'one-roof' concept pursued by global airline alliances for ticketing and
passenger handling activities is much harder to replicate when it comes to joint tendering for ramp services, discovers Richard Rowe

In April, four oneworld alliance members relocated to a purpose-built passenger facility at Zurich Airport in what was one A Lufthansa Boeing 747-400 painted with the new Star Alliance promotional aircraft livery.of the alliance's largest co-location exercises in its four-year history. Three of the oneworld carriers that serve the Swiss city - American Airlines, Finnair, and Iberia -came together on April 1 with British Airways (BA) following a day later. The four airlines, which between them operate a total of 34 flights on most days to and from Zurich, now share 12 custom-built check-in desks and eight ticket counters. All the new facilities bear the logos of the four carriers and the oneworld insignia. The opportunity came about thanks to the latest phase in Zurich Airport's ongoing expansion and the alliance members' ability to leverage their bulk purchasing power to gain significant cost and facility advantages. It is the same bulk purchasing power that has seen Star Alliance carriers and Aeroports de Paris agree to transform Terminal 1 at CDG into a Star Alliance facility and 'mini-hub'. The agreement envisages all Star carriers operating at CDG moving under one roof once extensive upgrades and renovation work have been completed in 2005. A similar concourse is also in the works at Miami. These moves highlight just how far alliances have progressed since their initial formation and focus on marketing; today, as market conditions change and alliance members fly to more destinations, those roles have evolved to include detailed network planning and joint procurement strategies.

Central management
Oneworld was the first alliance to establish a central management unit when it unveiled the Vancouver-based oneworld BueckingManagement Company (oMC) in May 2000. Led by Managing Partner Peter Buecking, previously Director of Sales and Marketing at Cathay Pacific, the oMC manages activity across the alliance together with working groups drawn from senior executives representing each member airline.

The sharing of facilities by oneworld members at Zurich is replicated at some 25 other airports around the world. At Amsterdam Schiphol, for example, BA, Iberia, and Finnair share check-in, baggage services and airport ticket desks in a specially designated part of the terminal.

Similarly, at Frankfurt, BA, and Qantas share overall passenger facilities, with other oneworld carriers - Cathay Pacific, Finnair, Iberia, and LanChile - co-located alongside them. Elsewhere in Germany, at Hamburg, all the on-line alliance members - Aer Lingus, British Airways, Finnair, Iberia, and Qantas - share overall passenger terminal facilities. Meanwhile, across much of the Far East, BA, and Qantas share virtually all passenger terminal facilities, with other oneworld carriers also sharing at various points. At Bangkok, for example, Cathay and Finnair also share their check-in and airport ticket desk facilities.

According to Michael Blunt, VP oneworld Public Relations, this kind of consolidation was a natural step as members turned to the alliance to help them reduce costs when the market first began to soften some three years ago. Of course, the events of 9/11 accelerated that need dramatically.

"We have always been proactive in terms of helping member airlines' efficiency and had a very active procurement group from the very beginning," explains Blunt. "Members knew that oneworld could provide the kinds of services and cost benefits that they could not achieve on their own."

As such, oneworld members have explored joint purchasing initiatives that cover everything from small, in-flight items to more substantial requirements such as aircraft spare parts.

Despite its complexities, ground handling has also been a crucial area of cooperation, with oneworld developing tools to evaluate best practice when sourcing suppliers.

"Ground handling has been one of the most active areas of cooperation, in part because it was recognised that results could be achieved fairly quickly," comments Jukka Rahko, VP, Ground Operations at oneworld member, Finnair.

"It is important for Finnair and the whole group, because we have achieved a great deal," he continues. "In addition to ground handling, we also look at other opportunities such as joint lounge services."

While the past 12 months has seen this process take a step back while individual airlines concentrate on more pressing internal concerns, Rahko is confident that, in future, oneworld members will continue to make their vast collective experience in buying ground services count.

Location specific
To date, the sourcing of ground services has been approached very much on an airport-by-airport basis by both Star and oneworld.

"In principle, the possible handling partners for a joint tender process are assessed by local station management or, in some cases, through evaluation by headquarter departments," explains one ground handling purchasing manager at Lufthansa, a leading member of the Star Alliance.

Aircraft photo courtesy of Skyteam and AlitaliaIn the case of oneworld, alliance working groups audit every airport served by more than one alliance member, looking carefully at facilities and suppliers at each location. The process is usually led by the dominant member carrier, which works to identify a preferred supplier. Once identified, the preferred supplier then negotiates with each member airline individually.

Sometimes it is considered feasible for all partners to cooperate, while other times it can be more trouble than it is worth.

"There are many complexities," admits Blunt. "Airlines, for instance, might operate from different terminals, or be locked into long-term contracts with existing suppliers. And, sometimes, contracts cover all manner of regional arrangements that cover more than just ground handling and so are even harder to step away from."

Interestingly, while oneworld carriers at Zurich have come together inside the terminal, there have been no changes out on the ramp; existing ramp contracts are such that Swissport Zurich continues to handle American Airlines, Finnair, and Iberia, while Jet Aviation serves BA.

sidebar"In an ideal world, where competition allows, all our carriers would operate from the same location and same terminal using the same supplier, but clearly that is not possible at the moment," says Blunt.

For now, when members operate to the hub ofan alliance partner, the tendency is to team up with that homebase carrier if it offers third-party handling. Hence, in the case of oneworld, BA handles Finnair at London Heathrow and both the Finnish carrier and Iberia at Manchester.

"It is natural to try and get together," says Rahko.

But what happens when more than one member has
a major third-party ground handling operation at a location - surely there is great potential for squabbles?

Not so, claims Blunt, suggesting that cost is the key driver and there is little room for accommodating airline "peccadilloes," particularly in the current climate.

"In general, airlines are more attuned to working together," contends Blunt. "The golden rule is that we add value and improve service, with cost the key driver rather than the type of supplier or airline squabbles."

There are, however, many reasons why it does not always make sense to pool services and much often depends on the competitive environment at an airport and the suppliers available.

Airline purchasing managers certainly suggest that there are plenty of airports, particularly in Europe, where they would like to make things happen, but where it is currently very hard because markets have not fully opened.

worker image courtesy of Skyteam and Alitalia"In other cases, it could be that a oneworld carrier identifies a different supplier rather than someone from his own team," adds Blunt. "Similarly, one supplier just might not be able to take on all the carriers together."

The obstacles are the same for all the major alliances. Joint tendering can be complicated by the different scope of services and quality expectations among members, not to mention a lack of joint departure control systems. In addition, joint pricing for each alliance member can result in higher charges for the leading carrier at a specific location.

But there have been some notable successes for alliances in group purchasing of services: oneworld has been very active at airports such as Amsterdam Schiphol and Frankfurt, with Aviapartner and Acciona, respectively, securing handsome group contracts.

Meanwhile, Star Alliance reports successful joint tendering at airports such as Amsterdam, Budapest, Birmingham (UK), Dublin, and Nice. "Joint tendering has been successful in terms of savings, improved quality of services and productivity of carriers," says Lufthansa.

But what kind of handler does joint tendering favour? The preference, it seems, is for network buying from a reduced number of suppliers. However, the idea touted by some ground handlers of a one-stop-shop - the concept of buying all services from one supplier over a large network - is not universally attractive.

"At Finnair, we prefer long-term relationships with a ground handling agent, but our policy always has been and probably always will be that we will not put all our eggs in one basket," explains Rahko. "It is important to have the option to compare quality and price. Also, handlers are stronger in some markets than others, so it's best to pick the best from the crop at each location."

That is not to say that carriers look for single suppliers at every station; Finnair, for example, is handled by GlobeGround/Servisair at all its Scandinavian stations. That said, with price such a factor, network handlers that offer persuasive incentive programmes for bulk purchasers can be difficult to resist.

While the price and quality balance is important, many purchasing managers are at pains to point out that they do not always go for the cheapest option. Reliability counts, and great emphasis is placed on past supplier performance, existing relationships, ground handling training programmes, and service quality follow-ups.

These are all factors that will be put in the melting pot as alliances continue to concentrate on adding value and cutting costs for their members in all parts of their business; after all, in today's climate, the reasons why airlines joined their respective alliances in the first place remain more robust than ever.