Years ago, ground handling services at commercial airports were strictly conducted by the airlines themselves. In a move to concentrate on their core business and lower labor and equipment costs, a number of airlines such as American began to contract with third parties to provide the service. However, as the airline and airport industry have evolved, there have been a number of airports that have considered getting into the ground handling service industry for the airlines, similar to the business model of many privately operated airports around the world. But before running out on the ramp and throwing luggage on tugs, airports need to consider the following advantages and disadvantages, as well as a number of other factors.
Advantages
Many commercial airports across the country are notorious for implementing innovative ideas to generate new revenue and to become less dependent upon traditional sources such as landing fees and lease space. Providing ground handling service to airlines for a profit is one of these innovative ideas, and has a number of advantages besides the potential revenue opportunities.
Air service development is one opportunity that should be explored. For instance, the Mobile Airport Authority was faced with challenges of retaining air service when management suggested to US Airways that the airport could provide ground services at a reasonable rate. The airport began service after 9/11, and the staff is now fully-trained in the airline’s systems and operations, including checking in passengers and baggage, selling and issuing tickets, and marshaling aircraft in and out of the assigned parking position. The airport provides all ground handling equipment and was actually able to obtain funding from the Department of Transportation from the Small Community Air Service Development Pilot Program to support the operation. Although a number of the existing airlines at Mobile have not contracted with the authority to provide the service, the operation is a great marketing tool when approaching new airlines to service the market. Reduced staffing, training headaches, equipment cost and reasonable turn rates are great tools in convincing an air carrier to use the airport.
Another advantage of providing ground services is the airport’s ability to control customer service. Anyone who lives in Jacksonville, Flor., will tell you that one of their biggest complaints concerning the airport is the time it takes to get their luggage in baggage claim. For years, the Jacksonville Airport Authority has had to endure complaints from passengers, and management has decided to take a unique approach to solve the problem, which is to offer the ground handling service to the airlines. To ensure a professional approach to the problem, the authority drafted a business plan and decided to acquire the expertise of Fraport AG, a German company that has extensive experience in the business. The operation will not begin until the authority secures a contract with at least one carrier, and the economies of scale will probably not be realized until additional airlines sign up for the service. However, the authority is confident that the long-term opportunities will outweigh the short-term costs.
Airports that do decide to participate will probably experience some synergies, since departments such as human resources, accounting and vehicle maintenance are already in place to support ground handling operations. In fact, management may elect to cross-train employees to diversify the duties of each new employee. For instance, during slow periods or seasonal traffic, employees hired for ground handling could assist with special maintenance projects. Although a number of departments could support the new business venture, management must consider the impact on the employees in regards to the new workload and responsibilities of operating a fast-paced business.
Disadvantages
Obviously, entering the ground handling business has some risks such as increased liability, financial losses, as well as negative customer and airline relations if the operation is not done correctly. One aspect of the business that should be closely analyzed is the labor pool and the turnover that normally occurs with the low-paying jobs. Airport Business Solutions recently conducted a feasibility study for a foreign carrier that was interested in expanding into the cargo ground handling business at a number of large hub commercial airports in the United States. In this analysis, we carefully analyzed the labor market, turnover rates, profit margins, barriers of entry, culture traits and other data to assist the airline in making an informed decision. In the end, the carrier decided not to proceed with the expansion due to the extensive cultural differences. In their county, a position at the airport was in high demand versus the mentality of the US work force. In other words, airports must recognize that the competition for employees in such positions is much different than that for administrative positions, and that the “personal bonus program” can be a problem in the ground/baggage handling industry.
The successful ground handling business model primarily revolves around the amount a company pays in wages and the quality of service. For instance, an airline might pay an agent $18 an hour, while a contractor would pay $10 an hour. The $8 per hour difference times the number of agents at a location can add up to substantial savings. Worldwide Flight Services is a company that has established relationships with several air carriers in the United States, as well as other around the world in order to provide ground handling services ranging from counter personnel to aircraft cleaning. An industry veteran with Worldwide advised that competition is tight and the profit margins are slim. In some cases the margins are so slim that if a station has one or two workman compensation claims that the location loses money.
In addition to the potential losses due to personal injuries, an airport must consider establishing an intensive training program to limit liability on the ramp. Marshaling, towing and performing other ground handling operations to a B757 or MD80 can be hazardous and potentially expensive. Although airports have standard security training and ramp driving classes already established, an intensive training program needs to be established in conjunction with a consultant or expert in the field that promotes awareness and specific knowledge of the fleet they will be handling.
Some other pitfalls that should be examined include the reduced terminal rental space revenue, continuous training cost, no flight privileges to offer employees, and if the airport loses money in the venture, where the funds would come from to cover the losses. For instance, if an airport attempted to make up the lost funds with landing fees under a residual agreement, not very many airlines would be around to load any baggage.
Public vs. Private
The underlying question that should be addressed by each governing body is not whether an airport can operate the ground handling business, but should public airports compete directly with the private industry to provide such services. Airports are charged with the goal of self-sufficiency and a number of airports over the years have decided to operate similar businesses.
For instance, a number of airports currently operate FBOs and the FAA Advisory Circular permits public-use airports to perform the service on an exclusive basis. However, operating a ground handling service to the airlines is a different playing field and airports are not able to be sole providers. Competition from other third parties as well as an airline’s ability to service its own fleet is a market that can be tough to penetrate. Each airport’s governing body should be approached with the idea before great measures are taken to determine the feasibility.
First Step
Taking into consideration all of the points that have been made, an airport that is considering entering the ground handling business should conduct a feasibility study or develop a business plan with its own resources or with the assistance of a consultant that is familiar with the industry. The study, at a minimum, should evaluate the market, calculate the break-even point, determine the potential impact upon air service development, as well as assess which services to offer. For instance, an airport may want to offer ramp services such as baggage management and preparation of planes, while avoiding passenger services such as check-in, boarding of passengers and personal assistance. The airport should also determine in advance whether it is going to do it independently or develop a partnership with a ground handling firm. As the airline industry moves more towards a “virtual airline,” whereas they concentrate strictly on getting passengers and cargo from one point to another, airports should consider capitalizing upon outsourcing opportunities. Ground handling services is one opportunity that should be explored if the conditions are right for profitability and increased customer service.
