Balancing Quality and Cost
By Richard Rowe
The level of airline outsourcing of ground services was again a topic of rich discussion at this year’s IATA Ground Handling Council meeting in Hong Kong, as Martin Lamprecht and Richard Rowe report.
The quality of life for today’s specialist ground handler stands and falls on the airline community’s decision whether or not to outsource its ground services. The problem, for ground handlers at least, is that attitudes towards outsourcing vary from airline to airline.
Today, most major international airlines self-handle at important domestic hubs and outsource some or all services at overseas stations. Very few have completely turned over major stations (domestic or international) to specialist ground handlers. One of the best examples (see GSE Today, September 2000) is Aer Lingus which handed over its considerable ramp handling operations to Swissport at London Heathrow in 1999.
The decision to outsource is rarely easy and is full of complexities. Not surprisingly, those ground handlers who feel they have the managerial and financial strength required argue that the industry is better served when ground handling is outsourced to specialists which can then become an extension of the carrier’s operations in the eyes of the airline and its passengers. They also argue the emergence of a genuinely efficient supply market that gives airlines a chance to really evaluate the financial benefits of outsourcing. They also talk of the need for airlines to focus their managerial resources on core competencies, economies of scale, the scarcity of capital to buy GSE, and sheer cost reduction.
Sound arguments all, but they do little to minimize the challenges for airlines. After all, if not carefully managed, changing from self-handling to contracting out a business process to a third party can involve the kind of operational changes that are hard to bear. And then there is the high number of staff to be taken over. While outsourcing would remove high cost labor from the balance sheet, question marks still surround employee acceptance of such a transfer, not to mention managing any changes in salaries and benefits.
In addition, the very notion of outsourcing threatens the age old (but crumbling) issue of ground handling reciprocity--mutual agreements between carriers to handle each other at domestic stations. As ground handlers are fond of pointing out, such reciprocity is often based more on protecting so-called home interests than because it is a cheaper or even a higher quality option. Outsourcing would, of course, eliminate reciprocity, removing any sense of obligation between airlines and allow them to choose the genuinely best option in ground handling.
What must not be forgotten is that many major airlines come from a background where they have historically always performed their own work. United Airlines, for example, has outsourced some services at domestic stations, such as aircraft and GSE maintenance, but has found it more cost effective to perform its own work on the ramp in the U.S. (although more work is outsourced overseas). Its operational knowledge and considerable resources mean that it is an efficient and cost effective ground handler in its own right, so why turn to someone else?
Ground handlers have plenty of challenges of their own when looking at taking on an airline’s ground operations. From cultural and operational fit to market acceptance, there are almost as many questions to be answered. No ground handler wants to be too dependent on one carrier, but if the business volume is big enough it might be hard to resist. Also, in this world of strengthening airline alliances would taking on the handling of a major player in Alliance A impact on existing contracts with members of Alliance B? It also raises the strategic question about whether a ground handler should position itself to serve a specific airline alliance or as a general service provider (the latter being the position of companies such as Worldwide Flight Services).
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