Throwing Down the Gauntlet
As the ground support community gathers in Las Vegas for the third annual GSE Expo, it does so in the knowledge that this once neglected side of the business now has a higher profile than ever before, writes Richard Rowe.
By Richard Rowe
The world of ground support has yet to take top billing in the minds of airlines, and in truth probably never will, but it has nonetheless managed to steal a little more of the limelight. Such recognition is good news, but there comes with it the kind of scrutiny that can expose, warts and all.
Phone lines are buzzing between airlines, ground handlers, FBOs, and equipment manufacturers as they each seek to position themselves as key suppliers for the other. The environment on the ground has reached a level of competitive intensity that is likely to test the resolve and flexibility of the entire industry.
Market sophistication is now the name of the game. Power bases are forming. Buyers of ground services and GSE are more demanding. The importance of IT in GSE manufacturing and management is transforming how ground support organizations conduct business.
Industry watchwords have not really changed in the last 12 months, they have simply moved on a pace. The murmurs are still about industry consolidation, the impact of airline alliances, labor issues, and the internationalization of the whole ground services market.
Airlines may not always like it, but they have to deal with ground-based issues one way or the other. The management and maintenance of GSE, and ground services as a whole, have to be tackled in-house or farmed out.
Ground handling--a central link in the airline/handler/manufacturer chain--has advanced irrecoverably. The big Europeans have bought up the big Americans. Traditional reciprocal handling agreements between airlines have been replaced by tailored services offered by a gamut of young operators all eager to make their mark as airlines look for quality over convenience.
As a result, equipment manufacturers are faced with a new breed of customer that wants the same equipment as the airlines, but just a little bit faster. Lengthy lead times are no longer acceptable for organizations such as Aircraft Service International Group (ASIG), Swissport, and GlobeGround--three fine examples of this new breed of handler.
Swissport, in particular, is genuinely taking the traditional supplier-customer relationship forward. Peter Sturzenegger, Vice President Global Supply Management at Swissport International, has turned the company’s supply chain management on its head with recent initiatives.
Previously, Swissport’s more than 100 stations around the world operated very much at a local level in terms of sourcing and purchasing GSE. The result was massive duplication.
As Sturzenegger explains, what was needed was "a shift in paradigm from working vertically to working horizontally" to refine the overall value chain. "We centralized the responsibilities for sourcing and purchasing ground support equipment," he told GSE Today, "by working with local markets on conditions and then on preferred products and suppliers and contracting them centrally." Key Account Management of suppliers became vital.
The process began this spring and is working well, says Sturzenegger. "Once we have decided on the specification, the process is decentralized back to the individual station, and then all they have to do is communicate directly [with the manufacturer] concerning delivery and so on. We also decide on the financial conditions and whether we buy new or second hand."
As Sturzenegger explains, "This scheme represents a transfer of tasks and skills to those most able to perform those tasks. It has been a big culture change."
According to Sturzenegger, the saving potential on purchasing is approximately 15 percent. "It’s not just a question of pricing, as there is only so far you can go with manufacturers on price," he says. "It is also about optimizing our internal and external transactions and working very hard on our actual specifications."
There has been a mixed response from manufacturers. "In general everyone agrees [that it is a good idea], but it is not always easy to go down that road once you get into detailed discussion," he says.
"One big problem is that in the past when manufacturers were dealing with just the airlines, everything was done in a very budgeted way," explains Sturzenegger. "This led to long lead times, and manufacturers were unable or didn’t need to respond so quickly."
Sturzenegger speaks warmly of how manufacturers such as FMC have responded to this new way of thinking. Swissport has worked with FMC Europe, for instance, on passenger stair developments.
"We are very excited that we can work with someone like Swissport in such a way," says Pat Brown, Worldwide Sales Manager, FMC. "It helps us both in terms of nailing down the exact specifications for equipment as well as actual ordering cycles."
This is very much a route that FMC was going down anyway, developing as it has a worldwide network of sales offices that can support customers on a global basis and offer a coordinated product and after sales service.
"Peter Sturzenegger is at the forefront of this [development] with his ideas, not just on pricing but on total needs," adds Brown. "We have worked with Swissport on passenger stairs, but that is just one product--we hope the agreement will cover much more of our product range. We are certainly ready for that."
Others have yet to be exposed to this kind of purchasing, but feel it may be just round the corner for larger customers.
"We normally deal with local people in various countries, but I suspect that other ground handlers will go down a Swissport route of centralized purchasing," says Mike Doane, International Sales Manager, at the UK’s Douglas. "This could be seen to be more difficult for a company like ours as we need to be in contact with the buying team and local people.
"It depends on the degree of centralization," he adds. "Most manufacturers are pretty small, ourselves included. Centrally buying might be easier, although we will always need to keep our faces in front of local teams."
Others such as Dave Christensen, VP Technology and Marketing at U.S. giant, Stewart & Stevenson, believe that "centralized purchasing would make sense and could simplify life for us." Christensen’s view is that such a move would add a degree of standardization and sophistication to the purchasing habits and knowledge of the new breed of ground handling customers. The airlines, he says, are there already.
If not specifically purchasing centrally, other handlers, such as the Ranger Aerospace-fueled ASIG, are at least looking to trim their supplier lists. "We look for partners who can add value through innovation and are responsive to our time lines and economic requirements," confirms Dan Sellas, Marketing Manager.
"We are looking to global suppliers to meet these needs. As with anything, some suppliers are more responsive than others and ultimately we will move more and more business to the responsive suppliers," he adds. "A classic example of this is our very large relationship with the supplier of our new high lift stationary hydrant carts in Atlanta."
Sally Leible, President, Airport Terminal Services (ATS), is all too aware that the forecasting of capital needs for the coming year and communicating those needs to suppliers plays a key role in pricing and delivery.
"We have also found it effective to ‘partner’ with our suppliers and demonstrate flexibility," says Leible. "For instance, if we have a piece of equipment that is replacing a unit we wish to retire, we can work out with the supplier on delivery during their downtime.
"Conversely, we need their clout when we have a short response time needed for a new location or contract."
Not surprisingly, the demands made by ground handlers on their suppliers are mirrored by the demands made on them by their own airline customers. Already highly sophisticated animals operationally, it seems that airlines have become more sophisticated customers of ground services.
For the most part, airlines are increasingly clear about the kind of ground service they want. Low cost carriers aside, most work on the principle that it is no longer about beating down their service providers on price.
"Those with higher yield traffic may take a view that savings in handling costs do not represent a large enough percentage of the total operating cost, and it would be better invested in a more constructive approach with the handling company in an effort to improve quality and customer satisfaction," believes Pravin Jogoo, Ground Operations Manager at Air Mauritius.
Airlines seek the three watchwords of quality, consistency, and price, and need their service providers to start taking ownership of delays and poor service and ultimately managing them out of the system.
With many airline outstations having to meet higher sales targets and cost savings, there is an interesting dichotomy at play. On one side there is a greater shift of operational responsibility from airline to handling agent, while, on the other, the handling agent is now subject to less direct supervision.
"Consequently," says Jogoo at Air Mauritius, "Service Level Agreements (SLA), plus dedicated staff and supervision, must be gradually in-built."
The service providers agree: "Our customers expect us to fully integrate their quality plans with our daily standards," confirms Sally Leible at ATS. "To do this, we must have the ability to consistently, frequently, and accurately measure and trend the various service components. We can meet their needs by getting into their world."
However, developing well-defined SLAs and sticking to them is still a huge task and requires no small amount of trust between the two entities - all the more reason why communication is key if true partnering is to take root and flourish.
"We have a great deal of corporate intervention at the station level so the airline station manager, our ultimate end customer, fully understands what we are trying to accomplish and how," explains Leible. "The partnering ‘spirit’ is definitely the greatest burden of the ground handling provider as we know they can easily make alternate choices."
As ground services are outsourced, airlines increasingly have to rely on operational metrics for input, with performance improvements the domain of the individual service provider.
Ground support has always been, and is likely to remain, a people business. Relationships count; an airline station manager should be a handler’s best friend. But, as the industry gets to grips with the latest power play--the purchase of Ogden by the UK’s Menzies Aviation Group--it raises the question about whether such consolidation is actually any good for the business. Can big still be personal?
"If this personal touch is part of the handler’s culture, this will influence the organization irrespective of the size," believes Pravin Jogoo at Air Mauritius. "To what extent the quality of this relationship can be preserved is debatable.
"With little scope for innovation and differentiation, the need for efficiency will grow thus leading to standard offers based on best practice," he adds.
Leading the Consolidation is Good argument is ASIG. "By consolidating, a handful of companies will achieve the critical mass necessary to build adequate infrastructure that will provide world class training and systems," argues Sellas. "This will support the airlines’ desire to have fewer suppliers providing consistently excellent service on a global basis."
All power to the handlers, but airlines will simply want to know: Will this give us reliable, high performance at a better price?
"Efficiencies of scale and competition will lead to a reduction in handling prices, but reliable performance may not be a natural consequence of consolidation," believes Jogoo. "High exit costs and vested interests may lead to a rather long period of ‘shake out’ on some stations.
"Desperate to keep their price sensitive customers, handlers will focus more on cost than quality. Tied up in global discount deals, airline customers may find it hard to react to quality lapses."
Sally Leible at ATS concurs: "Several of my clients are stating some concerns with this global supplier network. They don’t see rates going down and only see levels of bureaucracy going up.
"In addition, when these large players have an unhealthy portion of one carrier’s handling, it leaves them scrambling if there is a significant service failure," adds Leible. "ATS is confident that there is sufficient market niche remaining to have a successful service organization."
Consolidation, it seems, is as rife in the air as it is on the ground. Airline alliances are beginning to operate more as powerful collectives rather than collections of powerful individuals. There is now much more of a genuine need, and will, to fit ground services within the context of an alliance.
The impact of airline alliances will hit some handlers harder than others. "Clearly they [alliances] will want to establish one identity and streamline to reduce costs and create efficiencies," believes John Bolton, Managing Director at Reed Aviation, a regional ground handler in the UK.
"But this will only impact upon handlers at international, not provincial airports," he adds. "I also believe that alliance supported handlers will have difficulty in taking on any third party handling of non-alliance handlers."
Manufacturers have no doubt observed the purchasing habits of alliances with interest. Some may even wonder whether such centralized purchasing will impact on them directly. Mike Doane at Douglas doesn’t see why not.
"British Airways and Qantas [oneworld] have been playing at it for a while, and we know that any prices we give will be passed on to other members of the alliance," notes Doane.
If it does happen, manufacturers are faced with positioning themselves to become the preferred supplier of not only the large ground handlers, but also for specific airline alliances (or maybe one and the same where an alliance includes a major ground handler).
"The door opens both ways," suggests Doane. "If we can become a preferred supplier, then we could do well, but if not, we might experience a sales drain for a significant period of time. It’s up to us to keep talking with all alliance partners."
Others wonder whether there could develop some kind of airline/handler/manufacturer axis in the future as alliances and consolidation in the industry continue to shape the market.
"We have long created alliances with airlines," says Pat Brown at FMC. "We did this with FedEx years ago when we went with them to Asia and helped them start up. We now have an office in Singapore. Our agreement with Swissport, and hopefully others, is merely an extension of that."
Perhaps more pressing for manufacturers is the consolidation that is taking place in their own backyards. The concept of a third powerbase of "mega manufacturers" to rival those already established in the airline alliance and ground handling worlds has been much discussed.
Manufacturers such as FMC and Stewart & Stevenson have shown a desire to acquire other businesses where there is genuine synergy and added value. It is all about selective purchasing of niche players.
"There is some advantage to consolidation," says Dave Christensen at Stewart & Stevenson. "Big OEMs can bring a lot to the table – the kind of capital and service that the smaller GSE OEMs simply can’t offer when they are on their own."
The idea of large manufacturers offering an A-Z menu of quality equipment is already upon us to an extent. "It’s an obvious next step," says Christensen. "The airlines want to deal with less people."
According to Christensen, commonality of technology is very much part of the Stewart & Stevenson philosophy: "We should have a family approach to products, and all our efforts should be to drive a reduction in maintenance costs for the airlines.
"The big airlines are thinking this way, but we are seeing a two-tier group. The ones willing to pay if it will reduce costs in the long run, and the little airlines who can’t afford to think five years down the line. Really we need an entry level product for some and then a higher level spec for the others."
However, in the same way as smaller handlers believe that they will always have a market niche, the same applies to smaller, highly specialized manufacturers. While consolidation and fuller product lines are inevitable, price is still very important. There is also an argument that says airlines like to stir up competition to the extent that they get multi-station contracts and not just go with one supplier.
Perhaps this is one reason why Pat Brown at FMC advises manufacturers to add strings to their bow. "In the future, manufacturers that are just producing and relying on GSE may not be around for much longer," he argues. "You have to ask yourself how can you help companies manage their assets."
Accordingly, FMC will be using GSE Expo to showcase its new alliance with the WhereNet Corporation on a system designed to track GSE.
"We are entering a new purchasing era," says Brown. "As a large company, we cannot expect to just have a full product line and have customers come to us. We need to be proactive."
Companies such as FMC will play a major role in how the GSE market develops in years to come--a market that Mercer Management Consulting expects to grow by 8 percent annually over the near term, reaching US$1.9 billion in revenues in 2005.
And when a company like FMC warns of the dangers of standing still, it not only highlights the importance of progressive thinking in this business, but also throws down a definite gauntlet for the rest of the industry.