Ground Services: To Have and To Hold?

Cover Story Ground Services: To Have and To Hold? by Richard Rowe With cost always a major driver, there can be few airlines that have not deliberated on whether to turn existing ground services divisions into separate profit centers or...

As Jukka Rahko at Finnair points out, "When facing the wall, your own staff may be able to create savings that are equal or almost equal to the savings to be gained through outsourcing."

Another model sees ground handling as a major profit center for airlines, something perhaps best exploited by creating dedicated subsidiary organizations. This is the model so successfully carried out by Lufthansa (with GlobeGround) and the SAir Group (with Swissport). Between them, the two handling heavyweights are now present at nearly 200 airports in more than 40 countries.

"Most airlines still consider ground handling, or at least ramp handling, not to be among their core functions, but if it can be provided by a subsidiary of their own, then it is a different situation," says Rahko. "Being separated from the mother company gives the ground handling unit an opportunity to grow outside an airline’s own activities and even handle the competition."

Airline managers see several advantages in evolving such a subsidiary practice. Not only can they concentrate on pure ground handling activities – forgetting about the peaks and troughs of the parent airline – but they can also provide tailor made products to different customers. The parent airline then becomes just another customer, albeit a very large one.

Just as importantly, says Llonch, "You can concentrate on ground handling industrial relations, knowing that they will not interfere with the parent airline."

In the U.S., American Airlines went down a similar route with AMR Services – now the Castle Harlan funded Worldwide Flight Services – while Delta Air Lines formed Delta Air Lines Global Services (DGS) a little over two years ago.

Delta didn’t necessarily want its subsidiary to take over all of its handling at outstations. "Quite the opposite," says Jim McCarthy, General Manager. "There is a realization that we can’t be in every place. In some places a competitor could actually do a better job for whatever reason. Nor do we [DGS] want to be in all of Delta’s locations because that would clearly say we are just consumed with Delta."

As it is, McCarthy sees DGS developing by securing external business, as well as through selective partnering, possibly at specific strategic locations. "We would not rule out an overall strategic alliance or locally based joint ventures or arrangements," he says. "We should look at the issue as broadly as possible, and will adapt to how airlines want us to behave."

While McCarthy can be pretty certain what his parent airline is looking for, other ground handlers claim to be working more in the dark. Some airlines, they say, give the impression of not knowing what they want on the ground from one year to the next. Some handlers even argue that the decision to outsource or not is as much dependent on the personality at the top at the time as any prevailing economic factors.

Llonch acknowledges that airline strategy can very much depend on who is sitting in the airline hot seat. He points to the example of Bob Crandall, the ex-chair of American Airlines, who always said that American’s profits were coming from its "non core" business, only for the new Chair, Donald J. Carty, to sell AMR Services and other subsidiaries and concentrate on flying aircraft.

Llonch continues: "Iberia has decided to establish a fully owned subsidiary for ground handling, maintenance, and EDP systems, despite some years ago our ex-chairman signing an agreement with the unions accepting not to dismantle the company and non core business units."

Others suggest that ground handlers need to look at themselves pretty closely, too. "The lack of continuity may be a problem, but it is the same on both sides," argues Rahko. "The constant changes in the ground handling community, the takeovers, reorganizations, changes in management and the key personnel is a true problem for us also.

"The credibility of some of these companies is getting worse as the turnover of staff in some functions, for example passenger handling, may be so huge that you see new faces almost every day serving your customers," he adds. "And even after a period of good service by a handling company, you may suddenly face a situation where your service worsens because the handling company has started with a new customer that gets all their attention – also at your expense!"

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