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...

The outsourcing question is further complicated by the arrival of powerful airline alliances. By definition, airline alliances are designed to maximize and maintain market share, which means that ground services--often a long way down the list of priorities--can find themselves relegated to just one element of a package agreement between carriers.

Consequently, handlers can lose business based on higher alliance decisions rather than on actual performance issues.

"Alliances will be buying handling jointly and some members may start providing handling to the rest of the group using their own staff, which they would have anyway and thus be able to allocate some of the costs to the other partners," says Finnair (and oneworld’s) Rahko.

"On the other hand, there may also be an occasion when a self-handling carrier gives up its own staff in favor of third party handling so that the alliance members can use their full buying power in the negotiations," he adds.

At key stations, an airline’s own staff may be favored for the good of the alliance, but elsewhere outsourcing is a very viable option with the alliance leaving only a skeleton supervisory staff at the station.

Both the Star Alliance (13 members) and oneworld (8 members) recently announced additions to their central management teams, as the focus has begun to shift from expanding each alliance to deepening the degree of cooperation between its members.

Examples of wholesale alliance shopping on the ground remain few and far between, but that is not to discount it happening in the future. The purchase of ground services may not be top priority for alliances, but it is nonetheless an area of operations where good results can be achieved in a relatively short time.

Amsterdam Schiphol is perhaps the best example of a major international airport where the ground handling market has been shaped fundamentally by airline alliances. In March, independent handler AviaPartner picked up its largest single contract when it secured a contract from oneworld worth Euro 30 million (US$30 million). The deal covers 210 flights a week at Schiphol involving BA, Iberia, Cathay Pacific, and Finnair.

The oneworld contract followed a Qualiflyer tender late last year, which was won by Dutchport, the Swissport/Cargo Service Center joint venture. The contract covered 125 flights per week.

Despite these "mega" contracts, the largest chunk of alliance-related handling is still conducted by KLM Ground Services, which looks after its parent and sister carriers and Wings alliance partner, Northwest Airlines.

The other two handlers at the airport, Aero Groundservices (recently bought by GlobeGround), and Ogden (even more recently bought by Menzies), are so far without any alliance agreements and both will be keen to pick up Star, which has hinted that it will tender for ground services at the airport later this year.

With Aero Groundservices now owned by GlobeGround, many feel that Star will head in their direction rather than Ogden’s. Currently, Aero Groundservices handles Lufthansa and SAS, while Ogden handles United Airlines and British Midland.

The question of whether Star will side with Aero Groundservices/GlobeGround highlights just how complex an issue this is. Will alliances in the future simply line up with specific handlers around the world, or will individual members manage to retain service providers at certain stations?

Further complexities arise when it is also considered how many ground service providers have strong relationships with competing alliances. After Lufthansa (Star), for instance, GlobeGround’s principal customer is BA (oneworld).

"One view is that everything will line up with the appropriate alliances, but I think that is simplistic because we are very aware that there are different needs in different locations, and some of the smaller players in an alliance are concerned about not being swamped at a major hub location of the principal carrier," says Peter Smith at Menzies. "Although they work commercially with one another, operationally they see advantages in keeping a little further apart.

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