After just two years at the helm of struggling UK ground handler Groundstar, Managing Director Nigel Daniel has successfully employed outside-industry tactics to affect a remarkable turnaround, writes Richard Rowe.
Today, the company is led by Nigel Daniel who first joined as Operations Director in June 2001 following eight years as Contract Manager and then Head of Operations for ground services at Britannia, and a short stint heading up Servisair's London Gatwick operation.
When Daniel arrived, Groundstar had operations at London's Heathrow and Stansted airports, Manchester, Birmingham, and a head office station in Newcastle. But the handler had lost focus and much of its good reputation. Targets were not being met and shareholders were contemplating their options.
Daniel was given a clear remit to stem the tide and restore the delivery of high quality handling. He was given a matter of months in which to make a difference. Together with his senior management team of Finance Director Donald McIntosh and Operations Director Tina Barbour, Daniel quickly got to work.
However, the crucial balance between quality, price and return remained out of kilter. "This is the standard ground handling dilemma," explains Daniel. "Everyone says they will deliver quality, but really there is only so much you can deliver for a given price."
This realisation precipitated a fundamental rethink in how the company conducted business. Using tactics employed widely in other industries, but largely alien to ground handling, Daniel approached Groundstar's major customers to suggest that if he could continue to provide an improved quality service for the next six months and prove its long-term sustainability, maybe each carrier could reconsider the remuneration offered. Almost every carrier said 'yes.'
"This was a very different approach, as we were not just making promises to get the business," says Daniel. "We actually turned down business that we really needed from a revenue point of view, but couldn't make even a tiny return on."
And that was the key. Underpinning the whole strategy, then and now, was an understanding that Groundstar would not take a contract unless it made a return - a given in many sectors, but out of character for an industry known for clawing at business like a drowning man grabbing a piece of driftwood.
Given the timing, just months after 9/11, it was a scary but not necessarily difficult strategy to write, suggests Daniel. By spring 2002 - when he was promoted to Managing Director - the market had begun to understand the approach.
"This year alone we have walked away from in excess of '5 million ($8m) and stopped negotiations because the price was dipping below the point where we could make a return," he says.
Of course, Groundstar's manageable size certainly aided the cause. While the UK's dominant two handlers, Servisair and Aviance, each turned over around '130 million per annum, Groundstar's turnover was a more modest '18 million. Daniel calculated that if he could take 10 percent from each, Groundstar could add at least an extra '24 million in turnover.
And that is exactly what happened. This financial year, Groundstar's turnover will exceed '44 million. Crucially for long-term success, the company's reputation for providing good quality service has been restored and gained further momentum over the summer.
In the last 18 months, Groundstar has doubled its business at Manchester and added operations at London's Stansted and Gatwick airports. The plan is to add at least one more station a year and ultimately top out at nine or 10 operations around the UK.
Today, Daniel considers the Gatwick operation as a model station. Groundstar became the airport's third ground handling service provider - or fourth if including British Airways' self-handling operation - when it started business in March this year, with charter operator Monarch Airlines as launch customer.
The risk of starting up at such an airport with just one customer was clear. "We knew we had to sign additional airlines in the first financial year, and at least two before the winter, otherwise we would make a major loss," he says. "But throughout, we thought that if we delivered quality the phone would ring."
And ring it did. Groundstar has just signed long-term contracts with Sierra National, the national airline of Sierra Leone; Air Scandia, the UK-based charter carrier; and Canada's Air Transat. Between them, the three carriers bring an additional 12 long-haul flights per week and over 10 short-haul flights. All three were major target customers.
Meanwhile, in Birmingham, Groundstar recently signed up Duo (formerly Maersk Air, a British Airways franchise carrier) on a contract that starts in November and brings an additional 20 flights per day at the airport. "Again, we won the contract because of the quality delivered in Birmingham and elsewhere and have negotiated a fair price," says Daniel. "Both parties are happy."
The Groundstar MD believes that the company's approach has highlighted an important evolution in the industry. Above all, he believes that the old school of ground handler has been caught up - and probably caught out.
"The market has changed, airlines want to cut costs every time you negotiate with them as their margins are also being squeezed. But it is fundamentally wrong to cut costs by taking out labour and using old equipment. All that does is increase the number of delays and overall customer dissatisfaction, which simply increases the overall cost."
Not all handlers will agree, but Daniel suggests that airlines, too, have undergone a step change, not least in their understanding that while quality is paramount and ultimately saves money, it also comes at a certain cost. "It is a message we have driven hard," he says.
But Daniel feels that Groundstar has benefited most from another new approach: genuine cost transparency. All major contract negotiations are now accompanied by a full cost breakdown covering everything from staff numbers, overheads, direct costs and equipment. Everything is laid bare.
"We have given this transparency to seven different customers and six of them have signed contracts with us. The thing that everyone likes is when you get down to price, as everyone does, you can jointly agree where that cost comes out."
Daniel is equally upfront about the margins desired. "Right from the start we indicate what profit margin we want. Such margins are perfectly reasonable and we like to protect them as best we can."
Although such a procedure has been acceptable in many other industries for some time - Daniel says he was doing open book accounting in the automotive industry in 1987 - it is an approach that still smacks of heresy in some ground handling circles.
"Most handlers can't do it because they don't actually understand their costs," he claims. "I believe strongly that if you are going to take a company forward, you have to understand the detail. That is why other service providers in this industry are losing control - there is nobody driving the business that understands the detail."
Company-wide, the feeling now at Groundstar is that it has the necessary reporting procedures in place. By the Wednesday of each week, head office knows to the penny which stations hit their weekly targets, together with key cost indicators such as revenue against budget and labour spent against budget.
"This is the only way you can control a business with margins that are significantly less than 5 percent overall on average," says Daniel. "I would say that if you achieve overall margins of 2-3 percent at the end of any financial year in ground handling at the moment, then you are going great guns."
Daniels suggests that the Groundstar approach can be attributed to a management team that has experience of industries outside of the somewhat insular world of ground handling. Having risen himself as a professional contractor and procurement manager in three different industries - machine tools, automotive, and IT - the buying side of ground handling held few secrets when Daniel first entered aviation as Britannia's head of Worldwide Contracting of Airport Services in 1994.
Similarly, other Groundstar directors bring with them airline and outside industry experience. Also ex-Britannia, Operations Director Tina Barbour started life as a journalist. Meanwhile, Finance Director Donald McIntosh used to work overseas on major capital projects and is also ex-British Airways.
The same rule of thumb applies to middle and senior management. "I want my station managers talking about cost drivers not how many bags you can load into the belly of a B737-800," says Daniel. "That's what our ramp managers are for."
It is about splitting the business from the operation. "The number one trait is that managers have to understand what drives a business forward on cost and quality. We pick our people as business unit managers."
It is perhaps Daniel's detachment - he would argue a healthy one - from the ground handling world that saw Groundstar enter into what proved to be a crucial strategic partnership with TCR International, a GSE fleet management specialist based in Brussels.
From the start of his tenure, Daniel was adamant that Groundstar would not be in the business of buying, managing and maintaining GSE. "It's not core business, but we have all played at it."
Today, Groundstar does not employ a single hands-on GSE specialist at any of its stations. Instead, the handler has signed a network-wide GSE management package that sees TCR supply it with all new equipment with a rolling replacement after five years, including full maintenance and servicing.
The relationship began in March 2002 when Groundstar was awarded a major Ryanair contract at London Stansted (see "Beyond GSE Rental," Ground Support Magazine, March 2002). This involved the near impossible task of sourcing some '2 million of GSE to handle 100 aircraft per day in just six weeks.
"I don't have the management time to worry that I've got a tug broken down in Stansted. I need a contract that says 'if it's broken, it will be fixed in 48 hours and while it's being fixed there will be a replacement'. And that's exactly what we have with TCR around the country."
Long gone, then, are the days when Groundstar, like many handlers, struggled with unpredictable GSE. Pre-TCR, controlling basic month-to-month costs proved to be a financial roller coaster, while delays to aircraft due to equipment breakdown were all too common.
"Now we only pay extra for physical damage that is our responsibility," says Daniel. "Other than that we have a fixed cost for equipment each month."
The result, says Daniel, is that Groundstar's image has been massively enhanced, while the motivation of the workforce is now higher than ever. "In total, we have received more than '5 million in new equipment over the last 18 months. This is likely to increase by several million more in the next year."
Daniel sells the TCR relationship as a major plus point of dealing with Groundstar. Duo, for instance, knows that when Groundstar starts handling its aircraft at Birmingham, it will do so with a brand new fleet of GSE. At the same time, other carriers can rest easy that the handler will not just move all its good equipment across to impress the new customer.
But now that Groundstar is back on track, what of future plans? Daniel continues to explore adding new services to the portfolio, such as cargo handling, and aims to increase turnover to '60 million over the next two years.
Customer-wise, Groundstar already has a good mix of low cost carriers, charters, and full-service scheduled airlines, but Daniel wants more quality business. This means a combination of building business at existing locations and adding stations elsewhere - with larger UK airports such as Glasgow, Edinburgh, East Midlands, and Bristol the most obvious contenders.
Groundstar already has 70 percent of the business at London Stansted - led by Ryanair and easyJet - and 65 percent of the business at Newcastle, so the opportunity for major growth at those two stations is minimal.
However, both London Gatwick and Manchester have huge potential, says Daniel.
"The important point is to have a realistic strategy and then go for it," he says. "But we need a customer to open and get some core business. I flatly refuse to open a base and then lose half a million pounds in the first year of business. Why would you do that with margins that are so tiny?"
With hindsight, other UK ground handlers might be thinking exactly the same thing.