With interested parties from ground handling companies, airlines and airports gathered at the IATA Ground Handling Conference (IGHC) in Doha, Qatar, this April, Jon Conway offered an overview of the industry from the ground handlers’ point-of-view.
Conway, who serves as director general of the Airport Services Association (ASA) and vice-chair of the IATA Ground Operations Group (GOG), points out that the industry is evolving rapidly. However, ground handling has been transforming for some time.
“The ground operations landscape has changed over the years, significantly over the last 20-25 years,” he explains. “And I'm talking about the move from self-handling to outsourcing ground operations by airlines.”
Citing a recent presentation delivered by KPMG, Conway notes that in 2007, approximately 24 percent of the ground handling market was made up of independent ground service providers (GSPs). However, in 2017, approximately 50 percent of the market was independent GSPs and 50 percent was self-handled by airlines, their subsidiaries or airport owned ground handlers.
KPMG’s projections suggest that 70 percent of global ground handling will be completed by independent GSPs by the year 2022.
“That’s independent ground handlers, not airport authorities or airline self-handling,” Conway explains. “So our industry is getting larger and larger and larger, and I think it's only right and appropriate that we should have a body like our organization to represent it.”
Industry Overview
Ground handling is a difficult business, and Conway does not foresee it becoming easier. A key reason for this is slim operating margins for GSPs.
While margins may be narrow, Conway says it’s important for ground handlers to work with airlines in order to survive and flourish.
“Airline activities once deemed core, are now outsourced,” he explains, adding airlines are trying to drive down costs and improve revenue streams by turning these items over to third-party handlers.
As an example, he says “who’d have thought 20 years ago, that airline weight and balance would, by many carriers, be seen as an activity ripe for outsourcing to specialist providers?”
Faced with these conditions, Conway also believes the recent trend of consolidation will continue to impact the ground handling market. As “mom-and-pop” GSPs face thin margins, they eventually find their businesses can’t be sustained. That’s when large handlers can benefit.
“The major global players seem to have an appetite to acquire other businesses and I don't see that changing,” Conway points out. “Generally, the larger organizations that acquire these ‘smaller’ businesses are very robust in terms of management systems; they also invest very heavily in technology and their people.”
While some ramp and passenger handling companies may struggle, cargo terminal operations may be a better business. However, Conway explains, cargo operators are also aware that their sector is changing thanks to companies like Amazon, which are having a big impact on the way cargo is shipped and how it is handled.
With the industry changing around them, Conway notes that ground handlers often feel like they are at the bottom of the food chain.
“Airlines still control the Standard Ground Handling Agreement and therefore much of what GSPs do, and how they do it,” Conway says.
He says there is also often a lack of real understanding in regards to what GSPs need to operate in an airport, but he believes that can be remedied by ground handlers becoming much more engaged with airport authorities and designers when facilities are redeveloped. He is keen to work closer with ACI on this.
“I think we need to be much, much smarter … about working together to make sure that when an airport hands over the license to operate (to a ground handler), the handler is actually taking something over which is fit for purpose,” Conway explains.
Future Challenges
As GSPs adapt to key industry changes, Conway urges the industry not to reinvent the wheel when it comes to ground handling regulation.
Rather, Conway encourages GSPs and airlines to utilize programs like the IATA Ground Operations Manual (IGOM) and IATA Safety Audit for Ground Operations (ISAGO).
“We as an IATA group and we as the ground handling sector, would love everyone to embrace IGOM. Training, operational complexity reduction – there is no downside to this model,” Conway says. “It is the way to go, particularly in challenging airport environments, where we already have more than enough complexity and operational risk.”
Conway adds that the ASA finds the principles of ISAGO – a robust audit model – to be very important as well.
“We actually like ISAGO,” he says, noting however that the ASA is not convinced that ISAGO has helped reduce the number of un-required, or redundant, audits. “We still see the ground handler with ISAGO accreditation, registration, and we see an airline coming in and doing an audit – and not necessarily because their regulator, or civil aviation authority, has told them to go and audit their provider.
“So there’s still some work to be done on ISAGO.”
Competition is another sensitive topic in ground handling, Conway notes. On one hand, a sole provider may not be pushed to do the best job possible. But on the other hand, too much competition can spur a race to the bottom in terms of price.
Neither extreme is beneficial.
“Some airports I've worked at required a minimum number of passengers or aircraft movements to enable a GSP to gain a license. The theory was that everybody could have a reasonable return on their investment and run a decent business,” Conway notes, adding that formulas already exist (across the EU for example) to calculate the ‘right’ number of ground handlers at a specific airport. “I personally think there’s merit in a global approach to this issue.”
What’s more, agent turnover has been an ongoing struggle for many independent ground handlers. Providing two extreme examples, Conway says a specific airport in North America cited staff turnover of 160 percent. Meanwhile a colleague from Africa estimated a 0.1 percent turnover rate, preventing new people from becoming involved in the industry.
“So our industry is rife with very different people challenges,” Conway notes. “I think we, as an industry, have some work to do on the people side, especially in terms of ground handling as a career choice.”
Additionally, Conway states the handling industry is well aware of the cyclical nature of the airline economic performance, taking note of the impact of oil prices and other geo political factors outside the airlines’ control.
“We would all love to see sustainable, profitable ground handling businesses, but we'd also like our customers to be equally sustainable and profitable … and that has always been a challenge,” he says.
The forecast growth in air passenger (and cargo) traffic over the next couple of decades will require massive infrastructure investment.
“I don't know how all these passengers are going to be handled,” Conway says. “It's clearly going to require major investment in infrastructure, technology and process reengineering. I am actually quite optimistic that some of the existing pain points at airports will be, by necessity, improved with the use of technology and re-imagining of legacy processes and procedure.
Lastly, technology will have a tremendous impact on ground handling – just as technology has influenced other sectors of aviation. Conway believes fundamental change is coming to ground handling, both above and below the wing, courtesy of technological advancements such as autonomous vehicles and other automated processes.
“At the moment, we employ hundreds of thousands of men and women across the world to load bags into aircraft containers or narrow bodied aircraft. There already exists robotic solutions for this activity and, in my view, certainly in green-field sites in developed countries, we will see robotics taking off. I'm absolutely convinced.”
Continued Change
Conway looks to CEOs and presidents of the major ground handling agencies to constantly look for ways to reinvent themselves -- how GSPs work with their customer airlines, being cognizant of airlines’ cyclical nature of profitability, seek new business lines and find ways of sweating existing assets.
“I think that if we just sit back and say, 'Well this is how we've always done it,' I think we might find we get left behind,” he warns. “However, when I talk to our industry leaders, I can sense a genuine optimism. I think they see a bright and interesting future.”
