Independent thinking

4/16/2020

The coronavirus pandemic will transform the dynamics of the ground handling model forever. And, it might leave a thriving environment for independent operators, if they can navigate the storm, says Wolfgang Fasching, Owner & MD at AGORA Consulting

“The crisis has taken full grip of all of us. Commercial life has become extremely difficult and aviation is one of those industries where the impact is most severe. The Covid-19 cloudburst means even the most prudent companies are rapidly exhausting their liquidity reserves. Cash management is everything at the moment. Companies with the strongest balance sheets could emerge as the winners of this calamity. For our airline customers the struggle for support and government funds is in full swing. The strong and big players hope that weaker rivals will disappear. The answer of governments will be essential for how the future might look like. Will there be generous grants, what conditions for tax-payers money will be attached? Or is nationalization the answer? Who is allowed to keep on, who will be let down?

The general public´s attention is focused on the developments of the airline industry. In its shadow the development in the ground service provider (GSP) market segment is nearly unnoticed. Three of the biggest global players of our industry have actively approached the German government and asked for support. The same happened in the UK.

The narrative is straight forward. Without governmental support most players will be unable to survive in the current situation. Although there seems to be some players that are doing better many system-relevant service providers are feeling the heat. And without GSPs aviation after the crisis cannot function properly!

But what can we expect of the market environment on the ground in the future?

It is worthwhile to take a closer look which players are active in ground handling. The service providers fall into three categories.
  1. Airlines as ground handling providers, doing
    a. Self handling and
    b. Third party handling
  2. Airports as ground handling providers
  3. Independent ground handlers
The consequences and responses of each of them will differ somehow.

Going back in history ground handling provided by airlines was how it all began often based on reciprocity.

Schematic market structure:

And, although the last decades saw many airlines selling their ground operation ventures they are still a big and significant player in this market especially at their hub stations. Their service provision comes in two forms. First of all, they often provide self-handling for their own operations. But very often they are also big players for third parties, be they alliance partners or other carriers.

Schematic market structure:

It is likely that there will be major changes in the airlines´ approach towards these service provisions. The time after the crisis will focus the whole management attention of all carriers on their core business and on all the challenges of starting operations anew thereby struggling to attain profitability. In my opinion it is highly likely that airlines will consider outsourcing and sell what is left of their ground service organizations very soon. Although it has been said in the past that airlines would leave the ground handling market soon, it took much longer than predicted. Consolidation was slow. This time it will become real. Cash will be so scarce and staff issues so pressing that airlines will consider leaving ground handling in an unprecedented scale and in a hurry. Very often plans to get rid of their handling units were already made, but due to union resistance plans were often shelved. This time could be different. And airlines will choose GSPs that they know well enough to trust them that they will offer a good service proposition.

Schematic market structure:

Another significant player in the provision of ground handling services are still airports. Especially in Europe some major airports follow the so-called integrated services approach thereby offering the whole bunch of airline related services.

Schematic market structure:

For some airports the idea of having direct influence in what is going on the ramp was always alluring. Especially if the operations of hub airlines were concerned or in cases where airports were the only service provider. The current crisis hits also airports in unimaginable scales. So, it is highly likely that airports will reconsider their strategic positions and options. Ground handling activities are low margin and low yield business activities especially compared with much higher yielding business segments of airports like renting space or running car parks. In times of scare liquidity and the challenge to rebuild their balance sheets many airports will challenge the position that ground handling is a key business activity in the future. Although the narrative that airports will abandon ground handling has been told for nearly three decades it is highly likely that this time will be different as well.

The current ground handling environment at many airports shows a confusing picture:

Schematic market structure:

With airlines and airports reconsidering their approach towards ground handling the time for the independent ground handlers might have come. It is probably the biggest opportunity since the liberalization of ground handling markets. We could come close to establishing the archetype of the ground handling market that many had in mind when they were drawing up regulation for this industry in the early 90’s with each market participant concentrating on their core activities.


If the current situation eventually leads to this market situation, much will depend on how well the independent ground handlers can navigate through this storm.

And who will be the old and new players in ground handling? I will try to answer this question in the next issue of the GHI Covid-19 Aviation weekly. Speak to you again next Thursday…”