Changi ground handling scene set for shake-up

SIX years ago, Changi Airport took a big step to liberalise its ground-handling market and awarded a new licence for the first time in almost three decades, to global giant Swissport.
It seemed a good move. Passenger, baggage and cargo handling rates fell as did charges for ramp handling which includes parking and towing as well as cleaning of aircraft. This made airlines happy and the airport more competitive. On the surface, the exercise had met its objectives.
But Swissport was bleeding and after four years of operations, called it quits in April last year, having suffered losses of more than $50 million.
Despite the failed attempt, Changi is at it again and intends to have another new player in the business next year, joining incumbents Singapore Airport Terminal Services (Sats) and Changi International Airport Services (CIAS).
Four parties - low-cost carriers Jetstar and AirAsia, Australia's Aero-Care and SIA Engineering - have already expressed interest in the proposal, undeterred by the failure of heavyweight Swissport.
They know that whoever bags the job this time will have a better chance of success in a new competitive landscape, driven by recent developments in the local aviation scene.
With a presence at 178 airports in 38 countries, Swissport is no small fry; yet it managed to secure just four airline customers in its four years here.
A key reason was the common practice of reciprocity, where a carrier with its own ground-handling operation agrees to use another airline's in return for a reciprocal arrangement elsewhere.
With Sats a subsidiary of Singapore Airlines (SIA), there was little hope for Swissport and indeed CIAS to chip away at its 80 per cent share of Changi's ground-handling business. To defend its turf, Sats also reportedly cut rates and renegotiated contracts with airline customers, locking them in for three to five years.
That was then. Today Sats stands alone, separated from SIA after a split last year. The rift was further deepened when Sats declared a few months ago that it was also breaking up with SIA's aircraft maintenance arm SIA Engineering, after obtaining its own ramp-handling licence.
Before, the two were ground-handling partners, with Sats taking care of catering and passenger, baggage and cargo handling while SIA Engineering took charge of ramp handling, including aircraft parking, towing and cleaning.
The big divorce presents opportunities, which Swissport did not have, for CIAS and the new ground handler, to move in on Sats' existing customer base.
Sats must be feeling the heat because it has, in the last 18 months or so, made strategic moves to reduce its reliance on the aviation industry by growing its food arm, most notably with the acquisition of food manufacturer and distributor, Singapore Food Industries.
The Sats factor aside, it is the recent boom in low-cost travel out of Changi Airport that the new ground handler will be able to cash in on.
In its specifications to interested parties, Changi Airport Group made clear that the ongoing hunt is for a firm that has operated in an environment 'with a mix of full-service air carriers and a growing base of low-cost air carriers'. It added that the ground handler should have implemented innovative products and service solutions, in particular to serve the needs of such carriers.
Handling machines and other tools of the trade may be similar but budget airlines often have different operational needs from the likes of SIA.
For instance, a no-frills carrier which sells food and drinks on board instead of offering meals as part of the air fare, may want an option that allows them to return to the ground handler food that is not sold. Also, they are less hung up on performance indicators like how fast a bag appears on the belt after a plane lands.
It is interesting to note that of the four firms in the running for the new licence, two are low-cost carriers and one already services such carriers in Australia.
Given the rate at which budget airlines have expanded their business at Changi, having a hold on this segment of the business would lock in significant market share for the chosen ground handler.
In just under six years, the number of low-cost flights in and out of Changi Airport has jumped by about 90 per cent, contributing to the boom in regional air traffic. Between 2004 and last year, passenger numbers between Singapore and the region grew by almost 40 per cent, outstripping overall growth.
Jetstar Asia, AirAsia and Tiger Airways - the three main low-cost carriers at Changi Airport - now operate a total of more than 1,200 to-and-fro flights a week, about 24 per cent of the airport's total.
When Jetstar's Australia-based boss Bruce Buchanan was in town several months ago, he told reporters that Jetstar and AirAsia, which recently formed an alliance to pool expertise and resources, have agreed that if either of them gets the ground-handling licence, the airline will also be assured of the other carrier's business.
An even bigger prize potentially is Qantas, which owns Jetstar Airways in Australia and 49 per cent of the Singapore-based arm, Jetstar Asia. Qantas is the second-biggest carrier operating at Changi Airport, after SIA.
With fresh opportunities and a new aviation landscape, Changi Airport's second attempt at opening up the ground-handling market looks set to give the industry a good shake-up.


~ The Straits Times, 12/07/10