Bid to break ground handlers’ monopoly struggles to take off

Date: 23/11/00

By Renée Cordes

IN MANY ways, EU efforts to open the market for airport ground-handling services have allowed the industry to take off in new directions. But for nearly everyone involved - ground-based firms, airlines, airport operators and even passengers - the journey to full liberalisation of the sector will be turbulent.

Earlier this month, six European companies joined forces to provide passenger, ramp and cargo services at airports in a new cross-border alliance called Aviance. At 34 airports in seven countries, the alliance now offers a wide range of ground-handling services on the airport tarmac. These include loading and unloading baggage, bussing passengers and crew between aircraft and the terminal, towing planes to the runway, cleaning cabins and processing cargo.

The companies involved hope that by combining their local expertise and purchasing power, they will be able to offer potential customers better value for money. Their long-term goal is to branch out into new markets. But even executives of the firms which have signed up to the deal concede that they are flying into a strong headwind as they try to break into a niche market which is still all too often closed to competition.

"It is never easy to break down monopolies," says Robert Kay, commercial director at Spanish-based Eurohandling, one of the partners in the alliance. He argues that while Spain allows foreign firms such as Frankfurt Aviation Ground Services into its market, companies such as his are finding it difficult to establish a foothold abroad. "We are not satisfied with the rhythm of liberalisation in the rest of Europe," he says.

The European Commission may soon provide a helping hand.

Transport chief Loyola de Palacio has just hired an outside consultant to study the extent to which the Union's 1996 ground-handling directive has been implemented properly. The Commissioner's aides say the EU executive eventually may come forward with proposals for new or amended regulations if the study finds weaknesses in the existing rules. "There are a number of definitions which are not crystal clear," explains one.

The current directive calls for the step-by-step liberalisation of ground-handling services at all Union airports with a minimum of 1 million to 3 million passengers a year or at least 25,000-75,000 tonnes of freight. Airports above this threshold are required to allow at least two independent companies to offer these services in addition to air carriers, which have the right to provide them on their own. But the airlines have found that these services require hefty investments in equipment and personnel, and most of them are opting to subcontract them to specialists in the field.

The EU directive also allows temporary exemptions for airports which are not ready to open their markets, but only under very strict conditions, such as lack of capacity or space. From the start, the Commission has held firm in enforcing the rules and has only allowed airports extra time to comply with the directive in a handful of cases. At the end of this year, special privileges granted by the Commission to Berlin's Tegel and Paris' Charles-de-Gaulle airports are due to expire.

But airline industry officials say that, despite the Commission's efforts, they do not necessarily expect the EU to have a fully open ground-handling market from the start of next year. In fact, they fear that just the opposite will be the case.

On paper, at least, all Union airports have broken up their former ground services monopolies. But airlines complain that many have only complied with the bare minimum requirements imposed by the directive and continue to violate the spirit of the rules. "Compared with liberalisation in air transport, this is a very slow and limited business," says Thomas Kropp, head of Deutsche Lufthansa's EU affairs office. "We welcome very much the fact that the Commission is now reviewing the situation."

Kropp points out that many airports have opened ground-handling services to just two outside companies. He argues that this does not even come close to ensuring a truly competitive market, and says carriers are still paying far more for ground-handling services in the Union than they do in the US and Asia. "This is one of the biggest cost factors for airlines," he adds. "We hope that liberalisation will go a bit faster."

In addition, many airlines contend that state-owned carriers still work very closely with state-owned ground-handling operators to maintain a stranglehold on their local markets. At some airports, for example, tenders for ground services are routinely won by the government-backed handler.

Pressure is now mounting for the Commission to explore ways of 'unbundling' these two separate business areas when it reviews the directive. In the meantime, independent ground-handling firms are busy forming cross-border partnerships or seeking mergers and acquisitions, amid expectations that this will be the only route they can take to compete with the big players.

This is especially true for cargo-handling, as space at most airports is severely limited. "In this area, the only way into the game is to acquire somebody who is already doing it," says Alwyn Bryce, editor of UK-based publication Ground Handling International.

At the same time, larger ground-handling operators are continuing to explore foreign markets for expanded business opportunities, with companies such as Belgian-based Avia Partner now active in dozens of airports.

Many airport operators defend their actions in the sector by pointing out that they are not solely to blame for the lack of competition in ground services, insisting that it is possible for any firm wishing to provide such facilities to do so.

Yevgeny Pogorelov, a spokesman for Airports Council International's European division, argues that having too many ground-handling firms in one location also poses security problems. His organisation is currently surveying its members on implementation of the EU directive, at the Commission's request.

No matter who provides ground services, passengers will always blame the carrier when their baggage does not arrive at its proper destination or they miss a flight because the transfer bus was held up. For this reason, the industry has sought to introduce its own standards through, for example, the International Air Transport Association (IATA).

At European level, the Association of European Airlines is drafting a voluntary code aimed at improving service overall which will include provisions on baggage handling, although officials stress that the code will be very general and it will be up to individual airlines to make more detailed commitments.

If industry does not abide by its pledge to boost standards of service, it faces the threat of binding new legislation in several areas from De Palacio, who announced a far-reaching initiative to bolster passengers' rights earlier this year. Airlines also face an even tougher threshold for opening up ground services if the study now being conducted reveals problems.

Looming over all of this for carriers is the threat that they will lose business from travellers unsatisfied with the quality of service either in the air or on the ground. With air transport traffic projected to grow by an annual 5.6% for the next decade or so, Europe's airlines will do their utmost to ensure that EU regulators continue to force even greater competition in the market for ground-handling services.

Major feature. In many ways, EU efforts to open the market for airport ground-handling services have allowed the industry to take off in new directions. But for nearly everyone involved - ground-based firms, airlines, airport operators and even passengers - the journey to full liberalisation of the sector will be turbulent.