New president and CEO Craig Smyth aims to combine the entrepreneurial culture of WFS with the best elements from his ‘standardisation’ experience at Menzies, he tells Will Waters
The appointment this summer of airport services industry veteran Craig Smyth as president and CEO of Worldwide Flight Services (WFS) appears on the surface to be an excellent match for both the ambitious and acquisitive WFS and the man credited by many for taking Menzies Aviation from relatively small beginnings to one of the largest aviation services businesses in the world.
A chartered accountant by trade, Smyth spent more than 20 years at John Menzies plc, where he served as managing director of Menzies Aviation for 10 years and prior to that as the company’s chief financial officer. But although Smyth had been widely tipped to become chief executive of John Menzies plc, he resigned in August 2014 as the group sought an external candidate for the CEO role.
After working on various merger and acquisition projects for private equity firms, Smyth was approached this year by headhunters working for WFS’ owners Platinum Equity following the surprise departure of Olivier Bijaoui, with Smyth joining WFS at the end of August.
“I think we both got lucky with the timing,” Smyth says. “I’m 49 years old, and I was with my last organisation for 22 years, and there is no end date on this one. So I want to go on for 10 or 15 years and take WFS and keep it up there as the number-one cargo operator and back that up with improvements, as well as taking it into the ground handling scene. And then, in time, build the ancillaries – the lounges, the fuelling, the cleaning, and these other things that might go with it operationally – and what customers might want to buy; get more ‘share of the purse’, as they say.”
Over the last 18 months, Smyth says he has had a lot of time to think about cargo handling and ground handling, and what he and others got right in the past, and got wrong in the past – and to try and make it different, better, more and successful in the future.
So, having spent some time outside of the industry, what are his perceptions about the cargo handling business?
“I think the industry is massively underinvested,” he reflects. “I think it is really still a new industry, independent ground handling and cargo handling. Yes, it has been around for 20-25 years, but it is only in the last 10 years that the big players have got bigger and there is a big pack emerging. There is Swissport, WFS, Dnata, and Menzies. And then there are the regional guys and the small guys.”
He thinks that sometimes the scale benefits are hard to see. “But I think there are scale benefits of having one central infrastructure, be that in London Heathrow for Menzies or Paris for WFS.” These include clear benefits even before you get to things like joint standards or back-office functions.
“It is also about having one CEO, one CFO, one central management team, one consolidation point, one insurance policy – these sorts of things that can be global,” Smyth says. “At Menzies, if we go back 15 years, my head office cost was £10 million; 10 years later, we spent our money differently, but it was still £10 million.” Meanwhile, a regional cargo handler one third of the size would likely have a similar head office cost – a cost that could be eliminated through a merger.
“So you’ve got to be big to get that scale benefit, get that one management team, one set of systems,” he says. “And after that, if you are going to be a global franchise and brand, then you’ve got to have similar standards – at least a baseline of standardisation and simplification, and IT that backs that up.
“And then when an airline is shopping for a handler, they know that WFS in Los Angeles is at least the same as WFS in New York, and there is at least a fighting chance that they are the same as WFS in Paris and in Bangkok.”
The airline then sees benefits from multi-station deals, both in terms of the standards they can expect as well as in the processes and the way that the handler will integrate with its customers.
Smyth believes the benefits of the integrated product or the one-stop shop are far greater in cargo handling than ground handling, where you can handle both ends with the same cargo system and there is a trucking network that you can access.
“So, if you’re an airline, if you fly to the US or Europe, it almost doesn’t matter which airport you have got the belly to fly into, because WFS will be there to make sure that the cargo gets to the right end destination. With ground handling, the plane takes off and it goes somewhere else, and is handled by another handler, and the passenger get off and moves himself and his bags through the airport – whereas cargo needs somebody to push it the 50 metres or 100 metres, and do things to it.
“So, it is really the cargo parts of airlines that are really looking at global programmes, the ‘preferred partner’ type programmes.”
And there is more value to be added in cargo handling from the multi-contract, multisite approach. That allows airlines to limit the number of their own staff needed on the ground, leaving the cargo handler to manage standardisation, consolidation of the reporting, KPI management, and key account management, including, where necessary, staff dedicated to specific airlines.
That said, he acknowledges that there is currently relatively little standardisation across the worldwide operations of even the big cargo handlers.
“I think with WFS, what you get is a brand, but you also get 40 years of cargo history and pedigree from a very passionate and very dedicated management team,” Smyth says. “And a management team who will be entrepreneurial, who will try and prevent problems and try and solve problems when they happen who have tried to locally harness IT, technology, and come up with standards and processes, because that’s what they wanted to do or that’s what the airlines forced them to do.
“But everyone has been focused on the day-to-day job and nobody has been collaborating, so there are lots of little silos – each very dependent on the manager.”
So, where there is a good manager, the business will have a record of good security, good safety, a good P&L account, good customer relationships, customer care, airport relationships, etc. And where the manager is less good, these elements will suffer, in the absence of a consistent system.
“And sometimes good managers peak; sometimes things happen in their personal lives,” adds Smyth. “So, I think WFS has been beholden to that.”
That was the situation he faced at Menzies on the ground handling side 15 years ago, until the company underwent in a programme of standardization – or ‘Starbuckification’.
Even then, the process is never complete. “It was like painting the Forth Road Bridge: you are never quite there,” notes Smyth. “The IT guys would be saying we’re going to V8 or V9, and I would be saying: I just want V5 everywhere!
“But, I think it was getting there with systems, particularly safety and security, and then operational management systems, and a compliance programme checked by an external agency. And that paid some dividends. So, these are some of the things you can do.”
But he stresses that there is nothing wrong with the way WFS has done things up until now. “It is been incredibly successful, arguably more successful than my old company, because the strategy has been very good, and the execution has been down to local management,” Smyth says. What he would like to bring in is “a way of standardising and systemising business, making the average manager a good manager, and making the good manager a great manager; and obviously you have got to have a process to retrain poor managers or redeploy them, or they are out”.
He suggests a similar pragmatic approach on the IT side. “If some have got Cargospot version 3 and others Cargospot version 5 and version 7 comes out, maybe we don’t have to all go to 7, but let’s all get on to version 5, and then we can learn what is good about version 7, and bring that into the business.”
He senses that there is a willingness to go with that approach among the different parts of the business.
“It may just be a honeymoon period, but everyone has been very receptive to me and to the ideas,” he says. “Things will be more difficult when it comes to fundamentally changing the businesses, but to me it is about lots of incremental change; I’m not going to launch a transformational programme, because there is so much that can be done getting up to a good new WFS standard that people probably won’t know it is actually happening.”
The aim is also to try to do it in a way that offers tangible and visible benefits to people on a regional and local basis.
“Correct. And they are thoroughly nice, decent people, all trying very hard, going beyond the call of duty to the business. So, I think they will get with the programmes.”
He also acknowledges the need to find the right balance between local entrepreneurship and initiative versus standardisation and common standards.
“You certainly don’t want to take it away from the entrepreneurship,” he notes. “For me, rather than being a federation of different businesses with a common brand or flag, it is going to be run as a network with central functions.”
That will also take some time to put in place, in part because it involves bringing in new people to the those new central functions, and for those new managers to come up with the policies and procedures and implementation.
“At the moment there are none of those central functions,” explains Smyth.
“I am out recruiting a head of people, head of security and safety; I have got a head of IT who comes in from Swissport on 1 December.”
They will all be in place by the first quarter of next year, but are likely to take six months to bed in and travel and talk to people. “So I still need to rely on the ‘entrepreneurial-ness’ of the business,” he stresses. “And beyond the standardization, each airline still wants something slightly different, they will have a slightly different flavour.”
In addition, he also wants WFS to be involved in standardisation and simplification initiatives that industry bodies such as IATA come up with as well, “because I think that is good for the industry”.
His thinking is to standardize around 80-85%. “Then after that there will be choices as to whether you want to grow your business at this level and have a big growth agenda, or go and chase down incremental diminishing returns from being completely proceduralised and standardized.”
And the plan is for WFS to continue with its expansion, including acquisitions. “For me, WFS is essentially a cargo business,” Smyth says. “There are so many people that have got this deep, deep knowledge and understanding – deeper than mine. And there are things that we can do to optimise some of the cargo business, whether it is IT and productivity; creating more capacity for expansion, as customers grow or to add new customers; to go and add a second facility or a third and fourth facility; to go and create more scale.
“So that will be part of the strategy where we have got a presence – organic market share. And sometimes we may have to make lumpy investments – because if you have got a cargo shed, you can’t add 10% each year because that’s the way the freight traffic moves; sometimes you have to take on five times our need, but we will win more business because there is more business in the market. So we will have to make some calls like that.
“And then we can get into new countries, new regions, as well with cargo.”
Growing ground handling
But alongside this cargo expansion will be a strategy to grow the ground handling business, “and take the good little businesses we have got in North America and Spain, and little bits in Bangkok, and come up with a ‘secret sauce’ formula for ground handling and see if we can get some traction organically”, Smyth says.
At a certain point, the company can also make some bigger calls on ground handling acquisitions. “The top nine ground handlers still occupy just 20% of the total market. So, there is 30% available, and then there is another 50% that the airlines haven’t outsourced yet.
“So, they don’t have to knock the hell out of each other within that 10%. Of course, we will go after every piece of business that we can, but there is still 30% with the small regional players and the local country or station ‘mom and pops’,” Smyth observes.
Synergies of cargo and ground handling
He says there are enough synergies between cargo and ground handling for it to make sense to push further into that ground handling side of business.
“Number one, airlines do tend to buy both together,” he explains. “Some airlines don’t separate cargo out, so they are the ones where it is easy: ground handling includes cargo, so if you’ve got a cargo facility, you get the business. And then there are the bigger cargo airlines like Lufthansa or Emirates, who have bought cargo separately, but maybe now central procurement is having an influence.”
In addition to these elements that the customer is driving, there is also the advantage of already being on an airport, “with a presence, with an infrastructure, with local knowledge about what might be possible and who is looking for a change,” Smyth adds. Other synergies include the opportunity for ground handling staff to use spare office space in cargo facilities, for example where technology has automated some cargo administration functions.
Meanwhile, the integration of the CAS acquisition, completed on 20 February, is going well. “CAS was a rollup of three or four businesses over three or four years, so they have been buying businesses and integrating them for some time, before the process with Platinum and WFS,” Smyth notes.
WFS’s existing business in North America was about a quarter the size of CAS. “So, effectively, it is a reverse takeover of CAS,” Smyth says. “Six months in, they are well down the route of delivering the synergies, and the heavy lifting of the integration will be done by the end of the year.”
Physically, there is quite a lot of consolidation of facilities, where they will end up with fewer cargo warehouses, mostly with WFS moving into CAS facilities. “It is four cargo facilities into three, or three into two, or two into one,” Smyth reports.
“So, there is quite a lot of cost being taken out, in people as well.”
But the business will also be run by better quality people – “because CAS was a much better-run business than the WFS business in North America”, Smyth says.
He says WFS’ European business had always been really strong, but its North America business “lost its way” in ground handling and in cargo.
“CAS was a really good strategic decision, as well as bringing in a good new management team who are all industry stars,” Smyth says. “So, 2017 will be a chance for that business to settle down and improve the quality and consistency of the service.”
He says some of the IT used by CAS is leading edge, especially front end systems such as Cargospot, and it is likely that WFS will globally adopt some of the CAS systems and practices.
“So, they are already talking to some of the Europeans about what that might look like in Europe. So, it might only be that 80% of the ePic system is suitable for Europe, because in the US it is a prepaid system for imports; in Europe, you pay at the end of the month. So, there may be some variations because of that, but essentially the same core system.”
The sharing of the best IT systems throughout the group may also take place in ground handling – for example, a ground handling system in Spain might be rolled out in the US. And some of the systems used by WFS in Bangkok are also said to be world-class.
Sharing best practice
This highlights one of the benefits of being part of bigger system, the sharing of best practice.
“So, I think there will be a levelling up to a good standard, and also sharing of best practice, and then after a couple of years it will be all about looking at a showcase here, and a showcase there,” Smyth says. “There will be a much more collaborative business than before. It will be a network, with empowered people with entrepreneurial spirit, but running to a common set of practices and procedures, and with the IT to back it up.”
But he is wary of introducing continuous improvement processes like ‘Six Sigma’, at least at the current time.
“We will see. There are a few people that we may bring in to look at the optimisation of cargo facilities: how we use the space; the traffic flows within; how we control manpower – do people ‘clock-card’ in? Do we use a biometric scanner? Do we know that people who are there are doing the job; do we know from the training records that they are properly trained for what they are doing? And then have roster planning that talks to that and talks to payroll.
“All of that will be about getting up to a level, and that is two or three years’ work. After that, we can talk about things like ‘Six Sigma’. But as an industry, nobody really gets off on these posh consultancy words; I think people are terrified of them.”
He also intends to steer away from having ‘business-improvement plans’, or ‘transformational managers’ or ‘transformational projects’, instead favouring straightforward ideas and expressions like ‘improving your business’.
“That is what we are going to do,” he says. “We will be really pragmatic.”