Flexible working

posted on 4th April 2018

GSAs are a key part of the air freight market, but while the outsourcing of general sales and services has formed an important part of the development of the sector, what does their use mean for quality, efficiency and the modernisation of air freight, particularly as the sector struggles to make progress with digitalization and e-freight? Technology professionals have expressed concerns that GSAs’ fears about losing control of the sales and bookings process – or slowness to embrace and invest in new technology – may be holding back much-needed digitalisation of air freight, but are these concerns justified?

CAAS asked a range of airlines around the world about the extent to which using a GSA or GSSA affects their quality, performance, and efficiency levels, and the responses were about as mixed as the strategies regarding their use among the various carriers. If it is possible to make a generalization, all things being equal, most of the leading airlines prefer to handle the majority of their cargo-related sales and services operations in-house, often for reasons of perceived quality. And where they are used, the primary reason cited is the advantage of having variable costs versus fixed costs.

But all things are not equal, and in practice, the majority of air cargo carriers use a mixed approach, with in-house staff often used within the airline’s home market, and with GSAs often contracted for some or all of the international locations that they serve. Local expertise and contacts favors GSAs in many cases, carriers acknowledge.

The extent to which carriers are able to maintain consistent quality standards when using GSAs depends on how they monitor the GSA’s performance. Achim Martinka, Atlanta-based vice president, the Americas for Lufthansa Cargo, says Lufthansa Cargo measures GSAs by the same key performance indicators and the same targets as its own regular stations. The carrier uses weekly reviews and monitoring to ensure that deviation management is performed in the same manner as in its own stations.

Less control

“In an outsourced environment a vendor typically has less control over the operations at the GSA site,” Martinka says. “Hence, Lufthansa Cargo has its own system to measure quality and performance levels of a GSA. Communication and a long-term cooperation are the key elements of a successful management of the station. To maintain a high quality level, Lufthansa Cargo uses a check and balance system to monitor GSA performance.”

Functions performed by GSAs for Lufthansa depend on whether the GSA has been established with a country or non-country function. Martinka says country GSAs represent Lufthansa Cargo fully in the respective country. Typical contractual tasks include active sales, customer contracts, sales bookings, charter requests, claims, irregularities, marketing, accounting and bookkeeping, liaising with authorities and CASS, taxation, and legal affairs, for example.

“In countries with an existing Lufthansa infrastructure, be it Deutsche Lufthansa and or Lufthansa Cargo, the GSA usually performs mainly active sales and bookings and has a non-country function, Martinka says. “All other activities are performed by the existing Deutsche Lufthansa or Lufthansa Cargo organization.”

Hybrid model

Lufthansa Cargo opts to establish so-called “country GSAs” in countries where it has no presence, with the GSA then representing the carrier and handling all functions. “Large markets may have a hybrid model with parts of the country being looked after by the Lufthansa Cargo sales force and other parts being outsourced to the GSA,” he says. “In this case the GSA model also complements Lufthansa Cargo’s sales team.”

Martinka says using an internal organization or outsourcing for sales activities is a strategic decision and must be determined on a case-by-case basis, taking into account the triangle of cost versus flexibility versus control of the operation. He adds that establishment of a GSA arrangement may be considered a risk mitigation factor, helping the carrier to cope better with market volatility and the high cost of market entry.

“Locations where Deutsche Lufthansa is already established are easier to enter for Lufthansa Cargo, since the basic legal and accounting structures of the Lufthansa Group are already in place, enabling us to benefit from our cooperation within the Lufthansa Group,” he says.

He says long-term relationships with GSAs enable the airline to establish trust and a presence in markets, while experienced GSAs provide thorough knowledge of local markets and individual national regulations, Martinka says. And he doesn’t believe that the use of GSAs has any effect on the move to e-freight by cargo airlines.

“National regulations and customs rules play a more important role in this context than a GSA or non-GSA set-up,” Martinka says. “Some country-specific system requirements are difficult to lift, regardless of whether they are handled by the Lufthansa Cargo organization or by the GSA. The GSA set-up has no impact on the development of e-freight.”

Southwest contrast

In contrast, US low-cost carrier Southwest Airlines hasn’t used GSAs in more than a quarter century. After outsourcing cargo sales in its early years, the Dallas-based carrier converted its sales organization to an all-Southwest employee operation in the late 1980s. The strategy seems to have been successful, as the carrier it is a consistent winner of cargo industry awards.

But that practice is about to change, says Wally Deveraux, Southwest’s senior director of cargo and charters. As Southwest has gradually absorbed the acquisition of AirTran, international routes were added, including carrying cargo to and from those destinations. As a result, Southwest will begin using LDJ Transport Logistics as its GSA in San Juan, Puerto Rico, this spring. “They know the market very well and they can sell on our behalf,” Deveraux says. “It offers a variable cost model without the complexities of putting employees in an international market.”

How many GSA stations will Southwest add? Deveraux says that remains to be determined and depends on the markets served and the number of flights. Southwest’s international cargo expansion focuses on Latin America. The carrier’s international destinations also include Mexico City, Cancun, Mexico, Montego Bay, Jamaica and Aruba. It is adding flights to San Jose, Costa Rica, Puerto Vallarta, Mexico and Belize City, Belize this year.

He says Southwest may consider moving beyond just sales, using GSSAs to provide a wider range of services on international routes in the future where it makes sense, although there are no current plans to use either in the US.

Elsewhere in North America, Alaska Airlines is another cargo carrier that prefers to keep sales functions in-house, according to Betsy Bacon, managing director of Alaska Air Cargo. Although the carrier’s network is predominantly domestic, it has a number of flights to and from destinations in Canada and Mexico.

But neighbouring Air Canada uses GSAs for cargo sales in many of its markets outside of Canada. Tim Hitchings, Air Canada’s cargo sales and interline manager for the UK, Ireland, Middle East and India, says the GSAs the airline uses perform a complete set of services. He says if GSA personnel are properly trained and provided access to all the online tools necessary, they are as effective as a dedicated carrier reservation center operated by the airline.

“Some are contracted to provide just sales activity, calling on customers in a specific territory,” Hitchings says. “Others are sole representatives, auctioning operational services such as front-end computer and warehouse functions, weight and balance entries to ULD build, plus all the reservation and sales activities.”

Hitchings says Air Canada uses several GSAs around the world. He says use of GSAs has to make commercial sense and that GSAs can provide invaluable local knowledge in some locations. And in markets that are offline or operate minimal schedules with less throughput, the more common option is generally a GSA.

He also believes the use of a GSA has no affect on the move to e-freight, as automated functions within the airline’s system to handle e-AWB or e-freight are applied wherever necessary, Hitchings explains.

Different again, Cathay Pacific handles most of its cargo sales in-house with just a few exceptions. Cargo director James Woodrow says he believes that is the best way to ensure consistent quality with sales and operations.

The right people

“Cathay Pacific Cargo is looking to provide a high quality premium service and therefore train our own staff to provide that service,” Woodrow says. “For Cathay Pacific Cargo, it’s about having the right planes, an efficient and well-located hub, and importantly, the right people.” He says the few exceptions are for off-line origin and destination points in markets such as South and Central America.

He believes using GSAs is potentially a hindrance when it comes to e-freight implementation. “It certainly helps that we have our own staff when it comes to driving forward e-AWB and e-freight,” Woodrow says. Cathay’s e-AWB penetration levels are easily the highest of any Asian carrier and one of the highest of all carriers worldwide.

While Cathay rarely uses GSAs, there are some major cargo carriers who elect not to use GSAs or GSSAs at all. One of those is Air France/KLM/Martinair. “Since we can do things by ourselves in the field of sales, we prefer to continue doing so,” says cargo spokesman Jean-Claude Reynaud. “And to do this we invest in people working for AF-KL-MP Cargo abroad, by giving them the best possible training.”

But Emirates is more flexible, although it says it employs a strict selection process when choosing a GSA or a GSSA. Once a firm is appointed, they are considered an extension of Emirates SkyCargo, says Pradeep Kumar, Emirates’ senior vice president for cargo revenue optimization and systems. But he says Emirates makes sure that its product and services quality standards are consistently maintained. Some perform purely sales functions, which are mainly in the airline’s offline markets, while others perform the full scope of sales and services.

“By far the majority, about 95%, of these functions are handled in-house by Emirates SkyCargo,” Kumar says. “In the main, Emirates manages these functions across our network internally, and where it makes sense, for example in offline markets, we would appoint a GSA or GSSA. We use a small number of GSSAs and we are currently happy with their service levels.”

Regarding the e-freight implementation issue, Kumar indicates that using a GSA does not need to block or delay the transition to a paperless environment. “No, Emirates SkyCargo gives direction with regard to e-freight,” he says. “We have always been in the forefront of advocating the move to e-freight, and will continue to play a role in this regard.”

Performance checks

Cargo-dedicated Cargolux also takes a similar approach with a combination of its own staff and in some locations, GSAs. The company says it also applies high standards when selecting a GSA to ensure that the airline’s quality levels are maintained, meeting with GSAs regularly and doing performance checks. In general, GSAs do the sales and customer services task, acting as if it is a Cargolux office, although in some cases, a GSA may be involved in operational supervision or certain tasks related to flight operation.

Cargolux says it considers several factors when contracting a GSA, with the criteria including number of frequencies in the market; specific market requirements – such as in Africa or South America; the maturity of the market for Cargolux; cost-revenue benefits; market share; and whether it is important to have the carrier’s own staff at the location. But Cargolux also believes the use of GSAs has not affected the move to e-freight.

So all in all it is a mixed and complex picture, with many believing that with the right training, direction and monitoring, GSAs can match their airline principals’ quality and performance – and in some cases exceed it, or at least offer greater flexibility or better value for money. And whether it may slow the transition to e-freight and wider modernization and digitalization of the sector, most carriers seem to think not. That process has already been slow enough, cynics might observe, although there is no clear evidence that the use of GSAs has been a factor in that.