While there may be a growing threat from the multinationals, LUG aircargo handling MD Patrik Tschirch highlights some of the many opportunities still out there for independents
The cargo handling world may have been dominated recently by high-profile acquisitions by the multinationals, such as WFS’s acquisition of Aviapartner and Swissport following its 2012 purchase of Flightcare by snapping up Servisair. But while the multinationals grow bigger, there is still plenty of business fo r independent ‘local heroes’, according to Patrik Tschirch, MD of LUG aircargo handling.
Indeed, LUG has made a few headlines of its own this year by adding Cathay Pacific to the portfolio of Far East carriers that it handles at Frankfurt Airport, joining ANA, China Southern, Korean Air Cargo, and Thai Cargo. And British Airways Cargo has decided to return to LUG at Frankfurt from 1 October after briefly entrusting its cargo handling there to Swissport. The agreement with IAG Cargo will also see LUG handling Iberia flights at Frankfurt from 1 September.
Around 18 months ago, LUG completed a 50% expansion of its handling facility at Frankfurt Airport, and that is now starting to fill.
After starting out in Frankfurt, LUG opened cargo handling activities at Munich Airport in 2008. “That was the first step in sort of a growth mode,” says Tschirch, who came over to handling less than three years ago after many years as an airline cargo rep. “However, we are more in favour of organic growth and partnerships than acquisitions. We have a reliable Germany-wide network in place and have little appetite for cross-border expansion.”
The new airport in Berlin, set to open possibly next year, could be a target for a third LUG station, although nothing has been decided yet.
But there are other potential opportunities for LUG, for example with the major shifts taking place on the airline side, as new players continue to challenge the legacy carriers.
“It is going to be interesting to see how some of the legacy carriers will look in a couple of years time,” Tschirch muses.
“I think the opportunity for cargo handling overall in the current market is that we can offer to become, shall we say, a virtual carrier,” he suggests. “Nowadays we are the face to the customer already, because we interact with the forwarders. I think we can perform all operational services for an airline – everything that is not commercial.”
He says there are examples already where agents take on this role for certain carriers. “The benefit for us is that we can then work according to our standards and procedures; we can streamline the overall operations and our facilities for all our carriers, instead of working according to 19 different standards. That makes it leaner for us and there is a certain potential benefit for the carriers, because to them what matters is the bottom line.”
But isn’t there a conflict there potentially because carriers want consistency across their network?
“I think there is no conflict,” he says. “You can still meet certain individual carrier requirements, but at the end of the day it is all about timings, basically. Currently airline expectations and procedures have an enormous impact on our own procedures. If we can take that out, then we become quicker and leaner within our organisation and yet we still adhere to the timings and the product types that they have. That is basically what happens behind closed doors.”
This echoes comments by other handlers, which also claim that it is the outcome and not the process that should be important (see pages 26-30). And what cargo handlers really want, in order to help them to streamline their processes, is less interference from customers.
“I don’t mean that in a bad sense, because the customer is king. It is absolutely every customer’s right to interfere with what we do,” observes Tschirch. “But what matters is the end result. And our experience with the carriers in our customer base is that the process is much smoother, with fewer mistakes, when serving those that interfere less. So I think that is the benefit, although it is a touchy issue.”
Tschirch believes whether or not carriers will be prepared to outsource all the operational responsibilities depends on how an airline sees itself, and on the culture of the carrier. Some airlines already only have three of their own people throughout Europe, for example, and everything is outsourced.
He says not so many go to the fully outsourced version, “but we see a tenancy that the carriers’ stations get smaller, with fewer people. It is not necessarily the direct cost of people. But because of European laws, once you hire people the overall package gets expensive if you have to change something in your organisation because your aircraft type gets smaller or something changes in your schedule. This is why many carriers shy away from hiring people outside of their home markets. So I think this is where the chances are for a handling company.”
Handlers, are of course the classic outsourcing solution in this respect, able to flex their resources according to the needs of multiple carriers. “But the irony is that LUG does not believe in outsourcing,” says Tschirch. “We use third-party labour, but only to a limited extent. We have an agreement with our work council that allows us to draw a third of our labour force from outside agencies. But we believe that our product needs to be delivered by people that identify themselves with their company, so they have to work for you. The third-party labour that we hire is simply to cover seasonal peaks. In essence, the core functions are performed by our own people for the sake of quality and cost efficiency.”
The multinational challenge
The variety of different national laws and rules affecting employment, safety, security and airport licences add to the complexity for cargo handlers. But that is one of the factors that independent handlers have on their side, believes Tschirch. These complexities make it difficult to have genuinely multinational cargo handlers.
“I think our business is so complex that you can’t become truly global,” he says. “It is not necessarily only the local rules that make life difficult for multinationals, but more the local flavour, the local culture, how the market ticks.”
It is also very hard to start a new operation, because you need a lot of money and patience. “In our business, you can’t just open up and say ‘here I am’. Usually you have contracts that run for three years, and if you start at the wrong time, it is not easy. Either you are a multinational and start buying local heroes, or you have to have a lot of patience when you start off,” he observes.
So, does this mean independents such as LUG are not really threatened by the spread of the multinationals?
“Multinationals are a threat, in a certain way, but we are not scared of them,” he says. “I have a lot of respect for them because most of them do a fantastic job. But services are not necessarily consistent throughout the network. That is our chance as an independent: we can react and we can customise much more in terms of the demands of the customers.”
But in today’s environment, “where a purchasing department from an airline doesn’t know or care what takes place on the ground, and it comes out with an RFP for say 10 stations in Europe, a multinational can come and say ‘I can offer you all 10 stations, this is the benefit and this is the pricetag’, that is a threat to small players,” he admits.
“But our experience with British Airways is a testament that this may not work all of the time. They were with us, went to a multinational, and now they’ve come back,” Tschirch points out.
“So, I think we’re here to stay and we will survive. The multinationals are a threat, but probably only in the short or mid-term, where you have a period of time of a year or two where you might lose some customers. But there will always be other airlines that will want a strong local player with a premium service.”