The third way

posted on 6th June 2018
Airlines, airports and handlers discuss the pros of cons of the EU’s proposed new Ground Handling Directive, and the key to healthy competition in cargo handling. Will Waters reports

The European Commission is currently revising its directive on ground handling, one of three directives within its ‘Best Airports Package’ – along with directives on slots and noise – in an effort to help make European aviation more competitive, and the proposals have opened up some interesting and lively debate about what is the best way to create healthy competition in cargo handling. Some of these positions clearly reflect a company’s own vested interests, although for others it is an opportunity for a genuine debate.

The EU ground-handling market is currently covered by a directive dating from October 1996 (Directive 96/67/EC), which gradually opened up airport handling services to competition, requiring that airports above a certain size – more than 5 million passengers a year – must allow at least two suppliers for each category of service in which restrictions are permitted, and that at least one of these suppliers should be entirely independent of the airport or the dominant air carrier at that airport.

Similar provisions exist with regard to self-handling, where at least two air carriers should be allowed in the restricted categories, which are: freight and mail services; baggage handling; ramp handling; refuelling; and oil; while other categories of services are expected to see free and open competition.

The proposed new EU directive would require large airports to offer cargo handling and other restricted handling licences to a third supplier, instead of the two currently, with a third self-handler also expected to be introduced.

The proposals also aim to strengthen the role of airports as the ‘ground co-ordinator’ with overall responsibility for the coordination of ground-handling services at an airport. They propose to provide airports “with a set of new tools to do this”, for example, to require minimum quality standards to be respected by all ground-handlers at their airport. One aim of these measures is also “to strengthen the resilience of airports facing major disruptions”, the Commission says.

The Ground Handling Directive also includes new proposals to allow Member States to go further in protecting workers rights, so that staff can transfer under their existing conditions when a contract goes to a new provider. The Commission claims this is “essential to provide the stable employment conditions necessary to maintain a high quality workforce in what is a labour intensive sector”.

Following a period of consultation, the next stage requires the Commission’s proposals to be approved by the European Parliament and Member State governments, the so-called ‘co-decision’ procedure, before being adopted.

On the whole, the proposed revision of the Ground Handling Directive and the wider Better Airports Package appears have been fairly well received by airlines and handlers, although there are some airports and home carriers that continue to try to preserve their own handling market shares, and some opposition from independent handlers to the proposal to expand self-handling. Others, meanwhile, want to see the markets completely liberalised.

Lufthansa describes the proposed changes overall as “a moderate step and a move in the right direction”, while handler Swissport welcomes the proposal to increase the number of handling licences on offer to independent suppliers.

Juan Jose Andres Alvez, Swissport’s executive vice president for EMEAA, says: “All in all this is a well-balanced proposal. The Commission realises that a complete deregulation of ground handling has many downsides, but also that the status quo of duopolies at some large airports poses major problems. A third licence at large airports is the right approach.”

Alvez says independent handlers have been key to improving quality and safety at Europe’s airports, providing the best balance between quality of service and good working conditions. He dismisses any suggestion that the small step of granting a third ground-handling licence at large airports would have a negative impact on quality and working conditions.

“We are convinced that such a moderate increase in competition would markedly improve quality of service and preserve high social standards, offering employees more choice and opportunities,” says Alvez.

However, he believes a more cautious approach is needed with regards to self-handling, and claims that the proposed deregulation of this sector, particularly when it comes to the tender process, “may ultimately distort or limit competition and lead to significant negative consequences for customers and employees”.

He adds: “Fully licensed handlers are the pillars of the airport system. They are contractually obliged to support customers, airlines and airports in the event of disruption, for example due to natural disasters or adverse weather. Self-handlers, by contrast, are not required to fulfil these obligations. We hope that the European Parliament will close this loophole in the interest of consumers.”

Barry Nassberg, chief operating officer for handler Worldwide Flight Services (WFS), also welcomes the proposal to expand the number of licences to independent handlers, but also called for independent handlers to be treated fairly. “We support the effort to open certain airports to new entrants, particularly in the cases of well entrenched duopolies that do not provide airlines with any real choice,” Nassberg says. “But opening the market is not enough; there must be a level playing field in terms of commercial conditions, facilities, and access to resources.”

He also believes that it is time for Europe’s airports to move away from providing handling services themselves, and act instead as facilitators – consistent with the intention within the proposed directive to strengthen the role of airports as the ‘ground co-ordinator’.

“We believe that there should be a role for an airport to provide effective oversight of standards and quality, as well as requiring certain insurance levels, safety and environmental measures,” Nassberg says. “Clearly, such a role is incompatible with an airport itself providing any handling services, whether directly or through an affiliate.”

Federico Mosqueira, senior manager for Europe operations at airline LAN Cargo, agrees that it is not always just about the numbers of handlers, and believes that there is a need for some European airports to provide better support to certain handlers, in order for them to be able to offer real competition.

“For example, in Paris CDG, it is obvious that it is necessary to support some other handlers in a better way, in order for them to have a chance to fight against those that are bigger,” he says. “In CDG, we only have one real option as an airline – WFS – because the others don’t have the conditions that they need in order to have an operation with any stability.”

Mosqueira believes that some airports give better options or conditions to the local handlers – for example, Paris CDG to WFS; and Frankfurt to Fraport and LUG.

“The main support handlers need is to have similar conditions to those of the dominant handlers, as happens in Amsterdam,” he says. “For example, it is a big issue in Frankfurt to go to a warehouse of a second-line handler, because they need to go via transit points that are overcapacity at certain times. The airports at least need to give a better solution to these handlers, in order that they can attract some other customers.”

Enno Osinga, senior VP for cargo at Amsterdam Schiphol Airport, is in favour of a fully liberalised environment – as is in place at Schiphol, which currently has eight cargo handlers.

“One of the key issues is that as an airport, we facilitate handling agents to operate, but we do not manage the quality levels – we let the markets do that. But you can question that model, and ask whether we should be more involved in the general quality levels. And the European directive talks about the airport needing to be more involved in assessing certain quality standards.

“So I welcome that there is an approach, although as an airport I don’t want to start interfering in the individual processes of the handling agent,” he says. “So that is something that we will have to work out where or how we do it.”

One advantage to an open market is that airports do not have to get involved in the sometimes-uncomfortable process of allocating licences. “The experience Brussels Airport has been going through is a very good example – or bad example – where they have had this decision about which agents to have,” says Osinga. “They put it out to tender, then they came to a decision, and then everyone went to court. The end result is a very messy process.”

Osinga says he is “very happy” with Schiphol’s situation of already having a large number of operators.

“So I would challenge the conclusion from the European commission,” he says. “I believe you need full open markets for sizeable airports, although clearly for the smaller airports that doesn’t make sense. I am a very strong believer in the marketplace.”

However, Osinga acknowledges that the experience of handlers during the 2008-2009 collapse in air freight volumes has given him cause to review whether a completely open market always works.

“In reality, we supported the handling agents financially during that time, by taking part of the buildings back, because it was clear they were not going to be able themselves to get through that recession,” he says. “That has led us to commission a major study earlier this year in terms of the economic rationale of that policy towards handling agents and having an open market for competition.”

However, he says there were other issues going on at Schiphol at the time of the 2008-2009 downturn that exacerbated the challenges for some handlers, especially newcomers. Schiphol had just allowed freight forwarders to take their own airside handling warehouses, and the airport had also been “very aggressive in expanding capacity” in order to accommodate high expected growth, leading to over-capacity.

“So we felt that we should share some of the burden of what happened,” he says. “But it is an event that leads you to think about your models, and that is what we are doing right now. But we haven’t come out with the answers yet.”

He says that with an open market, you have new players coming in, and any new player that opens up in a building gets more capacity than he needs at the time. “So almost by definition you have overcapacity, which is all fine when the market was growing. But then life got a bit tougher…”

One finding from the first phase of that study is that there are very few switches between the airlines, even if you have an open market, because the cost of change is quite high.

“We are very competitive, in that we have low prices, but it is interesting that airlines don’t swap around that much,” says Osinga. He acknowledges that one consequence of having an open market is that you get some agents that are very small, and therefore they do not have the economies of scale to create the benefits of a very cost-effective operation. “On the other hand, and this is where the European Directive is going, we see that some airports that have a smaller number of handlers, for example two, are having prices that are much, much higher.” But he says one key is to have a process where you look not just the cost, but also at quality.

Schiphol is now running phase two of its study, where it is looking at everything it has learned over the past few years, and at the European directive, and identifying what the best way forward is.

Osinga says: “My feeling is that by the summer we will have a clear view of where we should go, and then it will take some time to discuss it with the market and decide which way to go.”

Osinga insists he is keeping an open mind about the findings. He says: “We need to make sure we have a robust economic model for the future, because I want full competition, but that only works if all of the parties can really blossom within that competition.”