David Grossman explores changes in ground services that could help airlines improve their bottom line

As it covers such a wide swathe of airline operations, the potential for cost savings in ground handling is significant.

An obvious area of scrutiny is ground damage. IATA has launched the IATA Safety Audit for Ground Operations (ISAGO) to help airlines prevent aircraft damage during ground handling. “Right now in the operational environment, there is a lack of consistency and simplicity, which often leads to confusion,” says Mike O’Brien, IATA’s Director, Program Implementation and Auditing.

ISAGO audits and certifies ground service providers (GSPs), thereby eliminating redundant audits. It ensures that each certified GSP has an integrated safety management system to help reduce aircraft damage.

Although ISAGO is still in its infancy, it will deliver measurable improvement when the program is fully integrated worldwide. Eliminating ground damage to aircraft alone would save the industry $4 billion ($12 billion if the cost of deaths and injuries are added) annually, according to O’Brien. This would be an enormous boon for airlines that are struggling for every penny.

O’Brien says that the audit scheme is now well into the operational phase, with more than 100 audits conducted in 2009. The airline audit pool has 41 member airlines and is growing to meet the increasing demand for audits worldwide. “More than 25 governments and airport authorities have expressed formal support for ISAGO,” O’Brien adds.

Along with ISAGO, IATA is also developing the IATA Ground Operations Manual (IGOM). At the moment each airline publishes its own ground operations manual, which may have slight variations in procedures, even for the same aircraft type, according to O’Brien. “This individual airline approach can lead to significant variations in requirements,” he says.

The IGOM will eliminate the need for each airline to maintain its own manual and will give GSPs a standard set of procedures to apply across all aircraft and airlines. Completion of the IGOM is a high priority for 2010 and it is hoped that all airlines will adopt the program at the next ground handling symposium.

Cost savings won’t come from the ISAGO and IGOM initiatives alone, however. There is as much potential in the safety culture these programs inspire. “Do not ignore the importance of a safe operation being a primary factor in keeping ground handling costs down,” says O’Brien.

Airport incidents invoke a cascade of airline expenses. The cost of hotels, meals and rerouting affected passengers are all borne by the airline. Airlines may also incur increased crew costs, lost revenue and damage to the all-important brand. Increased safety also reduces GSP insurance premiums.

Outsourcing trend

IGOM could also influence an airline’s decision on whether or not to outsource ground operations. “Having a standard manual could make airlines feel more confident in a consistent service from a third party,” O’Brien suggests.

Airlines still perform 50% of their own ground handling but a rising trend towards outsourcing suggests airlines are achieving cost reduction by contracting for ground handling services. With IGOM in place, the trend could gather pace, along with the associated savings.

Most airlines self-handle at hubs and subcontract to ground handlers at spoke cities. British Airways has no predisposition when it comes to ground handling method, according to Marsha Rivera-Ragusa, Director, Contracts, Ground Operations Procurement at British Airways. Rather, it is a quest for value for money.

“The objective is to eliminate the variable by focusing on market rate, whether it is internal or outsourced,” she says.

The outcome doesn’t matter, as long as the final choice delivers the three components of safety, efficiency and market rate.

Unless an airline has a very high volume at a specific airport, John Willis, Chairman of the International Aviation Handlers Association (IAHA), believes hiring a GSP is less expensive because the company can offset its costs across multiple airlines.

At an airline hub the cost differences are less pronounced, although labor could be an important part of the equation. Willis believes airline labor costs are generally higher than GSPs. “This is significant because labor can represent up to 70% of ground handling costs,” says Willis.

Mark DuPont, Vice-President, Airport Services and Planning at American Airlines (AA), validates Willis’ assertion on labor costs, adding that AA’s costs are primarily driven by an ageing workforce. “We incur higher rates of pay because younger, lower-waged employees are not entering the workforce,” says DuPont.

By outsourcing, airlines can also save money by avoiding the complexities of labor laws in foreign countries. “And airlines need to be able to move routes easily,” adds Willis. “With an in-house ground structure in place that is very difficult or costly.”

The importance of new technologies

Outsourced or not, ground handling should also reap the rewards of new technologies. Thus far, there is little hard data to turn to, but anecdotal evidence is mounting.
Ragusa at British Airways confirms that “self service check-in has reduced the number of staffed check-in positions required” while American’s DuPont says implementing proprietary technology has translated into significant savings by reducing costs associated with mishandled baggage. 

Baggage problems cost the industry $3.3 billion a year and affect 42 million passengers. The matter is being tackled by IATA’s Baggage Improvement Program (BIP), part of Simplifying the Business, which aims to bring a variety of solutions to 200 airports before 2012. It is estimated these will save the industry $1.9 billion a year.

Other baggage initiatives are proving more difficult to assess. As yet there have been no efforts to gauge the impact of checked baggage fees on ground handling costs. Some airlines are reporting passengers traveling with fewer pieces of luggage but how the sums work out is unclear.

“Baggage charges and customer behaviors have changed,” asserts DuPont. However, he is sure the weakened economy—and associated reduction in freight and mail—have had a bigger impact on reducing ground handling costs for AA.

New aircraft

Whether the technology in next generation aircraft will make a crucial difference to ground operations is equally hard to fathom. Different designs and airframes made of composites could force GSPs into alternative processes and equipment, which would have a significant short-term impact on costs.

And larger aircraft, such as the Airbus A380, also mean more personnel. The flip side is that improvements in aircraft design and equipment may improve efficiency and thus reduce ground handling costs.

About 90% of the equipment used for the A380 is common to widebodies. However, two new pieces were required—a 70-ton tow tractor and an upper deck catering vehicle. Billions of dollars were spent modifying airports, and the few airline operators are still learning about best practice, especially in handling multiple aircraft.

The Boeing 787 meanwhile is a medium-sized twin engine aircraft, and so should present less difficulty. The base model, the 787-8, will eventually become the shorter-range 787-3, with a reduced wingspan, and the stretched body 787-9. The plane is still in testing, and will have to meet requirements not only in the major hubs of the world but also a variety of regional facilities.