“Aviation is an industry that is still a very long way from being out-sourced, so at the macro level there is plenty of long-term growth,” Warwick Brady, president & chief executive of Swissport, told ARGS at the recent IATA IGHC in Paris, as he marked his first year of being in post.
“In the short-term we are seeing a spurt of opportunities in airline out-sourcing – more than we can deal with at the moment,” added Brady, who was tempted a year ago to nurse Swissport back to health, leaving the Group CEO role at Esken (formerly Stobart Group), by the mission set by the private equity funds that took control of the firm through a debt-for-equity swap from China’s troubled HNA Group.
Although the out-sourcing of ground services is hardly a new story for a trend that began in earnest in the late 1990s, it is a story that still has a long way to run. “The outsourcing trend accelerated after COVID,” said Brady. “This creates business opportunities for Swissport, which we are very actively pursuing.”
Swissport does this by growing its business with existing airline customers, by winning new customers, by expanding in non-core business lines, like airport lounges, and also by establishing operations at new airports. “For aircraft handling we expect annual growth of the accessible market of around 17% per annum until 2025,” said Brady. “A part of this is Covid-related rebound and will level off in the medium term. Pre-pandemic annual growth was around 4%. In cargo handling, we have a more stable market, which was less affected by Covid. Here we expect growth of 7% per annum in the medium term. This is still very attractive, especially as it comes with higher margins. We therefore overweight cargo in our medium-term strategy.”
“There is definitely a sea change we are seeing at the airlines as they are recovering from the Covid crisis, eager to secure cost efficiencies. Covid has brought a focus on that,” said Brady. “And as a global specialist in ground services and cargo handling, we should always be able to provide a better service at a lower cost than airlines and airports could do themselves.”
Brady said Swissport is often a deeply integrated partner to the airlines it serves. A partner whose people hold airline brands close to their hearts. “Our passenger service agents often wear airline uniforms. We are working with airlines to implement measures that make our people feel they are part of the eco-system – training of course, but also aspects like staff travel benefits.”
Any self-respecting services chief will say that the reality in the services business has been a race to the bottom in recent years with cutthroat pricing to win contracts. Airlines have benefitted from bargain prices, but often at the expense of service quality. And Brady has a clear plan here.
His strategy couples a desire for out-sourcing deals with airlines where it would take over a major hub, while in parallel “finding a contract structure that works for us and the airlines.” This means moving away from a flat price model to one where the handling price “rewards a wider flight schedule over a peaky schedule. We want proper, long-term partnerships, so contract structures do need to match the schedule, volumes, and labour,” he explains.
“We regularly look at the profitability of each airport, especially when flight volumes increase, or a large chunk of activity is taken out by an airline. Regardless of the reasons, it changes the overall picture,” he said.
Swissport’s new contract with a large Brazilian carrier is a “great example” of such a deal, said Brady. This multi-year agreement sees the handler providing ramp, cleaning, and cargo services at the airline’s hub. There is a “proper collaboration structure that reflects the schedule and the cost of labour,” said Brady. “The more flights are off peak the more money the airline gets back. The peakier the schedule gets the more it costs,” said Brady. Some airlines are “very receptive” to this approach, especially those who have been suffering pain in their schedule delivery over recent months.
Persuading airlines to out-source a hub operation is not easy, acknowledged Brady, who understands the airline perspective on services from his days at easyJet and Stobart. However, “airlines have got to get their head out of the sand” on the question of out-sourcing. “We are more than happy to provide it for them, fulfilling and exceeding their expectations in terms of service and cost. We are on a mission to turn Swissport into not only the largest but the most trusted partner for safe and reliable airport ground operations.”
His belief is that Swissport has unique experience in running complex hub operations, for example for Lufthansa’s regional fleet at its Munich hub, for the Swiss hub in Zurich, Qantas in Sydney and Melbourne, and several large base operations for easyJet. “We are the only real operator that does very large bases around the world and does massive hub out-sourcing,” he said. “Swissport is a one-stop-shop for airlines.”
Hub out-sourcing is Brady’s preference because of this expertise and because it delivers “long-term quality revenue” and scale to match Swissport’s growth ambitions. It is in talks, for instance, with TAP Air Portugal about a deal for its hub operations in Lisbon and has recently announced its acquisition plans for Alitalia’s entire ground handling business at Rome’s Fiumicino airport.
