Redefining ground handling in the era of pooling and technological innovation

Redefining ground handling in the era of pooling and technological innovation
Oct 23, 2019

The ground handling industry has changed since the creation of the European Ground Handling Directive. What does this mean for the future?

For decades, the European Ground Handling Directive has helped to facilitate a vibrant independent ground handling sector. Full-service ground handlers compete for airline business at many airports. The Directive specifies that all airports over two million passengers per annum should have one handler independent of airlines or the airport. Independent ground handlers now account for around 60% of the total European market, and the number of airport-owned handling subsidiaries is shrinking. Low cost airlines tend to self-handle, with the result that the fastest growing sector of traffic is handled by independent entities.

However, while competition has brought down the cost of handling, it has also raised other problems. Quality is generally considered an issue. Absence of profitability has occasionally resulted in handlers abruptly abandoning their operating stations. Having multiple handler competitors at many airports has led to airside traffic congestion and duplication of equipment.

Key factors are changing the European handling dynamic

The handling industry's technical, organizational, and financial context has changed since the creation of the Directive. Four key (and overlapping) phenomena are currently disrupting the handling industry and changing the environment in which the Directive operates.

  1. Leasing: TCR, a leading provider of ground support equipment (GSE), has created a market for leasing and maintenance. TCR offers a “wet lease” solution where ground handlers sell and lease back their GSE while obtaining an asset maintenance product. For ground handlers, the advantages include the ability to finance assets more efficiently as well as possibly reducing the overall size of their GSE fleet. TCR’s maintenance product is often considered far superior to the handler’s insourced offering.
  2. Pooling: Many airports (e.g., Copenhagen, Luton, and Heathrow) have introduced or are considering the introduction of pooling, where ground handling fleets are amalgamated. Instead of a handler owning their own fleet, the airport—either directly or through an agent—operates and maintains the GSE fleet that is rented out to handlers. Advantages again include reduction of the overall number of GSE equipment at an airport (and therefore airside traffic, emissions, etc.).
  3. Electrification: Replacing diesel GSE with electric is a key way for airports to meet carbon accreditation schemes since a substantial proportion of an airport’s emissions comes from GSE. Given that electric fleets are expensive and the charging technology for equipment is likely part of the airport’s infrastructure, electrification works most appropriately in a pooled environment.
  4. New technology: New generation GSE is entering the market, such as remote-controlled tugs made by Mototok. Electric-powered Mototoks tend to be dedicated to specific gates, as opposed to traditional tugs that move around the airport on demand. For example, British Airways at Heathrow dedicates Mototoks at each of its short-haul aircraft stands, replacing diesel tugs that were shared between stands.

What does this mean for the ground handling industry?

Is the world envisaged by that Directive still relevant? There is clear movement towards a model where GSE and the required energy supply is commonly owned or leased. In turn, new technology is increasing the capital intensity of ground handling and reducing its labor intensity.Given this context, it’s apparent that ground handling has increasing commonality with standard airport infrastructure:

  • Capital rather than labor intensive.
  • A natural monopoly.
  • Significant parts of the activity become an adjunct to other airport operational activities, such as gate and baggage system management.
Is the case for competitive handlers at an airport weakened? It’s now possible to imagine a scenario in which ground handling (or significant elements of it) reverts to the airline or airport. Their ability to efficiently invest in and remunerate the capital-intensive activity is superior to the handler. ICF considers that technological, environmental, and organizational innovation may undermine the case for a competition-based agenda. Where airports get more involved in the ground handling activity, regulatory and financing challenges will be created that will require careful consideration.
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