Swissport’s exit not a good sign for Changi Airport

 

THE news that Swissport International would shut down its operations at Changi Airport barely four years after it started did not come as a surprise. The writing has long been on the wall. Owned by Ferrovial of Spain, a leading European infrastructure and service corporation, the company has already chalked up losses of more than $50 million.

 

Swissport became the only company to take up Changi Airport Authorities of Singapore (CAAS)’s invitation to join the competition when the airport ground handling business was liberalized in 2005. There were already two companies – Singapore Airport Terminal Services (Sats) and Changi International Airport Services (Cias). Then, the authorities were concerned that the lack of adequate competition would make Changi more costly than its neighbours, which would be detrimental to Changi’s strategy to become the region’s major air hub.

 

In a move to thwart Swissport’s entry, Sats – a subsidiary of Singapore Airlines (SIA) and Changi’s major handling company with at least 75 per cent of the duopolistic market – argued that the market was not big enough to cater to three companies. The argument ignored the government’s objective to grow Changi: competitive pricing would not only deter existing airlines from shifting their operations to other airports in the region but also attract new ones to use Changi.

 

It might seem that Swissport’s exit is proving only too true Sats’ argument. One would expect Swissport, for its reputation as one of the world’s best airport handling companies with presence in many major airports around the world, to succeed in Singapore. Yet, its reputation for efficiency has not helped it gain grounds. Until today, it has managed to convince only Northwest Airlines and budget carrier Tiger Airways – besides the affiliated flag carrier Swiss International Air Lines – to entrust their ground handling to it. And it does not look like there will be any more.

 

Many industry experts were already predicting a quick demise of Swissport at the onset. Smaller airports with fewer airlines have supported as many or more ground handling companies, but the game at Changi is quite different. Swissport’s inability to penetrate the market is largely due to the heritage of its two erstwhile competitors.

 

Sats, through its relationship with SIA, enjoys the protection of reciprocal arrangements that provide for homeport handling of each other’s airline. For example, Qantas will provide handling to SIA in Australia and Sats to Qantas in Singapore. Cias, now owned by Dubai-based Dnata, which is the parent of Emirates, enjoys the allegiance of previous partner airlines. That leaves only a small number of independents that Swissport could work on.

 

To the credit of the two incumbent companies, they provide a reasonably good level of service. Therefore, there is no compelling reason for them to switch. Local managers who have grown accustomed to working with them are expectedly reluctant to start over with a new company. 

 

There can only be one clincher left for Swissport: price. But this can be easily matched by Sats and Cias. Unfortunately, time is not on its side. The airport business demands high capital outlays which take a long time to recover, especially in the present climate.

 

Only in 2006 did Swissport open its own air freight terminal, which would increase Changi’s annual capacity to three million tons. The 17,600 square-meter facility, which took 18 months to complete, was constructed by CAAS, but Swissport had to invest an additional $10 million in the infrastructure including a fully automated material handling system. As Swissport continues to bleed, the global economic downturn provides the added push for it to throw in the towel.

 

The good news is that, according to CAAS, the entry of Swissport has brought down the airport handling costs for the airlines at Changi by as much as 15 per cent. The question is whether this can be sustained with Swissport’s exit. CAAS has indicated its intention to give out an operating licence to another company to replace Swissport, pledging to “continue to engage the industry to ensure that ground handling costs at Changi Airport remain competitive.” But considering Swissport’s fiasco, it may be hard to find a suitor unless the playing field is changed somewhat.

 

Yet, in encouraging competition, CAAS must be mindful that it cannot be partial. However, it can create an environment that is conducive to competition and help sustain it, the way it did thirty years ago – though not necessarily employing the same tactics – when Cias was set up to break up the monopoly of Sats.

 

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About Dingzi
Writer by passion, with professional expertise in aviation, customer service and creative writing. Aviation veteran, author, editor and management consultant. Besides commentary on business issues and life-interest topics, travel stories and book reviews, genres include fiction, poetry and plays. Nature lover who abhors cruelty of any form to animals, and a tireless traveler. Above all, a dreamer.

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