ASIG’s success as third ground handler is important to Changi

TIMING was everything when Changi Airport Group (CAG) announced its award of a third ground handling licence at Changi Airport to US-based Aircraft Service International Group (ASIG) after a long gestation since the exit of Swissport in 2009. The demise of the Swiss company in Singapore after four years of operations was attributed largely to the global recession of 2008. Certainly, the economic recovery that has followed should augur well for ASIG.

Will CAG in its renewed effort achieve its objective of increasing competition at Changi despite the erstwhile argument of existing operator Singapore Airport Terminal Services (Sats) that the market was not big enough to sustain it? Besides Sats, there is one other operator at Changi Airport – Changi International Airport Services (Cias). CAG’s determination can only signify that ASIG’s success is as important to Changi as it must be to ASIG.

However, the alleged absence of adequate big names in the bidding for the licence does not support a strong case for CAG, which favoured ASIG over Singapore Airlines Engineering Company (SIAEC), Jetstar and Air Asia. All three rivals have aviation-related operations in Singapore but little or limited experience in the range of ground handling; SIAEC’s forte is technical handling while Jetstar and Air Asia are budget carriers. From the shortlist, CAG’s award was hardly a surprise.

Even ASIG, which boasts proud parentage in BBA Aviation plc and presence in some 70 airports, cannot be said to be in the same league of Swissport. It provides mainly fuel services, a sprinkling of technical and ancillary services, and a limited range of ground handling such as lounge management, cargo transport and warehousing, wheelchair handling and baggage logistics. Outside the US and UK, ASIG operates in three Caribbean ports – Freeport, Nassau and San Juan, P.R., four other European ports – Munich (Germany), Vienna, Klagenfurt and Linz (Austria), and its only Asian port of Bangkok’s Suvarnabhumi Airport where it provides fuel services.

CAG’s bet on ASIG is probably encouraged by the company’s growth potential as it expands its range of services. Besides major American airlines such as United, American and Delta, it has in recent years clinched the clientele of international carriers such as SAS, Virgin Atlantic and Air Canada. It will be careless of Sats, more than Cias, to think ASIG less a threat as American carriers will provide a good starting point for the new ground handler at Changi. Besides, ASIG will be hungry, since its success at Changi can open doors to opportunities in the region.

Swissport’s failure at Changi might have been triggered by the global recession, but it was really its inability to penetrate the stronghold of both Sats and Cias to obtain new clients to see it through the hard time. According to CAG, handling rates fell by 15 per cent with Swissport’s entry, and the majority of airlines could not find a better reason to switch especially when they were generally pleased with the standard service of the incumbents. There was a limit to how low the new kid on the block could go in rates that would be easily matched by its competitors.

That’s a major hurdle for ASIG: Old ties die hard. Analysts would love to toy with the probability of Singapore Airlines (SIA), which provides Sats with easily half of its revenue, crossing over if the price is right, since the latter has until recently been a subsidiary of the airline. The interesting thing is that SIAEC, which is wholly owned by SIA, was also bidding for the licence. If it had been successful, how then would the game play out with SIAEC and Sats competing for the SIA custom?

Fortunately for SIA and more for Sats, they have been spared some agonizing by CAG’s considered choice. While “unlikely” is most probably the reaction of industry observers, it is not impossible that ASIG may yet get a piece of the SIA business. Interestingly, SIA Cargo Company is a client of ASIG at Los Angeles Airport.

But ASIG is likely to look beyond SIA, which should not be its priority in the near term. While it may seem easier to go after budget carriers that do not have strong ties, more so the new ones as this segment looks set to dominate the growth at Changi, and that these operators are more cost-conscious and less demanding of the standards expected by full-service airlines, ASIG must do more than that to dig in its heels at Changi. Inevitably, its strategy must be to ruffle the market – something that did not come easy for Swissport even with its worldwide reputation.

The good news for ASIG is a supportive CAG, which is keen to see ASIG succeed to boost the competitive landscape at Changi to make it more attractive for more airlines to operate to the airport. There is pressure from rival hub airports that are progressing by leaps and bounds, notably Hong Kong International Airport which is planning a third runway to cope with the growing traffic, and Dubai International Airport which is racing neck-and-neck with Changi to be the leading hub connecting Europe and Asia-Pacific.

CAG executive vice president of airport management Fook Sek Min said the renewed entry of a third ground handler would “provide airlines at Changi Airport with more choice as well as potential in terms of service quality, range of offerings and price.”

CAG has already extended the original tenure of the licence from five to 10 years. This should allow ASIG time to grow and reap what it invests – but only if there is promise of success. In just four years, Swissport incurred losses of more than S$50 million and called it quits. Certainly CAG does not want to see the same story spun out for ASIG.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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