Faced with demand for global flexibility, carriers are looking constantly for adaptable and cost-effective ways to ensure that passengers experience the same recognized airline brand and associated level of quality service they expect no matter where in the world they embark or disembark. Behind the scenes, carriers are equally keen to ensure that aircraft are maintained at the same level of operational readiness as they would be back at the home base.
Faced with demand for global flexibility, carriers are looking constantly for adaptable and cost-effective ways to ensure that passengers experience the same recognized airline brand and associated level of quality service they expect no matter where in the world they embark or disembark. Behind the scenes, carriers are equally keen to ensure that aircraft are maintained at the same level of operational readiness as they would be back at the home base. To make this all happen, the necessary physical infrastructure, staffing and support services must be in place before the inaugural flight lands at a new destination.
"There is a great deal of footwork done before we even choose a city," stresses Kenny Highlander, manager-inventory audit at JetBlue Airways. "First we send a team to perform an evaluation of the area and ascertain the services available. This is a key part of our outsource-versus-insource decision and ensures that the quality of the labor and materials meets acceptable standards."
With JetBlue this is accomplished via a competitive bid process at the strategic sourcing group level. "In some cases there is not much choice, depending on the remoteness of the outstation," adds Highlander. "For example, we go out and we undertake a formal RFP process for those services and we compare and evaluate whether we should hire our own people or outsource. Typically though, we try to outsource everything to the local providers in the area."
At the beginning of a station opening the contracts are very flexible and there are no long-term commitments. "Once the station is established and matures, we will go in and look at long-term commitments," he explains. "In some areas we will have companies . . . that may fall under an existing contract and we will just simply add another city. We have contracted with AMR which provides ground services at many airports, so we would look to them where we can. We also contract periodically with other airlines if they have a dominant presence in an area where we may come in with four or five flights a day."
He points out that in most cases JetBlue appoints a local fixed-base operator that goes through the same training an in-house technician would. "We provide training to them and they are empowered to work on our aircraft."
Likewise Lufthansa, although a very different global carrier, subcontracts at outstations where it makes sense. "Just because Lufthansa Technik is responsible for all the airline's technical activities and makes sure that we have the required maintenance support available, that does not mean that we always have our own maintenance facility at a foreign station," spokesperson Aage Duenhaupt explains.
For example, although LH recently opened a Seattle route, it doesn't need to staff mechanics there permanently. Duenhaupt says it's okay "for LHT from its headquarters in Frankfurt to train and approve a local third-party provider in the region to cover its technical operations."
The era of having fixed, globally positioned night-stops is over, according to Paul Schneijder, a partner at Lufthansa Consulting. Airlines need not invest in their own support infrastructure and inventory at an outstation. "With today's dynamic networks, stations that serve as night-stops during summer may close during the winter," he says. "Aircraft scheduling has become much more dynamic given that night-stop stations now have short life expectancies."
He adds that "high aircraft reliability, the availability of subcontractors when needed and the adoption of maintenance-free turnaround practices are key drivers for the trend to reduce support dependency at outstations."
Schneijder details the practice of maintenance-free turnarounds: "Aircraft may undergo a 'daily' check, which is the lowest interval that needs to be signed off by an approved maintenance organization, and as long as no defect occurs there is no need for a technician to visit the aircraft until this lowest check is due again, which is usually 24 to 48 hours depending on type." As long as the scheduled checks are current, the morning crew can pick up the aircraft. Operators don't need outstation coverage to facilitate turnaround anymore. Of course there need to be procedures in place to cover chance defects, which can be transferred to a "deferred defect list" until the aircraft gets back to base.
"The first thing to consider at a new outstation is to subcontract and make sure you have assistance if and when you need it," adds Schneijder. "The second thing is to reduce the amount of assistance required. Thirdly, regarding inventory, if you need a part it may be cheaper to borrow that part on-site from somebody you have a contract with, use it on the return flight to base, change the component and ship it back or send a replacement unit in exchange. This means you don't have to install your own stock on-site with all the associated overhead, stock monitoring and asset management."
GROUND HANDLING MANAGEMENT
On the front end of airline operations, Lufthansa will install a regional area manager responsible for procurement activities for a new operation. "For the Americas we have area management based in New York," says Duenhaupt. "And for Europe we have an area manager in London, one in Singapore for Asia and one in Dubai for the Middle East and Africa."
It is not necessary to employ a station manager in every city. "Rather, you can assign three airports to one station manager," he says, adding that certain processes should be in place. Handling agents should unload the aircraft and a representative should provide the check-in at stations where the carrier does not install its own staff.
"In Heathrow there are six core Lufthansa employees and then there are twenty to thirty dedicated check-in staff employed by our handling agent Servisair," says Duenhaupt. This is just one of many possibilities. "You can also have all-Lufthansa people, as we do for example at Frankfurt and Munich. Or we could have a mixture, or outsource everything to an external agent and only have a station manager directly employed there."
ONE-STOP SHOPPING AND ALLIANCE SYNERGIES
Swissport, a ground handler active at 187 destinations in 143 countries, gained about 220 new contracts worldwide between January and April. Stephan Beerli, a company spokesperson, offers some insights into the selection process: "Either the airlines issue an RFP tender along with their service expectations and then wait for all the competitors to show up . . . or an airline approaches a ground handler and says, 'you did a good job for us at another destination, would you please team up with us?'"
If an airline has its own infrastructure in place, it still might ask a ground handler to run its operation in the interest of cost and efficiency. "These are really big issues," Beerli says. "We are talking about hundreds of millions of dollars."
Market complexity also factors into this. London may have more than 10 different suppliers but there could be a monopoly in another country. Swissport has global frame agreements with certain carriers. "Negotiations really depend on the level of volume an airline requires," he points out. "It makes a significant difference whether it is for just one single flight per week or ten flights per day." Quality assurance, scheduling, cargo service and security are other determinants.
In short, it is easier for an airline to deal with one rather than 10. "You'd have fewer interfaces, and this is something we stress to our customers," recognizes Beerli. "Indeed, this is what our customers want in most cases--to reduce the number of suppliers."
Of course when a carrier is a member of an alliance, maximum advantage is taken of any operational synergies. Duenhaupt notes: "When we fly to international hubs, we definitely try to coordinate with any local Star Alliance partners. To Canada, for example, we would cooperate with Air Canada, and likewise with United Airlines when flying to US hubs. However, if it involves an airport, which is not an intercontinental hub, then you are more on your own."
CATERING AND FUELING
So how is catering handled at outstations? Big airlines often have the global infrastructure to ensure that quality levels stay the same worldwide. "We have LSG Sky Chefs, a subsidiary of Lufthansa, at all the big international airports," notes Duenhaupt. "So when we fly to Seattle [we can] set up a contract with LSG Sky Chefs Seattle and they will prepare the food in the standard way."
Even when there is no resident Lufthansa catering facility at a particular global outstation, the airline has been able to live up to its quality requirements. "For example, we just opened a once-weekly flight to Luanda in Angola where the aircraft carries the return catering on an outward sector from Germany," he explains. "The return food will be kept cool in Angola during the nine-hour transit [when] the flight crew will . . . rest before flying back to Germany."
Fuel, of course, is another big element of an airline's global procurement activities. Availability and price are two key criteria. To this end, most large carriers use global suppliers, either the oil company or an appointed broker, to offer a standard price wherever they require fuel.
"We have global contracts," Duenhaupt says. "We are also a company which uses hedging to guarantee the price." LH hedged more than 85% of its fuel this year and already has hedged more than 35% for 2009. At nearly all of its destinations it has providers that belong to this global contract. Without such contracts in place, a typical large carrier would otherwise be faced with dealing with suppliers at a multitude of airports, resulting in hundreds of separate fuel bill accounts. "Of course there are certain countries where there may not be a global fuel provider. In these cases one would have to negotiate on an individual basis, but this is relatively rare."