IN FEBRUARY, A NEW umbrella brand was launched in the aviation services industry to integrate various competencies now encompassed by airline catering giant Gate Gourmet and other brands it has acquired since 2007. Representing 11 brands, gategroup is the result of a process begun in 2005 to first restructure and then expand Gate Gourmet to turn it into a one-stop provider with a full range of cabin-related services.

Through a series of acquisitions, the company broadened competencies beyond basic airline catering and aircraft provisioning to include such diverse services as procurement and supply chain solutions, packaging and industrial design, comfort items, cabin cleaning, aircraft exterior washing and deicing, security services, and even recruiting, training and contracting cabin staff. In fact, it now handles virtually anything in the cabin related to serving passengers.

"In the past, we have traditionally concentrated on food, but now we are leveraging our footprint and capabilities at the airport," says gategroup CEO Guy Dubois. "We figured that while we are at the aircraft, there are a number of other services we could provide, including backward integration and cost control of the supply chain. So we have purchased other leading brands that supply those types of services and brought them under the gategroup roof."

Dubois joined Gate Gourmet in 2003, about a year earlier than former CEO and current nonexecutive Chairman David Siegel. Since 2001, the company had been struggling to find its way out of the post-9/11 downturn. As a team, Siegel and Dubois launched the restructuring and then expansion strategies and Dubois took over from Siegel at the helm of the group at the beginning of September.

"Dave Siegel and I have worked hand-in-hand over the last four years, and gategroup today is the result of the close cooperation between us," Dubois tells Airline Procurement. "So do not expect major changes now that I am at the helm. I will continue to build on the strategy that we embarked on last year."

A LEAGUE OF ITS OWN

Within the gategroup umbrella brand, 11 unique brands will be retained (see box, page 10). "Each of the brands had great market value and recognition and were number one in their respective niche when we acquired them," Dubois explains. "We created a few new brands to allow consistent marketing and messaging both internally and externally, such as Harmony for our comfort items, which absorbed the former Five Oceans brand. We also regrouped nonculinary businesses that were acquired under various other brand names into Gate Aviation, which combined aviation services previously under the Fernley and IAS brands."

But gategroup is the umbrella that drives the company's values and corporate profile. Any individual brand with "gate" in its name means it provides on-airport services, while the others furnish standalone services to aviation.

Dubois acknowledges that with the addition of new businesses, supply chain and warehousing have become more challenging than simply handling "fresh" food products in local units in the days when the company focused only on inflight catering.

"This was one of the reasons why we acquired Pourshins," he says. That entity not only handles product for airlines but can take over the entire logistics, warehousing and goods flow for gategroup companies such as deSter and Harmony. "By acquiring Pourshins, we brought that external knowledge and expertise within the group. This allows substantial economies of scale, professional handling, and also brings us the transparency and accountability we are looking for," he notes.

Similarly, deSter has two plants (one in Thailand and one in Belgium) that manufacture all plastics for airlines' individual catering needs such as trays, cutlery and crockery. So gategroup does not have to buy in and store vast inventories of such items but can manufacture them in-house to the customer's specifications as and when they are needed.

Strong IT support is crucial to making the supply chain work and is a core capability. Internally the company uses SAP for its global ERP system. For interfacing with customers and suppliers, the eGate Solutions brand has an entire portfolio to manage anything from ordering and invoicing to menu management.

"Gategroup invests a substantial amount of resources, both people as well as dollars, into innovation or R&D," says Dubois. "A number of these projects are internal and focused on improved productivity in our operations, and a number are focused on our service offering."

Although it does not publish annual accounts, in 2007 gategroup reported revenues of approximately CHF2.5 billion ($2.3 billion) and "high-single-digit profit numbers," according to Dubois. The group's customer base includes more than 270 airlines (both network and LCC) and it has operations in more than 100 locations in 30 countries on six continents, although North America and Europe account for about 85% of total revenue. Among them the gategroup companies employ approximately 20,000.

LOOKING AHEAD

As far as future development is concerned, Dubois believes that Latin America and Southeast Asia are potentially strong growth areas. Gategroup already has a good presence in Latin America, but in Asia it has a relatively small market share because "the majority of the business is still captive," he says. "Most airlines in this region still maintain in-house flight kitchens, so while we have about 40% of the available market, this is still only about 3% of the market in total. We believe that a lot more of this market will become available as airlines turn to outsourcing for their cabin requirements."

The Middle East is another potential growth area, as are China and to a lesser extent Eastern Europe and Russia. But he emphasizes, "We will not be in every location for every customer on every continent. We will only operate in locations or market sectors where we can be number one or a strong number two."

In terms of business sector growth, Dubois is upbeat about gategroup's penetration of the LCC market, where he claims the group has the largest market share. Customers in this sector include easyJet in the UK, Jetstar in Australia, Air Berlin in Germany, Tiger Airways in Singapore and Spirit Airlines in the US. "Where three-class legacy airlines' short-haul business may shrink, low-cost carrier capacity in this sector will grow," he thinks.

He also is optimistic about the potential represented by the rail industry. The company recently won a large contract in Spain and is confident that it can grow this market because, like the aviation industry, it caters to travelers"a captive audience in a limited space on the move." He says gategroup is not interested in pursuing similar options such as hospital or prison catering because the consumer in those instances is stationary. Similarly, it is not interested in retail-only outlets. But he believes the rail sector offers significant global opportunities.

THANKS TO THE KITCHEN

For much of its history, gategroup has focused purely on airline catering. Born from the flight kitchens of now-defunct Swissair, it was established officially as Gate Gourmet in 1992 and grew by acquiring a number of other flight kitchens around the world including Aero Chef and SAS Service Partners in Scandinavia, the Varig kitchens in Brazil, the BA kitchens at Heathrow in 1997 and Dobbs in the US in 1999.

After the airline industry went into a severe decline following 9/11, Swissair went bankrupt and in 2002 Gate Gourmet was sold to Texas Pacific Group. Dubois and Siegel were brought in to restructure the newly purchased company, but it wasn't until 2006 that Gate Gourmet began to look at expanding beyond the catering/food sector into other complementary fields.

Today, Dubois is happy that the group has reached an optimum structure in terms of the services and products it offers. "We are the only company in the world that has such a complete portfolio," he says. "We can provide a full menu of services required by an airline in the cabin. We are satisfied that the portfolio we now have is complete, but of course we will continue to entertain additional 'tuck-in' acquisitions." For example, gategroup would consider offering a particular service in a particular geographic location if appropriate. It also might expand geographically. But it doesn't believe it needs to grow the service portfolio and expertise it already offers.

Catering and culinary excellence "is and will remain our core," Dubois insists. The company's brands diverge no more than one step away from this core: Food on plane to food on train, food for airline passengers to equipment for airline passengers, supply chain to asset management activities for airlines and their suppliers, etc. "We know the business, we know the environment and we leverage our capabilities."

Complacency is not an option, however. "We are suffering like everybody else, but we will manage demand very carefully and will strive to stay ahead of the curve by right-sizing all our operations to the new environment. This will require careful management of our resources and continuous review of our footprint," Dubois says. "We have a strong balance sheet, a healthy customer base and a strong portfolio. But it would be unwise to believe that there will be any sort of status quo."

Fewer aircraft flying means fewer people flying and less demand, and he believes there will be a quantum change in the industry--substantial consolidation and reduced capacity and likely higher prices for the flying passenger. The supply side will have to consolidate and take measures to weather the storm.

He describes the current economic downturn as a soup bowl compared to the martini glasses of previous downturns. "This one will last longer and be more global," he predicts. "But we will navigate gategroup through the turbulent times ahead and come out on the other side stronger than before. Gategroup will remain the supplier of choice to the industry it services."

Gategroup offers a comprehensive range of passenger-related brands and services:

    DeSter--food contact items such as chinaware, glasses, cutlery and airline cabin equipment

    eGate Solutions--business applications such as galley planning and invoice validation

    Elan--recruiting, training and contracting services for cabin staff

    Gate Aviation (formerly IAS/Fernley)--cabin cleaning, aircraft exterior washing and deicing, passenger and security services

    Gate Gourmet--catering, provisioning and logistics

    Gate Safe--catering and cargo security, inspection and validation services

    Harmony--amenity kits, headsets, blankets, etc.

    Performa--product and branding design services and lounges

    Pourshins--procurement and supply chain solutions

    Potmstudios--packaging and industrial design

    SUPPLAIR--FOOD SOLUTIONS THROUGH OFF-AIRPORT CENTRAL PRODUCTION AND PARTNERSHIPS WITH MAJOR BRANDS