Chitchat Price War Between Ground Handlers At Changi Airport! Huat Ah For Travellers!

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An honorable member of the Coffee Shop Has Just Posted the Following:

SINGAPORE — An intense price war has erupted between Singapore Airport Terminal Services (SATS) and dnata — the two ground handlers operating at Changi Airport — as they battle for contracts to service airlines here, dragging rates down as much as 30 per cent and eating into profits.

The turnaround cost of a 180-seater Boeing 737-800 for a full-service carrier — which involves tasks such as cleaning the cabin, refuelling, as well as cargo and luggage handling — has fallen from about S$2,000 a few years ago to S$1,500-S$1,600 currently, industry insiders told TODAY.

Charges for handling the 170-seater Airbus 320s, which many budget carriers own, are less than S$300, down 30 per cent from about two to three years ago.

The price war is driving airlines to negotiate harder as their contracts come up for renewal.

Several airlines operating out of Changi are considering a switch — either fully or partially — between the two service providers.

Malaysian low-cost airline AirAsia this year switched to SATS from dnata for ground operations at Changi Airport.

Dnata also bagged eight new contracts last year, including Bhutan Airlines and Myanmar National Airlines, which last year resumed international services after a 22-year hiatus.

Several others, including Etihad Airways, China Southern Airlines, Turkish Airlines and Air New Zealand, switched to dnata from SATS for selected services. However, these switches may not have been led only by price factors.

Etihad Airways, for instance, chose to transfer services required for passenger check-in, baggage handling and aircraft ramp handling to dnata from SATS, while continuing with the latter for cargo handling and catering services.

Dnata’s contracts from Air New Zealand, Turkish Airlines and China Southern Airlines were for in-flight catering, while it also bagged deals from Myanmar Airways International for ground handling and Japan Airlines for technical ramp services.

“I am still struggling to understand the strategy of my competitor, which only seems to be about cutting prices, even as costs continue to escalate amid headwinds and the manpower shortage,” said CEO of dnata Singapore, Mark Edwards.

“My costs in real terms have increased somewhere around 2 per cent. Profits are falling off the cliff and I am not sure where we end up.”

Currently, SATS is the bigger player between the two with a market share of about 80 per cent at Changi Airport.

It handles close to 45 million passengers and about 133,000 flights annually, compared with dnata Singapore’s three million passengers and 40,000 flights.

When approached for comment, SATS did not directly address questions about the price war and the competition between the duopoly, saying only that its regional network advantage — with food solutions and gateway services catering to more than 50 cities across 12 countries — along with a keen focus on service standards and productivity, allow the company to “compete on quality and value rather than on price alone”, and have helped establish the company as the “preferred player in the region”.

At its fourth-quarter earnings briefing in May this year, SATS president and CEO Alex Hungate said: “We will continue to focus on productivity and leverage on our scale ... Volumes in the airline business are growing very fast and even if yields are not growing as much, it is volume that drives opportunity for us.”

SATS’ profit for the fourth quarter ended March fell 1.7 per cent to S$50.7 million against the same period in the previous year, while revenue slid by 1.8 per cent to S$417.6 million.

As airline contracts come up for renewal, said an industry source, the competition is set to intensify even further, with the two operators playing on price point to beat each other.

“This is a reflection of the intense competition between the suppliers and may not be sustainable given that generally Singapore is becoming a more expensive place to operate,” said Mr Brendan Sobie, chief analyst at aviation consultancy CAPA Singapore. “For the two ground-handling companies, there could be an impact on profitability. But this may not be noticed immediately as contracts come up for renewal gradually and there is a notice period when an airline switches their supplier.”

For the airlines, said analysts, such sizeable rate reductions allow them to save on operating costs and deploy some of these resources to improve their performance, such as maintaining or increasing flights out of Singapore. However, the carriers are unlikely to pass on these savings to consumers by lowering fares, said Mr Greg Waldron, Asia managing editor at Flightglobal.

“Airlines have been reluctant in passing on any cost benefits to passengers, with many carriers continuing with fuel surcharges even after the drastic fall in oil prices,” said Mr Waldron.

Intense competition in the ground-handling market here has seen attempts by two globally established service providers to infiltrate the duopoly over the past decade fail after only a few years, noted industry watchers.

Swissport, which entered the market in 2005, ceased operations after just four years, saying its “local operation is not of sufficient size to ensure its sound profitability”.

Media reports then said it had racked up S$50 million in losses, and quoted its then-head of operations, Mr Peter Kohl, as saying that the team was simply unable to secure the critical mass needed to sustain operations in Singapore.

In a more recent case, Aircraft Service International Group (ASIG), which was awarded a ground-handling licence at Changi in 2011, headed for the exit door last year after its first and only contract — with low-cost carrier Jetstar — was terminated due to a commercial disagreement.

http://www.todayonline.com/business/...poly-price-war


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