Room at Changi for 3rd ground handler

Room at Changi for 3rd ground handler
If Changi Airport is serious about having a third player, it must do more than simply award a licence.

First, Swissport called it quits and, now, Aircraft Service International Group (ASIG) could be looking for the exit door too.

Both companies are established ground handlers in the United States and Europe, but it seems neither could make it at Changi Airport.

ASIG, which started operating here in October last year, has terminated its contract with low-cost carrier Jetstar - its first and only airline customer.

No reasons were given except that the parties had a commercial disagreement.

Jetstar has already appointed Sats to take care of its passenger, baggage and cargo handling from July 22.

Could it be that Changi is not big enough for three?

The question was first asked in 2003, when the Government said it was thinking of inviting more ground-handling and in-flight catering companies to operate at the airport.

Then transport minister Yeo Cheow Tong felt that Changi could accommodate three ground handlers, and he stressed that competition would help reduce rates and help the airport to battle rivals for premier air-hub status.

In the ensuing 12 years, two attempts to break the ground-handling duopoly held by Sats and dnata have failed to take off.

If Changi Airport is serious about having a third player, it must do more than simply award a licence.

It might have to step in - at least in the initial years - to enforce a level playing field, for example, by making sure that there is no undercutting of rates.

When Swissport entered the market in 2005 with a 10-year operating licence, it had ambitious plans to quickly expand its foothold in Singapore and the larger Asian market.

Four years and just four customers - Tiger Airways, AirAsia, Northwest Airlines and Swiss International - later, it threw in the towel. By then, it had racked up losses of more than $50 million.

The company's head of operations at the time, Mr Peter Kohl, said before he packed up and left that the team just could not secure the critical mass needed to sustain operations.

He said: "This is not just about a company closing down. Also important is what Swissport's exit means for the ground-handling market here and for the airlines that operate at Changi. At the end of the day, I still firmly believe that the market can support three players."

Perhaps the next time round, airlines would support a third player because, in the end, they were the ones who would gain from a more competitive environment, he said.

Indeed, airlines did gain, with rates falling by about 15 per cent to 20 per cent after Swissport made its entry. When it left, rates allegedly went up again.

Competition also forced the incumbents to take a good, hard look at their own operations, to see how they could be more competitive.

Undeterred by Swissport's failure, Changi Airport gave the competition a second try and, in 2011, awarded a new licence to ASIG.

It was tough from the start but, after much effort, ASIG finally clinched Jetstar as its first customer in October last year.

While the reasons for the Jetstar-ASIG split remain sketchy, the fact is that, like Swissport, ASIG had a hard time trying to establish a presence at Changi Airport.

If ASIG chooses to leave, Changi is unlikely to launch a third try any time soon, given the slowdown in passenger traffic in the past one to two years.

However, over the long term, there is definitely room for three.

This article was first published on June 5, 2015.
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