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Old 4th Sep 2008, 13:33
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42psi
 
Join Date: Jan 2008
Location: UK
Age: 67
Posts: 252
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Much of what's been said in the last two posts is accurate ..........


But I believe that at right at the base of all this is the underlying problem of how to run a handling agent and make the required profit margin.


It's my understanding that on the whole the best HA's out there are lucky if they scrape a 3% margin ... most company boards these days require a minimum return of at least 6% on their investment .. in fact they are probably setting their management teams targets of around 8%.


Now you come to what airlines are able/prepared to pay for the services they require and whether they actually contract for what they need.

That last bit .. what they need .. is important .. and it doesn't always match what they want!


I have experienced having a "cost plus" contract agreed with a major carrier based on "open books" policy. That is they accepted the and agreed the profit margin that would be made for the handling of their operation.

Dedicated resources were used to service that carrier and the HA's books were freely open to the carrier .. including details of how any apportioned costs were allocated/shared.

Both parties agreed this was a "grown up solution" and worked in the best interests of both. The airline got the service it required and was happy it was paying reasonable costs for that service ... indeed the airline itself made the point that this agreement gave it stability and removed the problems associated with constant contract changes.

The contract was still out to general tender at renewal each time and was subject to benchmarking during it's lifetime.

This worked well until the carrier demanded year on year reductions in charges to be written into the contract at renewal. At first this was agreed to as the contract remained sufficiently profitable and the airline made the case of "hard times .. our suppliers must share the pain.." etc.

However .. eventually it reached the point where if the reductions continued then little or no proft could be achieved.

The HA went back to the airline and pointed out that any further reductions would make the contract untenable ... the airline response was "we continue to suffer from the current economic problems in the industry and expect our contrators/suppliers to support us in reducing our cost base".

This was somewhat rich as the airline had actually worked with said HA looking at the way in whic it ran it's self handling bases. The airline agreed that they were less efficient/cost effective/service quality focused at own bases and that the HA's operation was as efficient as it could be at that price.

Airline suggested cutting service levels which would allow HA to reduce costs (i.e. resources) .. HA said OK but then we need to reflect that reduction in the SLA's so it doesn't result in financial penalties .. airlines says .. nope SLA's and penalities stand ... !!


This airline is now being handled by annother HA.




Earlier I mentioned Airlines actually contracting for what they need .. I've seen many instances of airlines knowingly/unkowingly not including a requirement for somehting in the handling contract and then not being willing to pay when it's need becomes clear. This either leaves the HA to try and absorb the additional task/work (under threat of risking the contract if it tries to charge) or a "loose end" beinf fudged around.

AN exmaple of this is a low cost carrier who does not wish to contract for turnaround cleans as this is done by the cabin crew.

Fine and dandy until the cabin crew chuck the rubbish bags at the bottom of the steps just before the a/c pushes back. If your lucky the HA will put said bags in the hold for disposal at carriers base (assuming that's where they're going ) .. if not you now have FOD blowing around.

However, low cost carrier when it starts getting it's own rubbish back in the holds complains ... 'cause it's home base HA is objecting to removing/disposing of said rubbish as it's not in the contract!!

Anyone for tennis??




Bottom line is the critical decisions are being taken at a high level in HA/Airlines based on overall costs/margins ... it's then been passed to an operations area to "get on with it and make it work" ... which doesn't mean it's actually possible to satisfy al parties.

Meanwhile you will get "churn" as each HA has a go at the contract thinking it can do better and then dropping it when it can't.


I believe there is also a problem with HA's not fully understanding airlines sometimes ... I've been lucky () enough to work in both camps..... I'm sometimes surprised at how a handling agent thinks it's done a good job when the airline thinks the opposite.....



Think I'll stop now and go and lay down
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