India’s aviation crisis never seems to end. Just a few weeks ago, private airlines threatened to go on strike unless the government gave in to their demands to rationalise aviation turbine fuel prices as well as did something about the high airport charges in the country. With the government threatening to take serious action, the airlines backed down, though the crisis in the industry persists. The Air India crisis continues and the next one, likely to blow up over the next few weeks, relates to the government policy on ground handling, a policy which has been kept in abeyance for two years thanks to the opposition of aviation companies. Aviation Minister Praful Patel, however, says the policy is likely to be tweaked and implemented soon.
So far, a host of manpower companies have doubled up as ground handlers offering services to private airlines — though the quality wasn’t always the best, the costs were competitive. And there was Air India offering better services but at a steeper rate. All this, however, changed when the government decided it would privatise the major airports — the logic then was that ground handling facilities needed to be upgraded to international levels.
| COST OF GROUND HANDLING PER AIRCRAFT | |||
| Figures in Rs | Airside | Passenger/ terminal services | Total |
| Low cost carriers | 2,700 | 1,800 | 4,500
|
| Full service carrier | |||
| Airbus/Boeing | Under 5,000 | 3,000-4,000 | 8,000-9,000 |
| ATR | 2,500 | 1,500-2,000 | 4,000-5,000 |
| New ground-handling operators in Delhi and Mumbai | 6,000 | 2,500 | 8,500
|
| How is ground handling divided |
| Passenger or terminal services: This is the front-end service which includes, among other things, check-in counters, arrivals, customer services, lost baggage, airline lounges and transfers |
| Airside services: These include aircraft guidance, towing, low-grade maintenance, water and lavatory drainage, ground power, air conditioning, baggage handling, refuelling, aircraft dispatch and staff transport, cabin services like cleaning, among others |
For the country’s six major airports as well as 35 non-metro airports, it was decided that there would be only a maximum of three operators who would provide ground handling — the airport operator (for example, DIAL in Delhi), Air India or its joint venture, and an independent ground handling company selected through competitive bidding by the airport operator (in Delhi’s case, DIAL). And, the policy envisaged, airlines would have no option but to use one of these three firms.
That was two years ago. Virulent opposition from domestic airlines against the policy forced the government to postpone its implementation twice already. Airlines argue the indicative tariff the new ground handlers are offering is much higher than what they incur while doing the work themselves through contractors. The civil aviation ministry has now decided to call both the airport operators and the airlines to come to a settlement so that the new system can be in place by January.
Domestic private carriers in the country cite two reasons for preferring the current policy. The first is the cost. The second, they say, is product differentiation. To compete to get passengers, they wish to offer specialised services and, for this, they want to do the ground handling themselves — Kingfisher which initially outsourced its ground handling to Indian Airlines started doing it on its own for this reason. Low- cost carriers (LCCs), for whom a quick turnaround time is critical, also argue that they will not be able to keep a control on this once they are unable to do their ground handling on their own.
Right now, LCCs claim they incur around Rs 4,500 per aircraft for both the airside as well as passenger services. Full-service carriers say they incur a cost of Rs 4,500 to Rs 5,000 on an A-320 and as low as Rs 2,500 on an ATR aircraft for airside services (see graphic). In contrast to this, the ceiling on airport services to be provided by the new airport operators in Delhi and Mumbai has been fixed at a steep Rs 8,500 (which includes Rs 6,000 for the airside and Rs 2,500 for passenger services). So costs for LCCs will almost double while those for full-service airlines will also rise substantially. For an industry that’s tottering already, this could be the proverbial last straw.
Airport operators, for the record, argue they are also going to incur losses if charges are fixed at the levels they are. They claim their costs are likely to be between Rs 10,000 and Rs 12,000 for an aircraft. As for the airlines’ claim that a new ground handling policy would force them to fire around 8,000 people employed in the ground handling business, airport operators argue they have committed to absorbing 80 per cent of their ground handling staff as well as to buy out equipment which is three years old so that the airlines don’t lose money. They also add that allowing each airline to do ground handling separately adds to the security risks in the airport.
This is what the civil aviation ministry now has to decide? Airlines, for instance, pooh pooh the offer to absorb 80 per cent of their staff, saying there is no way the airport operators can guarantee them the same terms — they say the offer is just meant to divert attention. As for security concerns, they argue that all ground handling staffers are security-cleared anyway, so where is the problem? And since the new ground handling companies are also likely to outsource their work to third parties, how does this make them any more security-cleared? The fear is that the competition may not be enough to ensure that prices come down and, in some cases, you may just have the airport-operator-run company offering ground handling facilities.
Airlines argue that global trends also increasingly encourage self-handling — in order to keep a check on independent and airport developer-owned ground handlers from overcharging. The US has no checks and allows airlines to do their own ground handling and various EU nations mandate that at least two airlines should be given permission for self handling). The UK, Netherlands, Sweden, Finland, Czech Republic and Bulgaria have no restrictions on self-handling just like in the US. Thanks to this, the tariffs for third-party handling remain in check — as a result, in the EU, the number of airlines opting for third-party ground handling has risen from 21 in 2006 to 38 in 2009.
Whatever policy the government adopts, it is certain to be fraught with controversy, and will upset either the airline companies or the airport developers/operators. Both groups are in financial trouble — while one is looking to save costs, the other is looking for new ways to bolster sagging revenues. Watch this space for the next big battle in India’s aviation history. This one, though, will be fought on the ground.
