GSSA firms eye acquisitions: Outsourcing firms look to broaden global reach

As the GSSA sector continues to consolidate, companies are facing increased service demands from their airline partners. Challenging economic times continue to place cost pressures on both. GSSAs are meeting this challenge through acquisitions to broaden service areas and by developing new services.

Frankfurt-based ATC Group has been growing through acquisitions and plans more deals during 2013. The company started off the year by acquiring Houston-based Platinum Air Cargo USA, giving ATC a much greater global reach.

Ingo Zimmer, CEO of the ATC Group, says over the past several years the company has changed from being primarily a European-centric company to a true international player. The company has been in acquisition mode and plans further expansions this year.

“We are now serving India and South Africa and Hong Kong. This year, we bought an American GSSA, Platinum. We are going to expand into the South American market as well,” Zimmer says.

Platinum will gradually drop its name and will be operating under the ATC brand by the end of the year.

Zimmer says business is good for ATC, which now works with more than 60 airlines. Business is especially healthy with Middle Eastern airlines, he says. The European market remains slow in general, but has been good for ATC.

“We are focusing on South America this year. In the U.S., we are very strong right now with eight stations. To complete everything, we are looking at South America for acquisitions,” he says.

Zimmer says during tough economic times, airlines put more pressure on GSSAs, and as a result GSSAs have to take more risks and commitments. He says while rates are decreasing, most GSSAs do not benefit from fuel surcharges.

The role of GSSAs has greatly expanded through the years, Zimmer says.

“In the past, our role was mainly on the sales side, but now we are more on the customer service side, acting in fact like a cargo department of the airlines we are representing,” he says.

Overcapacity has driven rates and yields down and remains the industry’s biggest challenge, says Jens Tubbesing, founder and CEO of New York-based Airline Network Services.

“Overcapacity creates suffering and pain for everybody,” Tubbesing says. “Rates are in a free-fall for everyone now, and we have situations where the main deck rates are on par with lower-deck rates, which was unthinkable for the longest time. Now, you see this more and more. It’s a huge problem.”

In addition to cost pressures on GSSAs, there are requirements to provide more services which require investment in technology, people and other resources, Tubbesing says. Another gradual change has been that airlines are keen to partner with one company compared to several years ago when they were prone to piecemeal their outsourcing.

On the other hand, Tubbesing observes that some airlines may be looking at bringing sales and service back in-house.

“Some carriers that have had long-time representation with GSSAs have now begun to insource again. Qatar Airways is one of the most notable,” Tubbesing says. “The question is if an airline reached a certain size, does insourcing become a viable alternative?”

Tubbessing says his business, which covers the U.S. and Canada, is growing. ANS works with a diverse group of airlines covering Southeast Asia, Latin America, Europe, the Middle East and Africa.
“We have a pretty nice diversification of airlines that allow us to drive or create revenue streams in all areas. When one is down, another is up. It’s a good mix for us. We are happy with our strategy,” he says.

Tubbesing believes consolidation will continue in the industry as companies seek to provide global service and airlines look for future partners around the world. He says he is optimistic about the industry’s outlook. He says GSSAs that provide a tangible value with a good business model will succeed.

“If you look at the general trends, airlines are starting and ending services much faster than ever. They enter a market and they leave a market because the business today is a much faster business,” he says. “Companies like ours are able to fulfill a need of representation and can help facilitate or execute a business plan.”

Ton Smulders, managing director of Active Airline Representatives in Amsterdam, says GSSAs have evolved into the role of total cargo management.

“There is a lot of competition, not only with GSSAs, but with airlines and freight forwarders,” Smulders says. “GSSAs handle capacity control, overview the supervision of the cargo handling company contracted by the airline and flight supervision if necessary. It’s a total service package and is becoming more and more important.”

Smulders says the challenge for GSSAs is to increase their portfolios, not an easy task. AAR’s clients include Aeroflot, Olympic Air, Coyne Airways and Leisure Cargo, one of the company’s major customers, which is owned by Air Berlin. Leisure Cargo is a total cargo management company that works with 18 airlines, primarily with belly cargo. AAR also works with Arkefly, a Dutch charter airline which is part of the German travel group TUI. Cargo includes Dutch perishables for the former island countries of the Netherlands Antilles in the Caribbean.

“Airlines have a lot of challenges and because of the downturn at the moment, we have to be careful in pricing,” Smulders says. “You also see that shippers are asking a rate for their shipment through various freight forwarders. We recently had a request for Kabul and got a request from 12 different agents. Does it make sense? Yes, maybe if you are going for the lowest rate, but no, if the destination doesn’t have that many options to fly.”

Smulders describes his company as a small firm that gives upmarket services.

“We have a high standard of service, therefore we can afford ourselves to be a little more expensive. We are proactive in this and give the freight forwarder constant updates of what is happening with their shipments. The most important thing is to keep our customers happy so they won’t go away,” he says. “If you are doing a good job and it’s still affordable for them to continue working with GSSAs, they will not leave you.”

Adrien Thominet, chief operating officer of Paris-based ECS, one of the largest GSSA organizations, says airlines need stronger partners these days. He says airlines and GSSAs walk a complex tightrope of managing costs and providing increased services.

“It’s a little tricky for us. On the one side, airlines need more commitments from GSSA. They expect us to do everything for them. They want a commitment, and at the same time there is pressure on their costs. They are trying to minimize the cost of the outsourcing.”

ECS hopes to enlarge its network during 2013. Thominet says ECS believes acquisitions are more beneficial than organic growth in terms of being able to quickly serve new markets. ECS is strong in Europe and Africa but is looking to expand in other regions.

“We anticipate acquisitions this year,” Thominet says. “Our network is not completed yet. We are not in South America and we still need to grow in the Far East.”

Thominet believes airlines have no choice but to outsource in certain regions. He says GSSAs must innovate and develop new services to bring added value.

“We must innovate with new business to develop new forms of revenue,” Thominet says. “We are facing overcapacity compared to demand, so revenue is decreasing.”

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