GSSAs, working hard to keep pace with demand
07 / 04 / 2015
Win some, lose some is the recurring theme in the general sales and service agency (GSSA) business.
As fast as agents gain carriers, they lose others — often through no fault of their own — perhaps because a carrier they represent is taken over by another or a service to the local market is withdrawn, writes Chris Lewis.
Still, says Ismail Durmaz, owner and chief executive of Schiphol-headquartered Global GSA Group, there is business to be won: “If you want to stay alive you have to take a risk and offer new products. One service you can offer, for example, is local pick-up and handling. Forwarders and airlines are increasingly asking for help from their GSSAs to do this.
“Because we might represent ten or more carriers in a local market, we may have more buying power with the trucking companies than an airline alone.”
It has also taken on block space agreements or whole aircraft charters in some cases.
Global GSA – which Durmaz estimates is about number three in the world GSSA pecking order – does at least have the advantage of being privately owned.
This means that management can make their own decisions and perhaps take a longer term and more strategic view of development than stock market-listed companies that are always looking over their shoulders at anonymous shareholders.
Durmaz is trying to up the profile of Global GSA. One of the paradoxes of success in this field, he says, is that the really successful operators become such a seamless part of their airline customer’s operations that not everyone is aware that they are separate businesses.
“We’ve even sponsored football clubs, for instance – but in the name of the airline, not ourselves,” Durmaz explains.
Another ingredient of a successful GSSA is patience: “We’ve always preferred to build up in a country from scratch, rather than take over an existing company. If you buy a GSSA, you might find that the good people leave and take the best airlines with them, so you end up with nothing.”
It may take a couple of years to build things up, but the results are better in the long term, he believes.
Global GSA helps motivate its local managers by giving them stakes in the business and, being a network GSA, can help owners in start-up countries with financial guarantees, block space agreements and the like.
Durmaz doesn’t have an expansion plan in terms of being in specific countries by certain dates, but he is keen to expand in the Far East, where he has opened the first office in the strategic city of Hong Kong. This is in keeping with the company’s strategy of setting up in nodal points like New York or Dubai.
North Africa is another promising area.
Egypt and Libya may be down on their uppers, but another strand of Durmaz’s strategy is to get into countries where there is potential for future development. “They’re particularly interesting because, as a GSA, you make most money from exports – so we like to go to countries that have good potential in that regard.”
A few years ago, many general sales agents (GSAs) started calling themselves GSSAs, with the emphasis on the service aspect of the operation.
Ton Smulders, managing director of Netherlands-based Active Airline Representatives (Activair), says that his company puts the focus not only on sales “but on all the functions an airline needs to have maximum exposure and revenue out of our territory.”
These include, for instance, capacity control, market reports, overlooking or supervising the warehouse handling company and ramp supervision during turnaround or after sales to freight forwarders, including advising them about new services.
Smulders adds: “We do see a trend to added value. Airlines need to have a total cargo concept whereby the GSSA gives them the same functions as if they had their own office. The GSSA works on a ‘no cure – no pay’ basis whereas an airline having its own office and staff has fixed costs regardless of the changes in capacity offered.”
An airline operating frequent freighters may well prefer to have its own office, so Activair concentrates mainly on belly space.
For instance, “we mainly fly perishable cargo on the services offered by Leisure Cargo, as these are regular passenger flights with high frequencies.
“This company, represented by us since 1993, is responsible for total cargo management of 18 mainly inclusive tour airlines, among which is ArkeFly, a TUI airline, based at Schiphol airport and operating with B787 Dreamliners, B767 and B737 aircraft.”
One of the geographic areas Activair concentrates on is the Dutch Antilles, Curacao, Aruba and Bonaire, to which airports it flies fresh Dutch products daily.
Other destinations are Mexico, Cuba, Dominican Republic and, in summer, Greece, Spain and the Canary Islands.
On Aeroflot it offers three times daily belly space to Moscow and inner Russia as well as CIS destinations. Smulders says: “Although politics has made the market to Russia difficult, we still are flying regular cargo on the fleet of Airbus A320/A321s.”
Pegasus Airlines operates twice daily to Sabiha Gokcen airport on the Asian side of Istanbul. “We concentrate on using Istanbul as a transit point to airports like Ercan, Bishkek, Tbilisi or Erbil with excellent connections and very suitable for Dutch flowers as they operate with Boeing 737s. This gives us higher revenue compared with Istanbul cargo.”
The only operator in Activair’s portfolio offering full cargo flights is Coyne Airways, with its B747F every Sunday from Schiphol to Tbilisi and onward to Caspian destinations, carrying mainly oil related cargo.
“Besides that, we operate via Dubai to Iraqi and Afghanistan destinations. Its on-time performance is of a high standard.”
Activair also handles ad-hoc charters, operating 25 in 2014 and is expecting an increase this year.
Glenn Shires says the GSA/GSSA industry has expanded vastly in the seven years since he became secretary general of the Federation of Airline General Sales Agents (Fedagsa) – but there is still plenty of potential for further growth.
The Swiss-based representative organisation was formed 20 years ago, and it now has members on every continent. But with only 17 per cent of IATA’s Cargo Account Settlement Systems (CASS) transactions currently handled by GSAs/GSSAs (by number) there is clearly potential for the concept to grow even more, he says.
“For airlines, the outsourcing model has worked wonderfully well,” he told Air Cargo News, adding: “It gives the airline very motivated partners, who talk all the time to forwarders and who are in a very good position to push new initiatives like e-freight.”
Outside their home countries (and in some cases, not even there) or other really major markets, most airlines have come to the conclusion that GSA is the way to go, rather than having their own staff sitting expensively on the payroll.
For instance, Etihad, a relatively young airline that has been able to learn from the mistakes of older carriers, “doesn’t have anyone except GSAs, except in Abu Dhabi.”
British Airways has an interesting model. It has its own people in and around major UK cities, notably Heathrow and in some big foreign markets like the US. But in its smaller UK markets, it uses the services of a company called Dunwoody – not that anyone would know, because all the branding is BA.
It is a mistake to see GSAs only as a cost-saving exercise, Shires warns. Fedagsa puts a lot of effort into trying to ensure that airlines find themselves the right GSA and carriers’ knowledge of the GSA industry can be shockingly deficient at times. Some carriers, he adds, have used them as “a cheap way of making people redundant.”
Saving money may be part of the motivation for appointing a GSA, but the cheapest option doesn’t necessarily deliver the right financial results in the long term.
A smaller agent – and for whom the carrier may well account for a larger proportion of its total business – may be more responsive. On the other hand, the bigger GSAs will have trucking networks that allow them to feed cargo to and from airports that the carrier serves and may well be able to offer a broader range of services – though the airline might have to accept that it is only one of perhaps several dozen customers.
Where a carrier has pulled its planes out of a country, a good GSA should be able to help with interlining.
Sometimes, things just do not work out between airline and agent but carriers too need to work on the relationship, says Shires. “A GSA is not a ‘hire and forget’ partner,” he explains.
Etihad, for example, has compulsory retendering every two years and while this may be a little extreme for some, “regular reviews are no bad idea.”
An airline switching from its own in-country cargo organisation to a GSA is often seen as a simple cost-cutting exercise, but there’s a lot more to it than that, says Ingo Zimmer, chief executive of the ATC group of companies.
“More airlines should consider using GSAs,” he said. He recalls that, until a few years ago, it was common for airlines with only two flights a week into a country to have a full complement of staff, from the country manager downwards. A GSA arrangement can be a much more sensible arrangement in many cases, Zimmer believes, not only because it can cut costs but because it may also bring a much higher standard of service.
“We can bring a European standard of compliance to foreign markets, and for global airlines that can be very important.”
ATC Aviation Services doesn’t own planes or expensive pieces of equipment, so it can concentrate on the most important asset – knowledgeable and experienced people: “We have been able to pick the best airline managers available in the market,” he explains.
Working for around 75 worldwide airlines means that ATC can justify the investment in state-of-the-art software, which it can then deploy even to its smallest and remotest office.
ATC already has extensive offices in Europe, and has now started a push into important new markets. Last year, for instance, it went from having no presence in South America to operations in four countries, starting in Brazil in the Spring (clients include Qatar Airways, LAN Chile and Aerolineas Argentina), followed quickly by Argentina and Ecuador and, most recently, Venezuela.
Chile, Bolivia and Peru will follow in the first half of 2015.
More Asian countries are also on the list. ATC is already established in Hong Kong and India but South Korea and Japan are likely future targets. It already has a presence in South Africa, but more African countries are a strong possibility.
The US is already a strong market. ATC bought out the shares of its US partner in 2013. Current clients include Etihad, Nippon Cargo Airlines and, most recently, CAL Cargo.
Much of the impetus for the GSA market has come from the Middle East carriers, who are adding to their capacity at a time when many European carriers are contracting.
Perhaps European carriers should also consider GSA representation in Europe itself.
Take Berlin, for example. Historically, this was not a big cargo market, being tucked away behind the Iron Curtain, but even 25 years after the Berlin Wall came down, many European carriers have been reluctant to open up cargo offices. The same is true for smaller German cities – it is hard for most airlines to justify a direct presence in somewhere like Hannover, for example.
But GSAs can succeed because they can assemble relatively small bits of cargo from several carriers, which is also a big advantage in setting up road feeder services. The advantages of scale also make it possible to offer staff coverage in the evenings or weekends.
For the future, Zimmer sees ATC doing more consignee sales. Historically, there has been a bias among GSAs, and the airfreight industry generally, towards export sales, but with a large worldwide network now in place, there is no reason why this should be so, he says. “GSAs are hungry. We have the organisation in place, and we are always looking for solutions that we can sell,” he says.
Other added value services are document handling. Such skills can be in short supply in many markets.
Zimmer also foresees a process of consolidation in the GSA industry itself. The strongest companies will be those that can offer their airline clients the benefits of economy of scale and a large worldwide network. So expect to see the smaller and more niche operations acquired by some of the big boys in future.