Cost-cutting airlines look to ever-evolving GSAs for a sense of security
Security. In this economy, with so much uncertainty still pervading the market, every person at every level of the aviation industry is searching for a guarantee — an assurance that business will be conducted in the agreed-upon manner, a pledge to create positive numbers in the middle of so many negative results. The relationship between a GSA and his carrier client is no different.
Recently, airlines have been asking more of their sales partners. When GSAs approach an airline about representation, carriers have started asking for revenue guarantees and detailed business models. These GSAs must pledge to their new customers a certain level of activity in order to secure business in this uncertain economic environment. This is slowly becoming the new normal.
“Airlines are very scared,” says Adrien Thominet of ECS, “so they ask for the largest possible guarantees; they ask for the largest possible financial support. Airlines need more and more to go to big GSAs who will give them the maximum comfort and guarantees.”
More airlines than ever have started turning to GSAs as a way to bleed costs out of their
business. Some of these airlines are entirely new to the GSA experience and have just moved toward outsourcing their sales department because it was the next thing to cut. Other carriers are accustomed to the GSA model and spend time shopping around among firms.
For most airlines, the obvious choice for cargo sales seems to be outsourcing to a GSA, but there are still a few holdouts. These carriers are convinced they can go it alone in a quickly changing landscape. “A few of them are still trying to get by on their own, but it’s a very, very limited number of airlines,” Thominet says. “I believe the CFOs are not giving any choice to the cargo managers. They are telling them to cut costs and increase revenue; with their resources, they can’t do it by themselves.”
At ECS, Thominet sees a broad range of airline clients. Many of the carriers who have traditionally used their own staff want to make sure that GSAs will cost less money than their staff while generating more money; due to a variety of factors including employee overhead, he says that this reasoning “is almost illogical.” Airlines who are familiar with GSAs and have worked with them before, want to be sure their new GSA can produce results that were just a little bit better than the last. “Whatever the strategy is,” he says, “they always want to have more and more guarantees.”
The quest for a sense of security may seem best provided by a GSA with a vast network around the world. While there are GSAs who focus on being the biggest and the best, Thominet says, there are only about three major players in the worldwide market. And while airlines may like a company’s broad reach, there is always room for smaller firms. Niche GSA organizations can offer a different perspective than larger organizations because of unique services that are tailored to an airline’s needs.
Airlines use the bigger GSAs when they need to concentrate on volume, among other things. Unfortunately, Thominet says, all the mid-sized GSAs have been pushed out of the market.
Sevde Ipek, business development manager at Turkey-based Airmark, counts among her client base large airlines such as UPS and Korean Air as well as smaller players like Ural Airlines and Moldavian Airlines. For Ipek, these airlines need the services of his team to create a good relationship with local freight forwarders. “In order to get a good and regular cargo market share and create a market existence for an airline, relationships with the local freight forwarders and customers are very important,” she says. “You should know the market conditions, competitors, and the target customers very well, which could only be achieved with a local sales force with a good reputation in the air cargo market.”
Last year, Airmark celebrated its 10th anniversary by adding four new carrier customers. In 2012, Ipek hopes to add at least two more, an addition that will become an annual goal. This benchmark won’t be easy because of the pessimistic forecast for worldwide air cargo growth, but Ipek has hope that toward the middle of 2012, the storm clouds will lift. But it will take a long time for the economy in Europe to turn around; for that reason, he sees Airmark’s best opportunities for growth in Africa and the Middle East.
For the industry in general, Ipek predicts that GSAs will see increasing competition, a lack of financial support from banks, and airlines that are faced with cutting even more services and routes. One of the main problems, historically, has been that the airlines view GSAs as a separate part of their business, and he hopes to soon bring about a change in that perception.
“At some stage,” she says, “airlines should consider the GSA as part of their system and support us to survive to serve them better.”
There are still some regional hiccups when operating as a GSA. Victor van Eijk, managing partner of Cargo Wings, says that GSAs are much more established in Europe than in other parts of the world. These European groups function as pure GSAs, leaving forwarding duties to an third party. But in the Asia-Pacific region and in North America, that dynamic is a little different, which, he says, could create tension among industry players.
“In large parts of China and the U.S., a GSA may also have their own forwarding agency. This way other forwarders could believe to loose their contact to the GSA‘s forwarding side,” van Eijk says. “It is for that reason that the European GSA organizations do not have a forwarding department as such. Customers do not fear to lose customers to the GSA partner. They see the GSAs as a trusted partner in the vertical logistic chain.”
His advice is to separate the forwarding and GSA components completely; only then will U.S. GSAs gain the confidence to become market leaders, he says. Whether this will happen in 2012 is anyone’s guess; van Eijk sees the next year as being pretty much flat when compared to 2011 — not the most ideal environment for expansion or the re-imagining of business plans.
In the Asia-Pacific region and in the U.S., the GSA model is still developing, and one reason for the slow evolution, at least in the U.S., may be jobs. When a carrier outsources cargo sales to a GSA, the airline obviously has no use for the employees who once sold cargo as an indispensable part of the team. GSAs, Thominent says, try to pick up the pieces and add a few staff members from the airline onto their team — it makes sense, he says, to bring on employees who know the airline inside and out and can hit the ground running from day one. But job losses are sometimes unavoidable in areas without tough labor laws. In the UK, workers are shielded by the law.
“In Europe … if we take over a contract from an airline who had its own staff, the GSA is more or less obliged to take over as well the staff or to pay them compensation,” Thominent says, noting that the airline is required to do nothing when jobs are cut. “It becomes somehow the problem of the GSA either to re-employ the staff or pay them compensation, but not the airlines — which is not the case in the far east or the U.S.”
Stephen Dawkins of Air Logistics Group has seen a slow evolution of GSAs in the past 15 years. As carriers have looked to remove more costs from their own business, GSAs have flourished. Even in the last few months, Dawkins says he has been approached a few large, worldwide airlines who are looking for a good way to save money.
He predicts that with fuel prices only moving higher, he’ll soon be fielding more calls from carriers. For his part, he will continue to invest in IT, employees and efficiencies in order to be ready when the next carrier comes calling. But, he hastens to add, even as the GSA market grows exponentially, that doesn’t mean GSAs are an automatic choice for every airline.
“There’s always going to be some airlines that want to control their own cargo buinsess, and there’s always going to be airlines that are looking for additional revenue by outsourcing to a third party,” Dawkins says. “Every airline is looking at their costs, and every airline is looking at the opportunity to outsource.”
The GSA market, he says, is certainly different than when he first started in the business, and he thinks the model will continue to adapt and thrive. In a rocky economy, outsourcing sales is a mighty tempting proposition, but even in the sunnier times, Dawkins says, GSAs will continue to evolve and blossom.
“In three years time, the GSA model may be different to what it was 10 years ago — certainly, I’ve seen since September the 11th that there’s been more understanding of the GSA, more transparency from the airline to the GSA,” he says.
“We continue to see the business model of the GSA evolving in a positive direction,” he adds,” with more investment in IT, more investment in good employees, more investment in revenue guarantees to airlines.”
A forwarder’s perspective
GSAs are a middle man between forwarders and airlines, but it seems that most GSAs view airlines as their ultimate client and forwarders as someone with which to do business. Carriers are definitely in the driver’s seat in this situation.
To quickly explain how U.S. forwarders view GSAs in the current market, Bob Imbriani of Team Worldwide took the time out of his schedule to answer a few questions.
Q: As a forwarder, how does working with a GSA differ from working with an airline? Do you prefer one over the other?
A: All things being equal, we prefer to work with the airline directly. However, if it is a small carrier, the GSA does help. The problem with GSAs, in many cases, is they have to go back to the carrier for approval.
Q: Have you seen a trend toward airlines using more GSAs? Are you dealing with GSAs more often than representatives from airlines?
A: I have seen greater use of GSAs for smaller airlines and smaller markets; in other areas, carriers are moving away from GSAs. I have seen where alliances used a single-sales entity and then have gone back to handling it directly.
Q: What do you think GSAs bring to the equation?
A: GSAs have more knowledge about cargo and the needs of forwarders than a small airline might have.
Q: How do you think GSAs need to evolve, and what do you expect to see out of the GSA market in 2012?
A: I see more GSAs coming into the market as new airlines expand their cargo markets and as carriers continue to look for ways to cut costs.