RE­IN­FORC­ING THE FOUN­DA­TION

De­spite rapid global ex­pan­sion brought on by nu­mer­ous ac­qu­si­tions in re­cent years, dnata has slowed its mo­men­tum and is fo­cused in­stead on bol­ster­ing its power base

Aviation Business - - CONTENTS - By Alexan­der Sopho­clis Pieri

De­spite rapid global ex­pan­sion brought on by nu­mer­ous ac­qu­si­tions in re­cent years, dnata has slowed its mo­men­tum and is fo­cused in­stead on bol­ster­ing its power base

De­spite an en­dur­ing his­tory dat­ing back to 1959, it’s only within the last decade that Dubaibased avi­a­tion ser­vices provider dnata man­aged to move beyond the con­fines of the UAE mar­ket.

In just 10 years, the com­pany, which is part of the Emi­rates Group, has grown from a small but re­spected player in the in­dus­try, to a global pow­er­house that is to­day ac­tive across 85 coun­tries.

Back in May 2018, the avi­a­tion ser­vices provider un­veiled its fi­nan­cial per­for­mance for the 2017 year, in which it an­nounced that it had achieved its high­est profit to date with $359m (AED 1.3bn). Dur­ing the same pe­riod, dnata also saw record rev­enues of $3.6bn (AED 13.1bn), a size­able por­tion of which (68%) was at­trib­uted to the progress of its in­ter­na­tional busi­ness.

“Over the last two to three years, we have ex­panded a lot by ac­qui­si­tion … we had five ac­qui­si­tions that grew our busi­ness quite sig­nif­i­cantly and we en­tered key mar­kets in Canada, USA and Brazil,” com­ments Stew­art An­gus, divi­sional se­nior vice pres­i­dent of In­ter­na­tional Air­port Op­er­a­tions & As­so­ci­ated Com­pa­nies, dnata.

While the com­pany’s op­er­at­ing costs in­creased by 8% to reach $3.2bn (AED 11.9bn), it did se­cure a record high cash bal­ance of $1.3bn (AED 4.9bn). Rev­enues of dnata’s UAE air­ports op­er­a­tions, which in­cludes both ground and cargo han­dling, grew by 4% to reach $859m (AED 3.2bn), while the com­pany’s In­ter­na­tional Air­port Op­er­a­tions divi­sion’s rev­enues in­creased by 14% to hit $1bn (AED 3.8bn).

Serv­ing 309 air­lines from around the world, the avi­a­tion ser­vices provider cur­rently op­er­ates within 127 air­ports; 75 in­volved in ground han­dling, 60 in cater­ing and 44 in cargo op­er­a­tions.

De­spite a push for rapid global ex­pan­sion in re­cent years, mo­men­tum for the cur­rent and up­com­ing year has slowed dra­mat­i­cally. In­stead of ag­gres­sively pur­su­ing new ac­qui­si­tions, the cur­rent strat­egy is fo­cused more on con­sol­i­da­tion.

“A lot of the strat­egy around 2018 has been about the in­te­gra­tion and op­ti­mis-

Over the last two to three years, we have ex­panded a lot by ac­qui­si­tion … we had five ac­qui­si­tions that grew our busi­ness quite sig­nif­i­cantly and we en­tered key mar­kets in Canada, USA and Brazil.”

When you add all those up, there is quite a sig­nif­i­cant growth in ser­vice ca­pa­bil­ity in those air­ports, and it’s re­ally that growth that has driven what was last year a 15% in­crease in rev­enues for us in the in­ter­na­tional busi­nesses.”

ing the per­for­mances of those busi­nesses that we ac­quired in pre­vi­ous years … don’t ex­pect sig­nif­i­cant ac­qui­si­tion an­nounce­ments on the ground han­dling side,” ex­plains An­gus.

“Hav­ing said that, we are al­ways look­ing for op­por­tunis­tic chances to ex­pand and I ex­pect we will do one or two rel­a­tively small ac­qui­si­tions. But I think they will be quite dis­cern­ing and they will be more about fill­ing in the gaps rather than mov­ing to new ge­o­graph­i­cal ter­ri­to­ries.”

While there hasn’t been a lot of ac­quis­i­tive growth over 2018, the SVP shares that there has been a lot of or­ganic growth driven by the pro­vi­sion of ad­di­tional ser­vices in air­ports that dnata is al­ready ac­tive within.

Part of this in­cludes the launch of three new lounges and the in­crease of cargo ca­pac­ity at seven air­ports across the world. Also this year, dnata be­gun ground han­dling work at two Green­field projects in Am­s­ter­dam, Nether­lands, and Nashville, USA.

Last Au­gust, the com­pany launched pas­sen­ger han­dling op­er­a­tions at JFK Air­port in New York, where it is op­er­at­ing in ter­mi­nals four and eight with launch cus­tomer Copa Air­lines, the flag car­rier of Panama.

“When you add all those up, there is quite a sig­nif­i­cant growth in ser­vice ca­pa­bil­ity in those air­ports, and it’s re­ally that growth that has driven what was last year a 15% in­crease in rev­enues for us in the in­ter­na­tional busi­nesses,” shares An­gus.

An­other re­cent de­vel­op­ment this year was dnata’s stake in­crease with ground han­dler Air­port Han­dling SPA. Back in July, dnata ex­er­cised its op­tion to ac­quire a 40% stake in the Mi­lan-based en­tity, bring­ing its to­tal in­ter­est to 80%.

Founded in 2014, Air­port Han­dling de­liv­ers a wide range of pas­sen­ger, ramp and bag­gage ser­vices at Mi­lan’s Malpensa (MXP) and Li­nate (LIN) air­ports. Build­ing upon the orig­i­nal in­vest­ment that was con­ducted back in 2016, dnata’s fur­ther ven­ture with Air­port Han­dling bol­sters its al­ready size­able pres­ence in the Ital­ian mar­ket, which con­sists of cater­ing fa­cil­i­ties in 22 air­ports.

In terms of its port­fo­lio of clients, dnata has man­aged to se­cure a size­able num­ber of new cus­tomer con­tracts.

“In the past 12 months, we have won over 90 new cus­tomer con­tracts … what’s par­tic­u­larly pleas­ing is those 90 con­tracts are with the air­lines that we want to work with, such as Eti­had, Air France, KLM, Lufthansa, Ja­pan Air­lines, as well as the Chi­nese car­ri­ers,” says An­gus.

“But some of the con­tracts are with air­lines who in five to ten years will be pow­er­houses in the in­dus­try, such as Nor­we­gian, Air Baltic and Ethiopian Air­lines.”

When asked about up­com­ing projects, the SVP shares that there are two op­er­a­tions set to go live within the cur­rent year. The first, which is set to start in Novem­ber, is a ground han­dling op­er­a­tion with both pas­sen­ger and ramp ser­vices at Los An­ge­les In­ter­na­tional Air­port.

Though tight-lipped about the op­er­a­tion, An­gus was able to share that dnata has al­ready started a re­cruit­ment drive for the op­er­a­tion, and that there would be four launch cus­tomers that it would be work­ing with at the air­port.

The sec­ond pro­ject aims to tap into the cargo mar­ket of Brus­sels, an area that dnata has re­port­edly re­ceived re­quests from cus­tomer air­lines to en­ter. Al­ready on the ground and search­ing for a vi­able cargo fa­cil­ity, dnata aims to launch this op­er­a­tion in De­cem­ber.

The move is one of the many re­cent un­der­tak­ings by the com­pany to ad-

dress what the SVP refers to as one the chal­lenges for the 2018 year.

“One of the chal­lenges we faced over the last year has ac­tu­ally been the un­ex­pected growth in air cargo — over the last 18 months. That has put real pres­sure on the cargo fa­cil­i­ties, par­tic­u­larly in Europe and North Amer­ica,” ex­plains An­gus.

“Be­cause the ca­pac­ity is fixed, in terms of the fa­cil­ity. If you have a cargo fa­cil­ity with 5,000 sqm of space, you can’t just ex­pand it overnight. We’ve had to do quite a lot of in­vest­ment to im­prove our abil­ity to man­age ca­pac­ity,” he adds.

The im­pact of higher fuel prices is also be­ing felt across the en­tire avi­a­tion in­dus­try and is bring­ing pres­sure par­tic­u­larly to the air­lines. De­spite what one might ini­tially sus­pect, how­ever, the im­pact hasn’t nec­es­sar­ily forced car­ri­ers to go lean.

In fact, from dnata’s per­spec­tive, there has been a no­tice­able shift in de­mands from the mar­ket.

“There is a change. Five years ago, the air­lines were in­cred­i­bly price driven. Al­ways look­ing for who could pro­vide what at the low­est price,” ex­plains An­gus.

“I think there is a grow­ing recog­ni­tion, cer­tainly amongst the more for­ward­think­ing air­lines that while you can save on your han­dling rate, you’ll pay for it in terms of poor cus­tomer ser­vice. It im­pacts on your rep­u­ta­tion.

“More and more air­lines are recog­nis­ing that buy­ing the cheap­est is not al­ways the best for your busi­ness. That’s the mar­ket po­si­tion that we are aim­ing for.”

As the world heads into the 2019 year, dnata, like many other or­gan­i­sa­tions within the in­dus­try, has al­ready moved to set the foun­da­tion for fu­ture growth. Ac­cord­ing to the fi­nan­cial per­for­mance re­port re­leased last May, the avi­a­tion ser­vices provider has al­ready in­vested AED 600m to­wards new fa­cil­i­ties and equip­ment, tal­ent de­vel­op­ment, as well as key ac­qui­si­tions.

Part of that in­vest­ment also in­cluded the adop­tion of dig­i­tal tech­nolo­gies. It was pre­vi­ously by the com­pany that it had be­gun the jour­ney to in­tro­duce a new En­ter­prise Re­source Plan­ning (ERP) into its IT in­fras­truc­ture.

In ad­di­tion to the ERP, dnata has also be­gun the adop­tion of a new cargo man­age­ment sys­tem, aptly named iCargo, as well as the adop­tion of a new safety man­age­ment sys­tem that is be­ing sup­plied by Met­ricStream.

An­other mo­bile so­lu­tion geared to­wards the ground staff is also be­ing ex­plored, one that would en­able the teams to cap­ture real-time data on the air­craft turn­around. The im­ple­men­ta­tion of the lat­ter is, how­ever, still a few years out.

In the mean­time, the SVP shares that dnata will con­tinue to build upon its re­cent ac­qui­si­tions and ex­ist­ing con­tracts, while also ex­plor­ing prospec­tive busi­ness streams to sup­ple­ment its core busi­ness.

“We will con­tinue to look for ac­qui­si­tions, but it will be prob­a­bly smaller than it has been in the past, and we will con­tinue to drive to op­ti­mise the busi­nesses that we have,” com­ments An­gus.

“In ad­di­tion to that, we are look­ing at new busi­ness streams. For ex­am­ple, VIP han­dling, lounge han­dling, and even spe­cial­ist cargo prod­ucts such as phar­ma­ceu­ti­cals. Look­ing at those spe­cific high yield ar­eas and or­ganic growth.”

I think there is a grow­ing recog­ni­tion, cer­tainly amongst the more for­ward­think­ing air­lines that while you can save on your han­dling rate, you’ll pay for it in terms of poor cus­tomer ser­vice.”

In the 2017 fis­cal year, dnata achieved its high­est profit to date with an im­pres­sive $359m (AED 1.3bn), as well as record rev­enues of $3.6bn (AED 13.1bn).

Over the last 12 months, the avi­a­tion ser­vices provider se­cured over 90 new cus­tomer con­tracts.

Mov­ing for­ward, dnata is ex­plor­ing prospec­tive busi­ness streams, such as lounge and VIP han­dling ser­vices.

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