Exponential expansion

posted on 15th May 2019
Exponential expansion

Stewart Angus oversees dnata’s ground handling and cargo operations at more than 80 airports in 14 countries. Over the past dozen or so years, dnata has expanded its operations across the world from its home base in Dubai. Angus talks to Airside about the handler’s achievements, business strategy and future plans

Angus is the divisional senior vice president, international airport operations for dnata, the airline service provider that was established in 1959 and forms part of the Emirates Group. dnata currently offers ground handling at 76 airports, as well as cargo services at 45 gateways and catering services at more than 60.

Angus has worked at dnata since 2004 and is exceedingly well placed to comment on a 15-year period that has seen the handler enjoy remarkable growth. He is responsible for the service provider’s passenger and cargo operations, as well as ground handling outside Dubai. dnata’s International Airport Operations division now generates a turnover of approximately US$1.2 billion a year.

Before assuming his current role, he worked for Emirates and British Airways – on the other side of the fence, as it were: buying the services of handlers.

He recalls that, back in 2004 when he joined dnata, it was really only a player in the Dubai market (it also had a couple of small operations in Pakistan and the Philippines). It made one or two small, “opportunistic” acquisitions to grow its international footprint in the next couple of years, but it was only really from the end of 2006 that senior management took the decision to put growth as an international business at the heart of corporate strategy.

That expansion was to be achieved both organically and through a careful policy of targeted acquisition. Today, in 2019, dnata handles twice as many flights outside of Dubai as within it. “It’s been quite a dramatic change,” Angus points out.

The fastest rate of growth has been seen over the last few years, and specifically between 2015 and 2018. Between the end of the 2015-16 financial year (dnata’s financial year ends on 31 March) and the close of the 2017-18 financial year, it more than doubled the number of flights it handled on an average daily basis. Much of this growth came about through the acquisition of five key companies, most notably in the US, Brazilian and Italian markets.

Since then, over the last couple of years, there has been further organic growth in dnata’s handling business. For example, in Toronto and in Amsterdam the service provider has launched ground handling operations on the back of the acquisition of cargo handling businesses at those gateways.

Expansion in America has been particularly pronounced. The recent opening of a Nashville station and a move into the major hub of Los Angeles International Airport in November 2018 complemented the decision made in 2016 to move into the US through the acquisition of privately owned US handler GSI (which has now been fully incorporated within the dnata brand).

dnata now handles approximately 56,000 flights a year in the US, employing more than 3,500 people in the country. Growth is seen not only in the opening of new stations but also in organic growth in terms of new airline customers signing up to dnata service provision; occasionally, this means moving into other terminals and airports at which the handler is also active.

Thus, while dnata launched at Los Angeles late last year, it also recently expanded at the nearby San Francisco International Airport by moving into another terminal – specifically, Concourse G.

The more moderate process of organic growth seen in dnata’s ground handling business since the 2017-18 financial year is partly attributable to the service providers desire to bed in its new acquisitions and ensure that they are properly integrated into the group’s business, thereby maximising the synergistic benefits that can be gained.

Moreover, dnata’s expansion – while exponential in scale – has always been based on the belief that growth should be “pragmatic” in nature, Angus insists. While keen to look at any opportunities for growth through acquisitions where that approach would be beneficial, especially in markets adjacent to where it is already operating, dnata has always sought to be “the best in any particular market, not the biggest”, Angus points out.

Reaping the benefits, and coping with the challenges

Expansion has brought many benefits, and not only in terms of revenue or the bottom line. For instance: “As we have grown, we have enjoyed significant benefits in cross-learning across our various businesses,” Angus notes.

New business cultures and new ways of working have been brought into the dnata fold each time it has acquired a company, bringing new insights into pre-existing dnata operations.

Moreover, Angus continues, “Growth has brought us a more meaningful critical mass, in terms of our relationships with strategic customers.” To elaborate, he explains that carriers today are typically looking for fewer relationships with ground service providers; but, importantly, they are also looking for “more meaningful relationships”.

And how an airline’s ground service provider performs in its work very much reflects not only on the carrier’s operational performance but also on its reputation as an operator. If the ground handler does its job well, the airline looks good to its customers, and its reputation can only be enhanced. All of which makes that ‘meaningful relationship’ so important.

But growth also brings new challenges. Expansion into and within the US market since 2016 is a case in point. It is just one country, but America is huge, and the demands of ground handling there vary tremendously because of the different climatic conditions that prevail across the nation. dnata must, of course, operate whatever the conditions and continue to deliver whatever the weather at all its stations from west coast to east.

The US is also a challenging market in which to operate for a service provider such as dnata because of the fact that ground handling staff there are typically employed on minimum wage across the industry. Operating in sub-zero conditions when on minimum wage tests the morale of even loyal employees, of course, and is one major reason why staff retention is a problem for many handlers in the US.

dnata has chosen to operate on a different model. It not only offers its ground handling employees more competitive salaries, it also provides important non-salary benefits to its staff. While this strategy does increase the business’ costs (which has an implication when tendering for airline work), there is a benefit in terms of staff retention and staff loyalty. It is a model that is “working for us”, says Angus.

A related problem is that many US states or cities are modifying legislation to increase the locally prevailing minimum wage. Any such increases have to be passed on to the customer – the airline. These problems are issues for the industry as a whole in North America, Angus states, and he believes that dnata is meeting these at least as well as any other handler.

Rapid growth has also created a need to standardise across the dnata business as far as is possible. – for instance, its GSE fleet.

It is also modernising and adding new capabilities to its GSE. A policy of introducing telematic technology to relevant vehicle fleets will bring major benefits in terms of safety and operational performance, Angus declares. Speed limiters and collision avoidance systems will also further improve safety, and dnata is looking at both retrofitting such capabilities to existing GSE as well as inclusion on any new equipment purchases.

Another focus is on green GSE. dnata is currently operating electric GSE at some of its stations, and is testing new fully electric and hybrid electric vehicles such as tugs/tractors at different stations in the UK and elsewhere.

Differentiators

dnata’s operations contrast with those of its competitors on a number of points, but quality is the “key differentiator”, says Angus. That emphasis on quality has been a “deliberate, calculated business decision”, he adds.

Those handlers who offer the very lowest, rock-bottom prices to their carrier customers do not then have any margin for investment in quality, and it shows in their performance, he believes.

Plus, dnata brings a long-term focus to anything that it does, Angus continues. The handler is not listed on any stock exchange and its shareholding ownership has no intention of selling the business. This enables it to take the long-term view with any business decision, sacrificing short-term potential profits for long-term success. It can invest in training and equipment that will benefit both dnata and its customers in the long run.

So, what of the future? The next few years are unlikely to see the exponential growth witnessed over the 2015-18 period but will be characterised by careful consideration of further acquisitions on an individual basis, while dnata will also work on further organic growth, Angus concludes.