dnata has already been busy in recent years, growing mostly through acquisitions, but the company is keen to continue to expand its presence around the world by adopting a long-term investment strategy.
In the US, where dnata first started operations with a 100% ground-handling acquisition in April 2016, the aviation services provider entered the cargo market in 2017 in Houston and Dallas with the acquisition of AirLogistix USA.
The company recently commenced operations in Nashville with the launch of British Airways flights in May 2018, as well as in Los Angeles in October, with four airlines and 11 flights a day.
“We could have taken on more but we know that California is a very challenging labour environment,” says Stewart Angus, divisional senior vice president of international airport operations at dnata. “That’s why our competitors have struggled and we don’t want to make the same mistakes. We’d rather keep the operation small and deliver what we promise, rather than trying to grow too much and falling over.”
In the three years since dnata entered the US, it has won more than 80 new customer contracts and has lost none.
“We think that reflects the state of the market in the US,” Angus says.
In Canada, dnata began cargo operations with a 50% acquisition in GTA Aviation in November 2016 and expanded into ground handling in 2017.
Overall, for cargo, dnata has opened new facilities in Adelaide, Amsterdam, Houston, Dallas, Karachi, Toronto and Zurich in the last two years, and is looking forward to opening a new hub for the joint venture between Virgin Atlantic Cargo and Delta Cargo.
The company has also secured a new contract to start cargo handling in Brussels from April 2019.
“You don’t want to bite off more than you can chew,” says Angus. “Buying companies is the easy part. Synergizing, integrating and optimizing is a serious business. Having made several acquisitions in a short time, that has been the focus for the last couple of years. I think we’re in a position now where we are ready to grow, but we’re not desperate to grow for growth’s sake.”
Excluding Australia, the Asia-Pacific market represents a gap in dnata’s global network. Angus says that dnata wants to avoid competing with its own customers and that quite a lot of the Asian airlines still retain the ground-handing and cargo business. The situation is not the same in Europe, for instance.
“We would really like to get more into the Asia-Pacific region because it’s a growing market and there are a lot of quality carriers,” he says. “It’s just a matter of finding the right opportunity. We are looking at a couple of acquisition opportunities.”
While most of dnata’s growth so far has been through acquisitions, Angus says that there is no rigid rule as to how the company wants to grow in the future.
“One thing I’ve learnt is not to be too dogmatic with your strategy,” he says. “If the right greenfield opportunity comes up, we’ll take it. If the right acquisition opportunity comes up, we’ll take it. I don’t see why it couldn’t be a combination of both.”
In the last two years alone, dnata’s international operation has doubled in size, with revenue having grown 77% to US$1.15 billion and cargo volumes increasing by 71% to 2.5 million tonnes.
“In 2004, 99% of dnata’s revenue came from Dubai and 99% of the staff were based in Dubai,” says Angus. “Today, over two-thirds of our revenue and staff are outside Dubai. That’s a pretty dramatic transformation of the business within that time frame.”
On the technology side, dnata is aiming to launch a new version of its CALOGI customer portal by the end of 2020.
“We’re quite advanced in our technical planning for this new platform,” saysBernd Struck, senior vice president of UAE cargo and DWC airline services at dnata. “This will be something new to the cargo world.”
With the new CALOGI system, dnata can sign a bank guarantee with any forwarder which will allow them to work with all the airlines handled by dnata, instead of having to sign bank guarantees with each airline to get air waybill stock.
Struck says that this system is only being planned to be in place in Dubai for now, but there is potential for it to be brought elsewhere.
“It’s a bit early to think about going outside Dubai, but we can see a market in the US to work together with the airport authorities to develop something based on their individual needs to serve their customers in a much more efficient way,” he says. “The US is an example of a market which we think is underserved. With such a tool, there could be tremendous improvements to how cargo is handled at non-hub airports.”
For Angus, the biggest challenge in the ground-handling industry isn’t expansion or technology, but commoditization.
“In a market where three ground handlers provide exactly the same product, the only you can differentiate yourself is on price,” he says. “When a contract goes to someone with the lowest price, they don’t have enough money to reinvest on a sustainable basis. That commoditization then actually becomes a self-fulfilling prophecy. You don’t earn sufficient return to get yourself out of that situation.”
According to Angus, when he and his team set up dnata’s international operations, they identified that there was a place in the market for somebody who would be prepared to invest a bit more and take a longer-term view.
“There’s a market for customers who want and need that,” he says. “It’s clearly not the whole market and there’s a segment which cares only about price, but that’s fine. There’s also another group that themselves charge their customers a premium and in turn are willing to pay a little more for better quality. One thing I’ve noticed over the last few years is that there are more and more airlines saying that it has gone far enough and see the need to reinvest.”
Gary Chapman, president of dnata, first informed Angus more than 10 years ago of the group’s decision to expand internationally. He says that one of the major advantages dnata has is that it is not a listed company.
“The quarterly share price isn’t an issue for us, and we don’t have the analysts telling us what we should be doing,” he says. “Of course, that doesn’t mean that I don’t have to come up with an economic model that will get me a fair and reasonable return, but I can take a long-term investment strategy and that’s very important.”
By Jeffrey Lee
Asia Cargo News | Dubai