Airport Facility Management. In-House Service or Outsourcing?

Table of Content

1 EXECUTIVE SUMMARY

2 AIRPORTS AND FACILITY MANAGEMENT
2.1 Airports
2.2 Facility Management
2.3 Scope of Airport Facility Management
2.4 In-house vs. Outsourcing

3 AIRPORT FACILITY MANAGEMENT APPROACHES
3.1 Retaining Service In-House
3.2. Outsourcing
3.3 Managing Risks
3.3.1 Principal-Agent Theory
3.3.2 Monitoring and Measuring the Level of Service (Performance)
3.3.3 Contracts and Service Level Agreements

4 CONCLUSIONS

REFERENCE LIST

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Executive Summary

Many airports are privatized and thus have to act according to the desires of stakeholders, the management has the obligation to make the core business run smoothly and efficiently in order to reach satisfying results. This seminary paper deals with airport facility management and its possible alternatives including crucial factors. At first, the problem and background concerning the issues of outsourcing or keeping in-house AFM is presented. Additionally, the scope of AFM is displayed. In the second stage, alternatives and solutions are presented and analysed. It is figured out what has to be considered most importantly in order to shape a convenient solution. The conclusion will highlight the most important findings of the paper.

In this section it is the intention to gain an understanding on the background of airports and its facility management. A description of the market situation regarding airports is presented, followed by a presentation to the scope of airport facility management and finally the the outsourcing decision.

2.1 Airports

At November 1th, the ACI has published the newest figures of the "World Airport Traffic Forecasts”, abbreviated WATF, expecting passenger numbers to double from 8.2 billion in 2017 to more than 16 billion by 2034.¹

An airport is one of the major backbones in the aviation industry, providing all kinds of infrastructure needed for making operations of airlines, the implementation of flights, possible. Favoured by the market-liberalization in the last decades, many airports were privatized, presuming this will result in benefits regarding quality of service and efficiency. Today, airports are even more than just a unit of infrastructure. Competition has increased rapidly, which forces airports to look for alternative income sources and cost savings. The proportion of non-travellers increases, and many airports have become meeting places for both business and leisure passengers.² Airports have major concerns regarding operational effectiveness and efficiency, resulting from different stakeholders such as clients or shareholders. They operate in a competitive environment in many ways, trying to attract airlines and passengers. Besides aeronautical revenues, non-aeronautical services are provided to increase profits.³

When looking for specific definitions, one will find many constructions. Nävy describes FM as the strategical concept for planning, administration and organizations of all material resources within a company. Material resources hereby means property, buildings, infrastructure, constructions, machinery and utilities.⁴ This includes also systems, equipment and furniture possessed. A proper FM should address the specific needs and requirements of the industry an organization is operating in. It has thereby to be clarified what goals, objectives and scope the served organization needs. The facility management system should be applied and designed in the best way to accomplish the demand and use for an organization. FM is consisting of services which do not belong to the core business of its client but makes it possible by providing the necessary frame for activities.⁵

2.3 Scope of Airport Facility Management

The variety and scope of AFM is huge. COS, a company based in Singapore, offers services such as terminal cleaning, car park management, queue management, VIP services, lounge management, hold baggage screening or pest control and much more.⁶ Some airports outsource their FM, other airports such as Munich, Frankfurt and Amsterdam (Schiphol) have established independent AFM departments within their corporation, which work as an own profit centre. Some airports divide AFM functions into three main categories, namely technical, infrastructure, commercial and space management.⁷ The range of supplies needed should be clearly defined, involving the facility desires of users and other stakeholders.⁸

2.4 In-house vs. Outsourcing

Due to the increased level of competition, airports are under constant pressure of reducing costs, thereby deriving the question for airport managers whether to retain certain matters in-house or consider the option of outsourcing. This decision applies also to facility management related. The question always is: Shall I retain my responsibilities and tasks in-house or instruct a provider to take them over? In recent years, the trend of outsourcing has raised. Outsourcing can be defined as the process of "moving an activity from the company to the outside supplier”.⁹ Outsourcing means delegating and transferring certain tasks or activities to external organizations, formerly known as "subcontracting”.¹⁰ There are several options of service delivery, e.g. separate business unit, a managing agent or a total facility management approach.¹¹

3 Airport Facility Management Approaches

This part of research is presenting solutions for airports considering their facility management. It takes into account what has to be considered important and the different alternatives which can applied in order to solve the problem properly. There might be not the perfect solution for each problem, it has to be kept in mind that different airport models exist, thus different solutions might be suitable for different airports.

3.1 Retaining Service In-House

Whereas outsourcing transfers certain functions and responsibilities to a third party, retaining in-house means keeping these issues internally and addressing the duties with own resources. Operations, monitoring and control is handled by own employees. Internal service agreements can therefore be applied. The following advantages can be achieved through insourcing:

- Own employees will show better performances than outsourced employees, due to the fact internal employees own their work. External employees decide always on the basis of their own employers, addressing their requirements primarily.
- Usually, financial analyses provide evidence that in the long-term, keeping inhouse produces better financial results.
- Retaining In-house does not only produce improved employees, it also leads to a better result considering customer satisfaction.
- Own expertise is strengthened and can be kept internal.
- Certain risks and disadvantages of outsourcing are eliminated:
- Lower level of control of several issues due to external providers. Issues such as e.g. level of quality and capacity constraints have to be taken into account when outsourcing.
- There might be security issues when transferring confidential data to external organizations.¹² Airports do require additional safety standards due to the risk of terrorism and thus passenger safety.

An in-house team has to be able to meet changing requirements for providing a relief to the corporation, which thereby can concentrate on its core business.¹³

3.2. Outsourcing

The decision of outsourcing should follow the questions of what the core business of an organization is. The core competencies should always be kept internally, since this is the crucial knowledge and value a company is selling. The following advantages can be taken into account if outsourcing is properly implemented:

- The most considered advantage for outsourcing is cost benefits, which occur in case the supplier is able to produce the desired good or service in a more efficient and economical way than the company could do by its own.
- Changes in demand can lead to different requirements concerning the number of people employed, which can be better handled by buying the resources.
- Outsourcing can create benefits in obtaining external expertise.
- Suppliers are expected to provide a better quality in the activities they sell, e.g. better performance in costs, quality and flexibility. This occurs due to a higher specialization and potential efficiency.¹⁴

The risks of outsourcing mainly originate from uncertainties as well as unpredictable and unsatisfactory results.¹⁵

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¹ Cf. ACI Press Release: ACI's World Airport Traffic Forecast reveals emerging and developing economies will drive global growth (2018), Online

² Cf. Wiedenmann et al (2010), p. 1

³ Cf. Jimenez et al (2014), p. 948 ff.

⁴ Cf. Nävy (2018), p. 2

⁵ Cf. Singh et al (2017), pp. 31-32

⁶ Airport Interior Cleaning Services OCS Singapore (2018), Online

⁷ Cf. Pitt et al (2011), pp. 393 ff.

⁸ Cf. Atkin; Brooks (2014), p. 103

⁹ Ptoneczka (2017), p. 78

¹⁰ Cf. Norina; Camelia (2018), pp. 376 ff.

¹¹ Cf. Atkin; Brooks (2014), p. 110

¹² Cf. Kamarazaly (2007), pp. 38 ff.

¹³ Cf. Atkin; Brooks (2014), p. 150

¹⁴ Cf. Dolgui; Proth (2013), pp. 6769 ff.

¹⁵ Cf. Ka Leung Lok et al (2018), pp. 5-6