**3.4 Outsourcing conditions**

Outsourcing suppliers are often perceived as "invisible" insiders or "remote" workers. From the view of top management, the confidentiality rules are crucial towards direct and honest cooperation, where a range of best practices are in place covering a range of conflict of interest during the outsourcing selection partner, non-disclosure legal terms in the contract due to prohibition and non-permission for delivering connected actions for a period after the contract termination. The non-disclosure agreements may not provide any relief against release of information by outsourcer employees, who may often be providing services to competing companies as well.

Offer services even into the company property using company assets many times are not covered by the same obligations and dissemination barriers as it happens for the company employees, and the coordination may is tight task. Outsourcing arrangements must settle who will have access to company information and especially corporate and client's data and under what circumstances will facilitating the use and access of such data in the outsourcing arrangement. Considering outsourcing arrangements effected in transport business ecosystem, the key considerations towards efficient outsourcing contracts could be summarized as follows.


**61**

*The Evolution in Transport Operator's Corporate Structure: Ownership and Governance*

The air transport industry has seen major changes in the post-deregulation era almost 40 years after the airline deregulation first took off in the US and extended in Europe in '90s - primarily, because the Low-Cost Carrier (LCC) successful business model and the wide spread of hub-and-spoke networks resulting a dynamic airline industry, an incredibly competitive business ecosystem and a growing offering of capacity and services to the market, [7]. The hub-and-spoke networks enabled airlines not only provide the frame of synergies between the competitor carriers, but also to build partnerships more attractive as the spatial and temporal concentration of flights enabled efficient connectivity among the partners, [8]. The issue of "connectivity" is the cornerstone of modern air network planning and its strongly related to air transport productivity, airline efficiency and airport effectiveness, [3]. Today, the global business environment of aviation based on two main success factors: (a) the risk sharing mechanism between carriers, travelers, airports, and regional market [7]; and (b) the benefits achieved by outsourcing in internal (corporate and operational structure of aviation companies) and external business environment (extended through synergies, multilateral and globe-spanning air carrier alliances and joint ventures due to typical outsourcing contracts in

Outsourcing strategy for airlines, IT vendors, MROs (maintenance, repair and overhaul providers), more recent airports and other aviation-related businesses widely adopted many years ago. But last decade, the pace and scope of aviation outsourcing has significantly increased. For example, between 1985 and 1999, the 10 largest U.S. passenger airlines experienced a tenfold increase in their MRO outsourcing, representing more than \$2.4 billion a year in revenues to outsource suppliers, [9]. Airlines outsource many functions to help them focus on core activities, achieve efficiencies, and maintain competitive advantages. The outsourced functions include passenger or cargo reservations systems, accounting and traffic management systems, operational systems (flight operations, crew scheduling, gate operations, ground handling, catering), fleet maintenance, and office systems and

Some of these outsourced functions relate to the use of long-life span assets, such as aircraft and airport facilities, which present airlines with duration issues related to how long the activity should be outsourced – for the life cycle of the asset or a lesser period. Many airlines in the U.S. and Europe historically have provided most of their airframe and engine MRO services inhouse (Delta, Lufthansa, British airways, etc). Today, airlines need to evaluate their outsourcing opportunities at all

Aviation industry is a leading sector using technology innovation and by taking the benefits of deregulation enforced in 80s in US and 90s in Europe, promote best business practices adopted or extended to other sectors. The introduction of the new type of fleet (more than 500 seats wide body aircrafts, e.g. A380), the growth of door-to-door airline integrators such as FedEx and UPS, the development of budget-oriented ticket pricing model (LCC), the public-private-partnerships in airport development and operation, have transformed the aviation industry. Todays, successful business strategy is linked with efficient and flexible in terms of technological changes outsourcing be beneficial for all involved parties, while modeling and technological innovation based on mega data is fast transforming

Airlines are keen to take the benefits of outsourcing, as a risk sharing mechanism, a cost control tool and brand extension strategy. Airlines strategy focused on branding. They acting to keep high branding strategy promoting collaboration with

*DOI: http://dx.doi.org/10.5772/intechopen.96334*

**4. Outsourcing tendency in aviation**

catering and cleaning), [6, 7].

phases of an asset's life span.

industry towards smart and intelligent business.

functions.

*The Evolution in Transport Operator's Corporate Structure: Ownership and Governance DOI: http://dx.doi.org/10.5772/intechopen.96334*

## **4. Outsourcing tendency in aviation**

*Outsourcing and Offshoring*

airline customer data.

activity reporting requirements.

**3.4 Outsourcing conditions**

companies as well.

while often transiting numerous other countries en-route. Outsourcing adds yet another layer of complexity, in that numerous third parties will need access to

Airlines need to ensure that their agreements with suppliers properly protect the confidentiality of airline and third-party trade secrets and limit the use of non-public proprietary information as required in all applicable jurisdictions. Restrictions on cross-border exchanges of non-public personal information, especially following the model of the European Union, are likely to make this process even more complex. Airlines also need to examine the extent to which data flows relating to money transfers and settlement functions have special money laundering and suspicious

Outsourcing suppliers are often perceived as "invisible" insiders or "remote" workers. From the view of top management, the confidentiality rules are crucial towards direct and honest cooperation, where a range of best practices are in place covering a range of conflict of interest during the outsourcing selection partner, non-disclosure legal terms in the contract due to prohibition and non-permission for delivering connected actions for a period after the contract termination. The non-disclosure agreements may not provide any relief against release of information by outsourcer employees, who may often be providing services to competing

Offer services even into the company property using company assets many times are not covered by the same obligations and dissemination barriers as it happens for the company employees, and the coordination may is tight task. Outsourcing arrangements must settle who will have access to company information and especially corporate and client's data and under what circumstances will facilitating the use and access of such data in the outsourcing arrangement. Considering outsourcing arrangements effected in transport business ecosystem, the key considerations

towards efficient outsourcing contracts could be summarized as follows.

assets to rapid development of technological innovations.

ties presented by joint ventures and alliance arrangements.

tion and transaction services.

• collaboration arrangements need to be based on cost-efficient and performance management schemes (e.g. bonus-malus), therefore, the price arrangements between parties should be flexible, involving from long-term payback

• medium-long term contracts is beneficial for the sectors of aviation, shipping and inland transports, while flexibility in innovation is the cornerstone of success for short to medium term contracts in urban transport networks.

• Smart sourcing and niche outsourcing arrangements, although focused, need to be integrated and include provisions dealing with relationship maintenance, substitution of parties to niche markets and partnerships in service customiza-

• Appropriate outsourcing arrangements should specifically address opportuni-

• Outsourcing agreements should clearly address who will have access to business confidential data, and under what circumstances, and provide enforceable confidentiality, non-disclosure even prohibit terms in appropriate

**60**

jurisdictions.

The air transport industry has seen major changes in the post-deregulation era almost 40 years after the airline deregulation first took off in the US and extended in Europe in '90s - primarily, because the Low-Cost Carrier (LCC) successful business model and the wide spread of hub-and-spoke networks resulting a dynamic airline industry, an incredibly competitive business ecosystem and a growing offering of capacity and services to the market, [7]. The hub-and-spoke networks enabled airlines not only provide the frame of synergies between the competitor carriers, but also to build partnerships more attractive as the spatial and temporal concentration of flights enabled efficient connectivity among the partners, [8].

The issue of "connectivity" is the cornerstone of modern air network planning and its strongly related to air transport productivity, airline efficiency and airport effectiveness, [3]. Today, the global business environment of aviation based on two main success factors: (a) the risk sharing mechanism between carriers, travelers, airports, and regional market [7]; and (b) the benefits achieved by outsourcing in internal (corporate and operational structure of aviation companies) and external business environment (extended through synergies, multilateral and globe-spanning air carrier alliances and joint ventures due to typical outsourcing contracts in catering and cleaning), [6, 7].

Outsourcing strategy for airlines, IT vendors, MROs (maintenance, repair and overhaul providers), more recent airports and other aviation-related businesses widely adopted many years ago. But last decade, the pace and scope of aviation outsourcing has significantly increased. For example, between 1985 and 1999, the 10 largest U.S. passenger airlines experienced a tenfold increase in their MRO outsourcing, representing more than \$2.4 billion a year in revenues to outsource suppliers, [9]. Airlines outsource many functions to help them focus on core activities, achieve efficiencies, and maintain competitive advantages. The outsourced functions include passenger or cargo reservations systems, accounting and traffic management systems, operational systems (flight operations, crew scheduling, gate operations, ground handling, catering), fleet maintenance, and office systems and functions.

Some of these outsourced functions relate to the use of long-life span assets, such as aircraft and airport facilities, which present airlines with duration issues related to how long the activity should be outsourced – for the life cycle of the asset or a lesser period. Many airlines in the U.S. and Europe historically have provided most of their airframe and engine MRO services inhouse (Delta, Lufthansa, British airways, etc). Today, airlines need to evaluate their outsourcing opportunities at all phases of an asset's life span.

Aviation industry is a leading sector using technology innovation and by taking the benefits of deregulation enforced in 80s in US and 90s in Europe, promote best business practices adopted or extended to other sectors. The introduction of the new type of fleet (more than 500 seats wide body aircrafts, e.g. A380), the growth of door-to-door airline integrators such as FedEx and UPS, the development of budget-oriented ticket pricing model (LCC), the public-private-partnerships in airport development and operation, have transformed the aviation industry. Todays, successful business strategy is linked with efficient and flexible in terms of technological changes outsourcing be beneficial for all involved parties, while modeling and technological innovation based on mega data is fast transforming industry towards smart and intelligent business.

Airlines are keen to take the benefits of outsourcing, as a risk sharing mechanism, a cost control tool and brand extension strategy. Airlines strategy focused on branding. They acting to keep high branding strategy promoting collaboration with

#### *Outsourcing and Offshoring*

world class enterprises in destination marketing, food and beverage and customized services. While in the past were followed a branding line extension strategy (by introducing additional products and services for each service under the airline brand), modern airlines are keen to adapt a brand extension strategy even an cobranding approach, by using their own brand or promote co-operation for services offered by world class suppliers. Therefore, a corporation with a famous food and beverage firm to provide on board meals are beneficial for both. On the other hand, fleet management, business intelligence and strategic alliances or bilateral corporations are the core of the modern airline and impact on branding (**Figure 2**).

The wide-ranging changes of the aviation market impact on the airport business environment as well. While airlines are change pioneer, airports also are following an essential transformation from a typical state authority of '90s accommodate air traffic to a private oriented company using the benefits of high passenger's and activities concentration in their territory, shifting airports not just as transportation hubs but also as large commercial centers and technological innovation units. While commercialization and privatization of airports are a continuing tendency around the word, supported by long-term investments and international cooperation's, these long-term life cycle arrangements boost outsourcing arrangements at airports towards operational efficiency, corporate performance, and socioeconomic effects in local economy, [1, 2].

The outsourcing strategy for airports dealing more to control working capital cost and provide low aeronautical charges to their clients that are airlines. On the other hand, the non-aeronautical business unities are key drivers for revenues at airports. Therefore, airport operators transformed to more commercialized entities, there is plenty room for more outsourcing in terminal and land side activities. The modern airport terminal is closer to a large shopping mall, while many logistics, commercial and technological centers are spatially located at airports landside area. Therefore, airport revenues strategy encouraging business competition into non-aeronautical business and tend to reduce the barriers to entry in aeronautical business sections, [4, 6] (**Figure 3**).

Furthermore, the innovation in air transport sector also including the development of drones and airspace services, are growing fast. Up to now, for commercial activities the drone enterprises provide dedicated services as alternatives of traditional transport modes. Drones enterprises acting mainly as transport service providers are taken full responsibility of the transport chain. However, it's a very

**63**

paragraphs.

*The Evolution in Transport Operator's Corporate Structure: Ownership and Governance*

promising activity with a strong tendency to offer massive services, in urban networks (taxis, urban logistics, etc) and interurban distribution channels (remote

The operational environment in distribution channels is changing fast. The operations of a large transport company could be optimized in weeks by comparing its performance data having access to the competition and supplier's data are uploaded in a database. In contrary, examples of extensive outsourcing of highvalue functions are, for now, few and far between, with aviation and shipping be the pioneer sectors. In transport and logistics there is more room for outsourcing

While considerable opportunities exist, transport enterprises need to prepare carefully and take into consideration a variety of strategic, business, operational and legal issues as well the key values of shareholders should be assessed towards deciding what functions or parts of function be beneficial to outsource. The key

• How to maintain flexibility when outsourcing a particular function or service

• For the high value functions the risk mitigation for smart source or niche-

• Compatibility with existing strategic alliances and partnerships should be

• How to protect and manage the business sensitive data across competition and a tendency for outsourcing AI and IoT tools and applications and control the

The key challenges for transport enterprise managers in a fast-changing industry and into the existing regulatory framework are highlighted in the following

destinations, islands etc) where other options are limited.

*Outsourcing functions for a typical international airport.*

that may change over the business life-cycle;

outsource should be carefully assessed;

use of such data by third parties.

based on the market dynamics.

**Figure 3.**

initials should be reviewed are:

analyzed;

**5. Outsourcing ground rules for transport sector managers**

*DOI: http://dx.doi.org/10.5772/intechopen.96334*

**Figure 2.** *Outsourcing functions for a typical international air carrier.*

*The Evolution in Transport Operator's Corporate Structure: Ownership and Governance DOI: http://dx.doi.org/10.5772/intechopen.96334*

**Figure 3.** *Outsourcing functions for a typical international airport.*

*Outsourcing and Offshoring*

in local economy, [1, 2].

business sections, [4, 6] (**Figure 3**).

*Outsourcing functions for a typical international air carrier.*

world class enterprises in destination marketing, food and beverage and customized services. While in the past were followed a branding line extension strategy (by introducing additional products and services for each service under the airline brand), modern airlines are keen to adapt a brand extension strategy even an cobranding approach, by using their own brand or promote co-operation for services offered by world class suppliers. Therefore, a corporation with a famous food and beverage firm to provide on board meals are beneficial for both. On the other hand, fleet management, business intelligence and strategic alliances or bilateral corpora-

tions are the core of the modern airline and impact on branding (**Figure 2**).

The wide-ranging changes of the aviation market impact on the airport business environment as well. While airlines are change pioneer, airports also are following an essential transformation from a typical state authority of '90s accommodate air traffic to a private oriented company using the benefits of high passenger's and activities concentration in their territory, shifting airports not just as transportation hubs but also as large commercial centers and technological innovation units. While commercialization and privatization of airports are a continuing tendency around the word, supported by long-term investments and international cooperation's, these long-term life cycle arrangements boost outsourcing arrangements at airports towards operational efficiency, corporate performance, and socioeconomic effects

The outsourcing strategy for airports dealing more to control working capital cost and provide low aeronautical charges to their clients that are airlines. On the other hand, the non-aeronautical business unities are key drivers for revenues at airports. Therefore, airport operators transformed to more commercialized entities, there is plenty room for more outsourcing in terminal and land side activities. The modern airport terminal is closer to a large shopping mall, while many logistics, commercial and technological centers are spatially located at airports landside area. Therefore, airport revenues strategy encouraging business competition into non-aeronautical business and tend to reduce the barriers to entry in aeronautical

Furthermore, the innovation in air transport sector also including the development of drones and airspace services, are growing fast. Up to now, for commercial activities the drone enterprises provide dedicated services as alternatives of traditional transport modes. Drones enterprises acting mainly as transport service providers are taken full responsibility of the transport chain. However, it's a very

**62**

**Figure 2.**

promising activity with a strong tendency to offer massive services, in urban networks (taxis, urban logistics, etc) and interurban distribution channels (remote destinations, islands etc) where other options are limited.
