Service models with impact: the benefit of performance-based contracts for BHS

Modern baggage handling systems are an intelligent tool that can help the business through the data they provide. For airport management and their finance teams, they can provide valuable information that directly ties into their business strategies. Instead of treating the BHS as a fixed operational cost, an airport can connect its service and operational performance to measurable outcomes and use these to help with issues such as reduced disruption, better resource utilisation, fewer mishandled bags and more predictable operating costs.

Understanding contract options for baggage handling systems

There are two main options for BHS O&M contracts: performance-based or resource-based. Resource-based contracts are extremely specific, where the airport specifies the number of team members the service provider should include in the contract, and the operational performance of the system may have required KPIs, such as bag processing time, availability, etc. Often, these KPIs are only indirectly correlated to the airport’s value-creating process and the overall aims of the airport operation.

The other option is a performance-based contract, which offers a different approach as it gives service providers the ability to organise the O&M themselves, rather than it being stated initially. With this contract, the focus is on aligning value for the airport and the O&M’s performance, while providing freedom for the service provider to optimise the setup, including staffing and innovation digital services.

When considering the contract, the benefits offered by a modern BHS and the databased operation and maintenance possibilities can be overlooked. Airports can benefit from considering the option of long-term partnerships where both the airport and the service provider agree on joint goals, KPIs, and strategies.

Performance-based contracts offer new opportunities

Contracts for baggage handling systems operations and maintenance are typically either resource-based or performance-based, with a performance-based option offering significant benefits.
It is valuable to work with the service provider, who has an in-depth knowledge of the baggage handling system in order to ensure that the KPIs defined are of the utmost relevance to the airport.

For example, a very common KPI is using bag processing time, which is the time that it takes for a bag to travel from the point where it enters the baggage handling system at check-in to when it is delivered to the aircraft hold. Although this is a measurement that can be tracked and is relevant to the baggage handling process, it does not necessarily provide any insights into where value is generated or lost. The reality is that it is merely a binary answer: Is the bag on-time or not?

It’s equally important to look into the related continuous variables: How long does it take the bag to be processed? This provides indicators into what impacts this time, whether it is related to other relevant factors, and if can it be changed. Looking beyond the KPI of bag processing time adds value to what the KPI provides, as it is not just the average time, but helps staff understand why this time may be occurring, and what can help improve the overall BHS operation.

If the data cannot be used to assess whether the bag is processed correctly and on time for the flight, then it does not provide any real impact. For example, a bag processing time of 6 minutes is not necessarily any better than one of 9 minutes, if it is at the cost of the left behind index (LBI). It may be that the 9 minute time allows for the handling of last-minute bags that have a critically short time for departure. A service provider should look into all these outcomes and understand what impact they have on the operation.

Where KPIs are discussed, they should be directly relevant to the airport operation, opening up new opportunities for the baggage handling system to contribute to organisational goals.

How to ensure relevant KPIs for baggage handling systems

In order to be valuable, KPIs for baggage handling systems need to tie into the overall KPIs and aims of the airport. For example, the LBI is vital for most airports, but the BHS is only one of the reasons why a bag may be left behind, as it can also be due to security, ground handling, and a variety of other reasons. When the LBI for just the BHS process can be measured, this can be shared with other relevant stakeholders to provide transparency and efficiency throughout the whole process.

KPIs can be tangible and quantifiable to measure the quality of the service and provide vital performance data. This begins at the contract stage, where the airport and service provider should discuss the overall KPIs and organisational priorities for the airport, and together identify how the baggage handling KPIs can align and focus on what really matters to the airport.

Business-relevant KPIs also give airports a stronger basis for benchmarking. When performance is measured consistently, airport leaders can compare cost and system performance over time, assess whether service levels are improving, and evaluate whether the service provider is delivering value against the agreed commercial terms.

When business-relevant KPIs are taken into account, then the performance-based contract can specify terms that are relevant for both the airport and the service provider. As a result, the airport receives relevant service levels that tie into the organisational goals, while also aligning with accountable contract terms that ensure the cost is justified.

TAKEAWAY

Performance-based contracts deliver the greatest value when they are built on a long-term partnership and collaboration. A service provider with deep knowledge of the airport’s baggage handling system can help refine KPIs, optimise performance and turn operational data into actionable insights. With experienced specialists supporting operations, airports also gain access to expertise and best practices drawn from multiple installations, helping drive continuous improvement throughout the contract term.

Airports should carefully consider which O&M contract model best supports their long-term objectives. The benefits of a performance-based approach can compound over time, as both parties work towards a common goal. By aligning service provider incentives with airport performance outcomes, the contract encourages continuous improvement and shared value creation.