Sunday, May 04, 2014

Nigerian: Operators Give Recipe for Viable Local Airline Service

Nigerian operators have accused government of creating a hostile environment for air transportation in the country, arguing that the inability of Nigerian flag carriers to operate large fleet and compete with world’s mega airlines is because government is yet to realize airline operation is a vehicle to the nation’s economic growth, writes Chinedu Eze

With passenger movement of over 15 million per annum, over 24 active airports and most active population in Africa, Nigerian airlines are at the lowest rung of the ladder when compared with major carriers on the continent.

For years, Nigerian travelers have been contributing in the sustenance of such major carriers such as British Airways, Lufthansa, Air France, KLM, Ethiopian Airlines, Emirates, Turkish Airlines, Qatar Airways, South Africa Airways, Egypt Air, Kenya Airways and many others. But Nigeria does not have strong airlines of strength and stature like the aforementioned airlines. The only airline that is hoisting Nigeria’s flag beyond its shores is Arik Air, which operates three international routes and is expanding its international destinations.

In the last 10 years, airlines like Capital Airlines, Chanchangi, Afrijet, Associated Airlines, Bellview, ADC, Sosoliso and others have gone under and the reason is attributed to cash squeeze, bad management and technical problems.

Besides the self-inflicted problems of the airlines, operators say that competition in a viable atmosphere would have made the airlines to improve their operations if government agreed to provide the necessary incentives and legislations which other countries provide for their airlines.

Sustaining Operation of Airlines

One of the major problems with domestic airlines is that they do not have special lending rate from the Nigerian banks as it is done in most countries that know that airline business provides the platform for the growth of the economy. Nigerian airlines have over the years clamoured for single digit, long term loans and wooed government to legislate this request, which would provide the key that will keep the airlines in business. But so far, this has not been done, so airline seek for loans along with traders on the same double digit interest rate. Airlines’ profit is always on low margins so it will be difficult for a Nigerian airline to sustain and service such loans with high interest rate.

Amos Akpan of Capital Airlines noted that after so many tightening measures on lending and policy adjustments on airline funding; all scheduled domestic operators cannot close their end of year account report with a positive balance sheet.

“They do publish audited accounts that show positive balance sheet. However, at the time the account was closed, how much was outstanding to: aviation fuel companies, aircraft lessors, the Federal Airports Authority of Nigeria (FAAN) bills, the Nigerian Civil Aviation Authority (NCAA) bills, navigational bills, spare part suppliers, interest on loans. Very ironic that a company declares profit yet owes unpaid debts from same operations sometimes inclusive of staff allowances and salaries.”

Akpan, who is the CEO of Capital Airlines which had stopped schedule services, noted that if one produces a tin of milk at the cost of 10 naira, one cannot sell it at eight naira and claim to be in business. “This is the simplest illustration to summarize the economic operations of Nigerian airlines.”

He explained that the ticket price of an hour’s flight is 25,000 naira. After paying taxes and surcharges the airlines go home with 10,000 naira from which they pay loan with interests, salaries, maintenance, aircraft lease, training etc.

“How profitable is their operations? They carry 90 per cent of the capacity they provide from Lagos to Abuja Monday to Wednesday mornings. They return from Abuja to Lagos same mornings of Monday to Wednesday with 40 per cent of same capacity. Same trend happens between Thursday and Friday evenings from Abuja to Lagos. Same aircraft needs to be utilized beyond that route to meet the minimum required hours of usage. Movement of passengers follow the same pattern on the Kano – Abuja, Port Harcourt – Abuja. The developed routes replicate this pattern in Nigeria. Every airline operating today except (overland) based their feasibility and routes schedule on this pattern.”

Akpan remarked that the consequence of this pattern is that the airlines provide excess capacity on particular routes in specific times. Five airlines provide 680 seats on the Lagos to Abuja route on Monday morning between 7am to 9am to carry 350 passengers amongst themselves.

“This is the number one reason people cite for current operators to merge,” he said.

The CEO analysed the domestic passenger market and noted that there is minimal growth because the market recycles passengers as follows: Ministry and parastatal workers on official trips to supervise, monitor or attend duties across cities in Nigeria; company officials chasing contract sales or marketing across cities; businessmen chasing deals; students at resumption or close of school periods and festivity movements once a year (Easter, idil fitir, Christmas).

Market Growth

Akpan said from 11commercial scheduled airlines with AOC in 1999 “we have constricted to five airlines in 2013 and there is no chaotic overflow of passengers at the domestic terminal in Lagos, MM2 or the General Aviation Terminal in Lagos (GAT) Ikeja; Aminu Kano International Airport, Kano or Nnamdi Azikiwe International Airport in Abuja? Aircraft still depart with less than 60 per cent capacity.

“We probably are not noticing the increase in comfortable bus services on these same routes. A large number of patronage is going to these bus services. They are not safer. They are available, affordable, giving improved services to passengers. They make profits as operators. They repay bank loans. Investors have return on investments.”   Akpan said these buses fill the vacuum for local air cargo movements because they have trucks and warehouses that move goods to all cities in Nigeria and West Africa, whether perishable or time definite, adding that Nigerian aviation cargo movement is simply described as a one - way traffic, which is haul in cargo from abroad and ferry the cargo aircraft back empty, for example, taking CBN cargo and dropping it in a domestic airport and returning empty.

“Take cargo charter to drop in any west or central African city and return empty. The mango or pineapple in Yola is yet to break the Asian and Indian monopoly in Europe or Gulf States. Some Indians in Dubai offered to take our natural pineapples at 50 per cent less than the price of their chemicalised pineapples. Worse still, I should deliver and return to collect money after sales. We can’t get our investors to buy bulk; get adequate storage and break their monopoly. Instead they buy estates in Dubai where they only enter with tourist visa even as home owners. Check how foreign operators like Cargolux and DHL are exploiting our air cargo markets.”

Favorable Government Policies

The airline operators demand that government should ensure efficient supply of aviation fuel at relatively lower prices than what it obtains, introduce a policy that would ensure that airlines are made to pay single taxes and radically reduce charges like landing and parking. They also gave kudos to government for eliminating Customs duty on importation of aircraft and parts.
The Deputy Managing Director and Head of Flight Operations of Arik Air, Captain Ado Sanusi, applauded the policy on waiver of Customs duties for aircraft and parts, but said there are some other things government can do to alleviate the suffering of the airlines in the country.

“Part of those things besides the waiver is to look at the Value Added Tax (VAT) issue. Air transport is the only transport sector that is still paying VAT. Why do we talk about VAT? Because you will return the money to the government but it makes your fares go up, and it will make the passengers not to fly; and if passengers don’t fly, you don’t make money.”

Sanusi said all Bilateral Air Service Agreements (BASA) must be done in conjunction with the airlines, so that the airlines can enter into commercial agreement with the foreign airlines. This he said would help the domestic airlines to enter into code share agreements with these foreign airlines.

“But the moment you have the BASA being skewed against the domestic airlines (in terms of multi designation of foreign carriers); when you talk to the foreign airlines or when you are looking for code sharing, the international airlines will not talk to you because they have got all they want from your government.

“If I am supposed to fly into two points in your country and I am flying into four points; then I don’t need to code share with the local airline to transport my passengers to the airport of the outbound flight. These are the things that need to be looked at; deliberate policies should be made to protect local carriers,” Sanusi said.

The airlines and industry observers went further to insist that the Federal Government should make deliberate efforts to grow domestic airlines by introducing the Fly Nigeria Act with code share principle which would make it compulsory for anybody traveling on government expense to patronize Nigerian airlines.

The codeshare clause would encourage foreign airlines to partner with Nigerian airlines so that the foreign carriers can take the Nigerian passengers beyond the destinations the domestic carriers travel to. For example, if Medview is on codeshare with Alitalia, the Nigerian carrier could sell Alitalia ticket to a passenger traveling to Milan but the passenger will travel with Alitalia flight.   There are so many benefits on that which may include training, supporting equipment, employment and revenue sharing.

Travel expert, Ikechi Uko, said that government should give the airlines grant to help them boost their operations or it should introduce the Fly Nigeria Act with code share clause to empower them to grow and compete with foreign airlines.

It is obvious that government holds the key for the growth of the airlines, from ensuring strict operation through strict regulation to supporting them through policies and funding, government must draw out a master plan for the airline as it did for the infrastructural renewal of the airports.