By Ezra Ikpeama
The aviation industry is agog with the proposed federal government intervention fund by which new planes for Nigerian airlines will be available through government-led negotiations with aircraft manufacturers to supply 30 new planes at globally competitive prices. According to government officials, this unprecedented move will facilitate airlines in the country with the capital outlay for the purchases and repayments to the government by the airlines are expected to attract only single-digit interests on the investment. While this strategy is commendable because it will ensure new planes in the airspace, it is also admired for weaving fiscal responsibility into the process as the airlines will not receive the intervention funds directly.
In spite of this sterling manoeuvre, it is hard to believe that the airline industry will not come into dire straits again. This fear is not speculative. The industry has consistently being plagued by anguish brought upon by old, service-intensive aircraft, poor judgement in choice of airliner fit for purpose, high operational costs and high interest rates on credit facilities. Mergers and recent bailouts to ease the pressure on domestic airlines have only been temporary solutions, at best. In the long run, the inevitability of collapse is evident in the abandoned aircraft at several airports in the country and the catalogue of failed airlines. It is nostalgic to recall such airlines as Nigeria Airways, Slok, Savanna, Triax, ADC, EAS, Oriental, Okada Air, Albarka, Dasb, Harka, Space World, Fresh Air, Kabo, Bellview and Sosoliso. These airlines went out of operations for varied reasons including not but limited to managerial incompetence and financial pressures. But, pause to envision the vibrancy, healthy competition in the industry and optional platforms for passengers if all or a few of these airlines were still in service today.
However, it was not to be, though; but it buttresses the veracity that the prescription for remaining on the stables of profit will comprise other parameters with the provision of new aircraft to ply the routes. Several airlines past and present had entered the market with at least functional (albeit, airworthy) planes but these have not saved them when hard times came. Amongst the myriads of negating factors, the constantly dwindling fortunes of Nigerian airlines (both private and government-owned) can be attributed to the weird selective clientele strategy of the local aviation industry as a result of price and affordability mechanisms. Considering that the population of Nigeria is in the excess of 160million, experts conclude that is inadequate that only about 7million passengers use the airlines annually as a means of transport. While the huge demographics may be a positive factor in terms of projected market exploitation, it is worrying that the costs of fares are a rationale given by industry watchers as an obstacle to increased passenger capacity. Therefore, the airlines need to adopt a different model of pricing and flight operation in order to sustain cost-effective operations. Fair pricing which is a hallmark of discount airlines is not just a spur-of-the-moment decision to slash fares to attract patronage when a new airline comes on the bloc or when it fears being ignored by passengers, perhaps after accidents or periods of regulatory sanctions. It is a well-thought out, systematic strategy for providing the service for a greater number of people at a fair, affordable and sustainable price and exploiting returns on investments from the increased turnover or patronage. It can also involve ingeniously harnessing other potentially viable channels for boosting the bottom-line. Therefore, discount, budget or low-cost airlines can be summed as: Fly Cheap, Fly More; and Make More Money.
Granted, such business strategy is not entirely immune to the uncertain global economy and the trepidation of investors in the wake of even well-managed airlines that have not been sparred the harsh call of failure. But, it is encouraging that a few airlines are still flying and they have had to contend with existing and emerging challenges to remaining profitable. While profits might have flattened for many airlines, on the positive side is the willingness of yet many investors to explore the skies. The latest entry of Med-View airline into daily flight operations should loosen the fears of many who are yet to foresee a bright horizon for the airline industry. Since it started operations in November 2012 with two aircraft, Med-View airline had acquired a third with an aggressive expansion plan in place to introduce additional two aircraft in the second quarter of 2013. These milestones are sustained by profits and yet underscores that a pragmatic approach to aviation business is locally feasible.
A case for discount domestic airlines becomes expedient when a swift comparison of cost and distance is made between analogous destinations in Nigeria and Europe. These facts are verifiable because a lot of people would have at various times flown on discount airlines in Europe. For an hour’s flight within Europe, the fare ranges from a mere N250-N5, 000; whereas for the same distance in Nigeria (Lagos-Port Harcourt) you are likely to pay from N16, 000 or more depending on seasonal or industrial factors. In fact on certain itineraries of two or more hours, a return ticket is on sale for a value of N7, 000-N20, 000. Conversely, a less than one and half hours flight on a return ticket from Lagos-Sokoto goes for a whooping N36, 000 on some airlines. It should be pointed out, though, that the fare estimates cited here on the European journeys are fairly liberal. There are even cheaper offers that are available for a determined passenger seeking better fares.
The model of discount airlines is practical that you wonder why no one in Nigeria has explored it. It thrives on the principle of fair pricing and huge passenger turnover. These low cost carriers are already in operation in African countries such Egypt with one service; Morocco offers two; Tunisia, one; Tanzania, one; and lastly South Africa with two services. With local destinations on offer, these airlines also radiate some Pan-African routes. What is interesting is that these airlines are challenging themselves to delivering world class service. According to Tanzanian Fastjet Plc, the airline “aims to deliver the same service as its European counterpart to the African continent.” The airline which commenced operations in November 2012 now has three aircraft in its fleet and is expanding regionally by signing time share agreements with other airlines. In Europe, there are close to a hundred low cost airlines.
Therefore, it is not impossible in our local circumstances considering that a Med-View airline, for example has ambitious plans to explore regional and international routes. According to a corporate statement by the airline, its outlook is also” to alleviate the plight of the local travellers and offer customers value for money”. Med-View airline’s commitment to doing so is evidentially indubitable in the short run, but in the long run, the airline and others can be bolstered for increased schedules if they adopt a discount flying model with the aircraft to be purchased through the proposed intervention fund. There are no limitations should an airline decides to blaze the trail.
Certain offerings on normal flight operations such as extra leg room or on-board refreshment may not be imperatives if it means a cheaper fare for passengers. In the current economic climate, it is practical to expect that passengers will be grateful for any amount they are able to save. Some passengers may have some reservations for low cost flights, though. Some business executives and government functionaries may view it as somewhat demeaning to fly on discount rates. The irony is that many of these people gladly use similar branded airlines when they make trips within Europe and USA. For those who hold on to such grandiose leanings, it is humbling to recall that in 2011, the prime minister of Great Britain, David Cameron, despite his wealth and privilege of office flew to Spain with his wife with a budget airline, Ryanair, to celebrate her birthday. The couple were spotted at the general departure lounge at the airport. It is true that many Nigerians can afford any luxury they desire, but they fall short of the power and influence of the British Prime Minister who did not consider a flight on a discount airline any more than a voluntary displacement from a departure to an arrival point. Therefore, the modesty articulated by David Cameron is precursor to the willingness of many Nigerian passengers to forgo the frills of conventional flights in pursuit of affordable fares.
There are other ancillary factors that broaden the odds for success. A functional technology is essential for success as discount airlines favour on line ticket sales and check in. Already some airlines, such as Aero Contractors offer discounted fares on online tickets and there will be the ripple effect of quality and innovative offerings by telecom companies to meet growing demand for internet platforms. Moreover, a surge in passenger volumes invariably translates to increased profit for the airlines.
Moreover, the industry is set to receive a boost in safety levels. Recently, the aircraft giant, Boeing, submitted a proposal to the Ministry of Aviation to conduct airworthiness assessment of all its branded Nigerian registered aircraft. If the proposal is brought to fruition, it will reinforce passengers’ confidence in the aviation industry after some fatal mishaps were experienced. Already the number of passengers at the airports has continued to swell as a result of facelift of terminals and infrastructure in airports across the country which is still work in progress. While speaking recently about the revamp of airport facilities, the managing director of Overland Airways, Edward Boyo, said that the new terminals had boosted the desire to travel among many people, adding that many airlines have witnessed more patronage as a consequence of the terminal upgrades. Passenger numbers are also expected to grow at the other airports earmarked for remodelling in the phase two of the national project.
As the passengers expectedly turn out in greater numbers, it is important that airlines ride on this spin-off by veering from the conventional airline business model to adopting a more, customer-focused, cost-reducing, frill-free approach. It will comprise a rethink on the ticket pricing strategy to ensure that each journey records a full- seat capacity. In short haul journeys, most passengers are focused on the trip and not the experience and will not mind the cheapest option to get there.
There are other factors a prospective budget airline may consider too. Effective staff recruitment is a key element in utilizing the right number of staff for various roles. Adequate training and competitive remuneration are necessary considerations in motivating the staff to working harder. The airline can also consider exploiting e-commerce and advertising by allowing related trades such car hire services, hotels and travel insurance companies to advertise on its website. Some experts have suggested purchasing the same type of aircraft so that it becomes cheaper when negotiating deals from manufacturers and in the long run, it keeps maintenance costs down. It will also mean that the turn-around time of the aircraft will increase slightly; however, this is not a negative factor because in civil aviation, the expert opinion is that the airworthiness of an aircraft is the paramount factor; its age or turn around rates are secondary.
Nigerian airline operators surely envision a consistent scenario of full capacity on all flights, less overhead costs and bulging profits. But as they struggle with taxation, increasing costs, high indebtedness to creditors and an emerging reliance on government bailouts, a budget airline structure will be the buffer to the precarious aviation industry. Case studies show that it is possible to discount the price of tickets and still gain and retain a huge market share. The current challenge is that many in Nigeria still have a myopic impression that flight journeys are just for the rich.
