A Rash Of Airlines Amid Depleted Market

More airlines are making inroad into Nigeria’s aviation industry at a time passengers’ propensity to fly is abysmally low. WOLE SHADARE writes on what the new entrants are bringing to the table to ensure sustainability and desire to remain in the highly volatile sector

New airline debuts, others get set

The last few weeks has brought a flurry of activities in Nigeria’s aviation industry. Airlines are springing up as many more are at the verge of starting operations.

Just last week, United Nigeria Airline began operations with its Lagos-Enugu route. Green Africa Airline is equally at the verge of starting operations as the carrier with deep pocket is expected to redefine airline business in Nigeria with their massive investment in aircraft and other equipment that have already started shaking the sector even before it starts.

Also, last week , a video of what probably is going to be a new national airline for Nigeria, Nigeria Eagle aircraft surfaced online, further highlighting how interesting the business of airline operations is expected to be this year.

The Federal Government may have concluded plans to rename Arik Air to Nigeria Eagle as it commences total re-branding of the airline, which is currently under the control of Assets Management Corporation of Nigeria (AMCON).

The two aircraft in the video shows the logo of eagles emblazoned on the aircraft’s engine and painted in green colour, highlighting the seriousness to give the airline a new look and reposition it for efficient services.

It is not clear whether the government has concluded plans to transmute Arik into its proposed national carrier or just simply as a change of identity following the government’s takeover of the carrier three years ago.

Others like Value Jet, Rahma Air Nigeria and Jet Airways are also waiting in the wings for their Air Operator Certificates (AOC) from the Nigerian Civil Aviation Authority (NCAA).

 

Existing airlines brace up 

Already, the existing airlines are not finding the situation funny because of the depleted domestic airline market which seems not have shown significant growth simply because of the economic situation which has made air travel to be a luxury to many people. The road transportation has become a succor to many who cannot afford flight tickets despite the attendant dangers on the roads.

High airline turnover 

The air transport sub-sector in Nigeria according to Phillips Consulting accounts for the second highest share of modal contribution to transport output. The road sub-sector accounts for as much as 84 per cent of transport GDP while air transport share in the last couple of years has averaged about 6-7 per cent.

The industry has witnessed a high turnover of domestic airlines since deregulation; generally, many of the local airlines experiences in the industry have been short lived, with many often operating a few years and then folding up.

Before now, there were only about eight active scheduled domestic passenger carriers in the Nigerian airline industry, although the total number of active Nigerian registered carriers is put at 23.

Many of the existing carriers and those that have joined the fray, experts said would need to be creative to sustain their operations with the huge number of seats that are expected not to be filled by passengers.

Propensity to travel

The basic concept of own-price elasticity of air travel in different market segments suggests that if air fares are reduced on Nigeria’s domestic routes, demand for air travel is likely to increase, since these routes are short-haul.

Nigeria has the lowest propensity to fly among countries like Venezuela and Egypt with almost similar demography specifically with population size range.

This story is a paradox of sorts, given that the geography as well as the demographic profile in Nigeria favours air travel. The country has a working population of over 73 million, which, in addition to the fact there are substantial inter-city distances, should favour propensity to travel by air.

The low GDP per capita probably provides some explanations for low Propensity To Travel (PTF), but again, Pakistan has a lower GDP per capital and still manages to record a higher PTF than Nigeria.

The number of active domestic airlines is also lower in Nigeria than in other countries, again indicating the low demand for air travel.

 

Uncertainties

The sector is heading into ‘northern winter,’ traditionally when demand is lower and yields weaker. This year, there is greater economic uncertainty. Operating and financial environment could see more market exits.

Amid the gloom, there are still start-ups.  The West African nation of Nigeria has had a number of start- up –and failures, Nigerian Eagle, Green Africa, United Nigeria Airways and few others seem to have bold vision.

It remains to be seen how these new airlines cope in a tough airline environment considering the low number of flying public. Not a few had suggested and raised concern that with Nigeria’s relatively low numbers for the flying public, it may quickly descend into a dog fight with no winners.

With a glut on the route, this could engender competition and help to force down fares. Competition is a natural result of many players in an industry. However, as profit oriented actors, airlines will not venture into an industry where there is low propensity to fly.

The lack of airline competition and the absence of regional airport hubs are some of the constraints identified in Africa’s aviation.

Hopefully, competitive prices and better quality will result and trigger increased demand for air travel.

Small market

Nigerian airlines are small, with fleet sizes as low as four aircraft for some airlines. The actual market is equally small. Although market potentials exist along several under-utilised air corridors, the smallness of airlines does not permit them to explore these potential routes.

 Airlines may not be able to break even given the low load factors that are likely on such routes. Small size of carriers also constraint capacity to offer frequencies, compete on regional and international routes. Nigeria’s domestic airlines are therefore not strong players in the international and regional markets.

Air fares are said to be on the high side. The most trafficked route on the network, Lagos-Abuja has an average fare of N30, 000 per passenger for an hour flight. This translates to about $83 at the current rate per passenger.

 

Meanwhile, flights on the B737 series in Europe offer $40 per passenger with the same equidistance. The influx of airlines could help to bring down fares especially on routes like Lagos-Abuja; Abuja-Port-Harcourt; Lagos-Owerri; Lagos-Enugu.

Customer confidence in Nigerian airlines is another reason air travel demand is deemed low. The aircraft stock shows that the average fleet age is about 22 years. This contrasts sharply with fleet age for Africa’s best airline Ethiopian Airlines for example is said to be an average fleet age of five years.

Last line

Not a few believe that increased demand for air travel needs to be engineered. While the demographics and geography are favourable to air travel, the prohibitive costs of air travel is traced to supply side costs of operations, maintenance, taxes and other regulatory charges. Government has been urged to grant new entrants tax holiday and other regulatory charges to make for stability of their operations for at least two years.

 

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