Airlines: Lifeblood of aviation show vulnerability

In Nigeria, the aviation sector has one of the highest leverage on the Nigerian economy, yet the airlines remain cash strapped with compressed margins and high operating cost that impair performance. WOLE SHADARE writes

Problems yet to fizzle

These days, airlines are becoming safer, more efficient, and more profitable with savvier management teams. However, the problems that plague the airline industry have not gone away. The global nature of the industry makes it uniquely vulnerable to a multitude of elements ranging from insufficient infrastructure to disease epidemics to politics. The state of the airline industry is strong. Around the world, the number of people flying increased by 6.6 per cent in 2017. In fact, the world’s 20 busiest airports, alone, saw roughly 1.5 billion passengers pass through its terminals last year, trade group Airports Council International has said.

Mixed feelings

Consolidation, coupled with relatively affordable fuel prices and increasingly savvy management teams have resulted in record profits for the global industry. It is however, difficult to know whether Nigerian carriers also benefitted from this, as there are no records to show whether they made profit or losses. They do not declare loses or profit. They are not accountable to anybody because they are run on basis of one man business. Their financials are shrouded in secrecy. The airline business is not without its problems. Any cursory look at today’s problem will turn up any number of stories about dis-satisfied customers or some facet of the industry under threat. It’s a fair response. The airline industry for all of its power and prestige is unique in the sheer number of factors that could negatively affect its business.

Vulnerability

The vulnerability of airlines to this multitude of factors has to do with the global nature of the business The very things that make airlines so interesting and alluring are also the same things that threaten its well-being. Closing down a floundering airline is a politically unpalatable decision. Governments are expected or will usually provide it with a financial lifeline to stay in business. But struggling airlines often have to resort to cut-throat pricing to fill up their excess capacity, and as a result, even the stronger players in the industry are adversely affected by this lack of pricing power.

Poor services

Airlines provide a vital service, but factors including the continuing existence of loss-making carriers, bloated cost structure, vulnerability to exogenous events and a reputation for poor service combine to present a huge impediment to profitability. While a handful of low-cost airlines have successfully managed to post consistent profits, by and large, profitable airlines are few and far between.

Dire straits

In Nigeria, airlines are said to be the lifeblood of the aviation market, but unfortunately, they are in precarious situation and are in serious dire straits. When every other associated or related businesses profit from them, the feeder (airlines) are on life support Even though Nigerian airlines have been operating for years, they still have not been able to hack the secret of a successful airline business. Some of these reason are that overseas aircraft maintenance is expensive and a lot of expenses on the part of the airline despite the exchange rate. While Nigerian airlines earn their revenues in the local currency, the cost of maintenance is done in dollars, which leads to huge losses on the part of the airlines. It is inevitable that this will lead to the shut-down of airlines, as most financial transactions such as aircraft maintenance are done in dollars. Whereas the financial burden is avoidable by stakeholders’ estimates, overseas repairs continue to drain the lean purse of local operators lowering their capacity, revenue and chances of survival.

Government’s efforts

The government has been indifferent to the plight of airline businesses. While airline businesses are striving to make progress, most government bodies have decided to ignore their efforts to help improve airline businesses in Nigeria. It was not until recently that the government through the Minister of State for Aviation, Hadi Sirika prevailed on President Muhammadu Buhari to extend waiver to the carriers for the importation of spare parts and other mobile equipment. Before now, there were so many challenges including multiple taxation, high cost of acquiring aviation fuel, high cost of procuring spare parts and the efforts of bringing them into the country. Customs officers do not understand what it means to support airlines and what AOG (Aircraft on Ground) means.

Quick intervention

The AOG means there is something wrong with an aircraft and all over the world, such aircraft is given express attention. If you send for the parts of an aircraft under AOG status, it is given express clearance because that aircraft must be made to fly. As long as it is on the ground, the owner loses money. But in Nigeria, Customs can decide to keep it as long as they wish. Nigeria used to be the harshest operating environment for any airline, especially the domestic airlines. Besides these, we have poor airport infrastructure, poor understanding from the passengers, and the poor governance structure of some of the airlines could also be a challenge.

Airlines’ collapse

The aim of most of the operators in the industry is to make quick money and it leads to sole ownership with poor management structure; bad financial management and a behavioural pattern to divert the little profit into other ventures. This has led to the collapse of many indigenous carriers such as Okada Air, Oriental airlines, Chanchangi, Air Nigeria, Sosoliso, Okada Air and among others. Notwithstanding the increase in the growth of the aviation market in Africa and Nigeria, underwriting of risks has not gained much ground, owing to capital inadequacy in the industry, in terms of human and financial capacity. No single insurer, for instance, has the resources to retain a risk the size of a major airline or even a substantial proportion of such risk. The catastrophic nature of aviation insurance can be measured in the number of losses that have cost insurers hundreds of millions of dollars. When there are accident losses, dependants of victims are only compensated where there is adequate cover.

Last line

However, despite these challenges, there is hope of remarkable improvement in Nigeria’s aviation industry if the airlines get their priorities right, improve on the right model and run their businesses the way it should be; only then can we begin to see improvement on other areas such as aviation ground handling, growth in revenue by terminal operators and other catalytic aviation service providers, thereby increasing the $1billion aviation contributes to Nigeria’s Gross Domestic Product (GDP) annually.