Airlines In Pain As Regulation Takes Flight

Virtually all Nigerian airlines are in bad financial state. A weak airline that owes workers, engineers, pilots and not able to meet its financial obligations is preparing the ground for disaster. WOLE SHADARE reports

Unstable business

Despite the increasing number of Nigerians who used to take to air travel for business and pleasure, the airline industry in Nigeria has historically been and remains one of the most financially unstable businesses.

Although air carriers in Nigeria are owned by private entities, the economic success of the airline industry has always been of significant interest to the government. The Federal Government has always deemed certain sectors so fundamental to the existence of a sound national economy that the government once intervened to keep the carriers afloat and save them from extinction.

Airlines owe workers

The economic recession the nation is passing through has compounded the fortune of airlines. Virtually all of them are financially constrained with their inability to pay their workers regularly. Some of them owe workers upward of five months salaries and allowances with the regulatory body, the Nigerian Civil Aviation Authority (NCAA), looking the other way. The slow reaction of the NCAA to economic regulation is an invitation to disaster.

The former Director-General of NCAA, Dr. Harold Demuren’s administration largely succeeded with strict regulation of airlines because he had with him like-minded stakeholders he surrounded himself with.

He galvanised the industry, using professionals and technical competences drawn from within and largely from outside NCAA to ‘sanction’’ erring airlines. But that seems to have taken flight. Even before recession, the industry was facing bad times, with few airlines anticipating profitable performances. Some have argued that recession has contributed to the industry’s problems, and problems for passengers.

Before deregulation of the airline industry began in the 1980s, the Civil Aeronautics Board controlled both the routes airlines flew and the ticket prices they charged, with the goal of serving public interest. With deregulation, any domestically owned airline that was deemed “fit, willing, and able” by the Federal Civil Aviation Authority (FCAA) could fly on any domestic route.

The primary regulatory role of the agency changed from approving whether an airline was operating in the public interest to deciding whether an airline was operating in accordance with safety standards and other operating procedures. While route schedules and pricing for the airline industry have been largely deregulated for over 20 years, many other aspects of the industry are still highly regulated.

Extinction

Over the last 20 years, many of the nation’s airlines have shut down. The list includes Air Nigeria, Bellview, Sosoliso, Oriental, Savannah, ADC, Triax, Nicon, Chanchangi, Discovery, IRS and Aero. Others are EAS, Okada, Capital Airline, Harka, Harco, Slok, Dasab, Space World, Fresh Air, Air Mid-West among others. Because of the huge amount of exit, some observers argue that the airline industry is inherently unstable and requires governments intervention. It is true that profits in the airline industry can fluctuate wildly, precipitating exit. Most Nigerian carriers do not report profit or losses.

They do not open their books to scrutiny because of the structures they have put in place that do not engender transparency. The reason for these fluctuations is that an airline’s costs are largely driven by labour and fuel, which are fixed in the short run. Hence, moderate fluctuations in demand, such as those caused by the events in recession that can hugely affect profits. The robust earnings of most airlines in the 1990s and 2000s can be traced both to the booming economy that spurred demand, particularly for highfare business travellers, and low fuel prices.

Marginal profit

While profits are volatile, many industries with volatile profits— ranging from oil exploration to computer software—operate without substantial government regulation. Moreover, free markets generally work well for industries with large fluctuations, because the fluctuations provide incentives for firms to innovate in response to changes in demand and costs. In spite of the recent downturn in demand for airlines, many airlines are yet to eliminate their routes.

While it remains an open question as to why Nigerian airlines are not successful, free markets provide incentives for innovations to spread, thereby increasing efficiency. The airlines are in serious dilemma, prompting many to plead with the government to rescue them with another bail out that has been grossly rejected by experts. The carriers, which were said to have got over N200billion in 2008, disclosed that the money did not go to them but to banks to service their debts.

Airlines plead for help

Chairman, Airline Operators of Nigeria (AON), Capt. Nogie Meggison, recently said the industry had sunk into its worst form of financial woes and that only the government could rally round the rest of the stakeholders in the aviation sector to provide the life-line to keep the airline industry alive.

“We therefore call on the Federal Government to, as a matter of urgency, come up with a strategy to bring all parties to the negotiating table to seek, for the first time, direct intervention funding for airlines in the interest of saving the aviation system from collapse, considering that without airlines, there is no aviation,” said Meggison.

“It must also be put on record that Nigerian airlines create about 90 per cent of the full time employment in our aviation sector today, both locally and internationally, and we remain a pivot to the Nigerian economy and one of the main catalysts to economic recovery and national progress through the critical services we provide daily,” the AON boss added.

Meggison said in the last 30 years the domestic airline industry had never received any form of financial assistance from the Federal Government, pointing out that contrary to widely held opinion, no airline benefited from the Aviation Intervention Fund of 2011. “I have to state unequivocaly that domestic airlines in the country did not and have not received any form of funding from the Federal Government in the past 30 years since the deregulation in 1983, contrary to widely held beliefs, opinions and publications in recent past that they were given an intervention fund by the Federal Government,” said Meggison.

Conclusion

The airline industry today operates in an environment of uncertainty where recession and lack of good management planning have done incalculable damage to the operators. Passenger traffic has drastically reduced, government’s perceived hostile attitude coupled with the regulatory body’s alleged inefficiency have exposed the underbelly of a sector in turmoil.

Wole Shadare