BASA: X-raying profitability optics in Nigerian, Brazilian pact

The restoration of flight services between Nigeria and Brazil, 31 years after Varig ceased operations to Nigeria, has been received with mixed feelings as investment in the route would determine how far Air Peace and other carriers eyeing the route can go to sustain operations, writes WOLE SHADARE

  Nigeria and Brazil, two nations with very strong economies in South America and Africa, inked a multilateral trade agreement last week when President Bola Ahmed Tinubu visited his counterpart, President Luiz Inácio Lula da Silva.

Paving the way

Most striking is the Bilateral Air Services Agreement (BASA) between both nations, which creates a direct route for air travel, enabling more efficient movement of goods and people and thus stimulating bilateral economic activity. 

Direct air links facilitate the exchange of goods and services, boosting trade and investment between Nigeria and Brazil. These whole deals holistically would enhance diplomatic and economic ties, creating a stronger link within the global community and fostering cooperation.

Direct flights eliminate the need for layovers, making travel between the two countries quicker and more convenient for both business and leisure travellers.

Nigeria’s flag carrier airline, Air Peace, has taken the bold step to offer itself as the airline from Nigeria to test its might on the route, more than 31 years after Varig, Brazil’s national airline, stopped services on the Lagos route.

Varig experience

Varig stopped flying to Nigeria in 1994 because the airline was facing severe financial problems and determined the Lagos route was unprofitable as part of a broader cutback of its long-haul network. 

The airline withdrew from Nigeria and other African destinations due to rising fuel costs, heavy debt, and competition, leading to the discontinuation of direct Brazil-Nigeria flights at that time. 

Varig’s withdrawal led to the cessation of direct flights between Nigeria and Brazil. No other airline stepped in to maintain the link, leaving a gap in direct air connectivity between the two countries for a period.

After facing financial difficulties and declining domestic market share due to new competition from airlines like Gol, the company filed for bankruptcy in 2005 and ceased most operations in 2006.

Air Peace takes the shot

The onus falls on Air Peace to carry the Nigerian flag creditably well on the route many analysts feel does not offer viability, while others maintain that the carrier’s consistency would determine how far it can go.

The doubt has equally centred on past experiences of the Nigerian carrier with the way and manner it quickly abandoned some lucrative routes like Johannesburg, South Africa, Israel, Jeddah, Saudi Arabia, Mumbai, India, Guangzhou, China, and Dubai, among others, that were stopped as soon as it launched.

Doubts

Not a few had equally questioned if Air Peace did its evaluation on the route and not just jumping to fly to Brazil in the spur-of-the-moment scenario.

Air Peace may actually prove naysayers wrong with the manner it announced plans to offer three direct flights to Sao Paulo from Lagos from next month, as it tested the route with its B777 aircraft on a test run amid massive backing given to the airline by the Federal Government championed by the Minister of Aviation and Aerospace Development, Mr. Festus Keyamo.

Since the assumption of office, Keyamo’s support for Nigerian carriers has been massive and has treated Air Peace and other Nigerian carriers the same way, as his commitment to the airline has never left people in doubt of his unalloyed support.

In some quarters, the Minister has been dubbed ‘Minister of Air Peace’ and rightfully so because of the potential of the carrier, but limited in strategy and plans to truly develop routes and stay strong on the routes.

It is not yet known if Brazilian airlines would also reciprocate the BASA deal with Nigeria by choosing to operate to Nigeria, as the Latin American nation has very strong airlines that compete with other strong airlines across the globe.

It is yet to be seen whether the factors that kept them away from Nigeria for over 31 years after Varig left the scene have been factored into thinking about a return with another Brazilian carrier.

There are indications that, aside from huge debts, Varig ran into rising costs and debts, the carrier ran out of the route because it wasn’t profitable and due to competition.

Competition

These twin issues persist till today. If anything, the competition is fiercer now, and profit margins are shrinking by the day due to the high cost of jet fuel, the high cost of operations and other issues that may make the Brazilian carrier think twice before venturing into a route that may not be profitable for them.

Cases abound of airlines like Iberia and Alitalia that operated to Nigeria but could not face competition from top European airlines like British Airways, Air France, KLM, and others before Alitalia later metamorphosed into ITA.  

Former General Manager of Nigeria Airways and Chief Executive Officer of Belujane Konsult, Mr. Chris Azu Aligbe, said the task before Air Peace is whether it can develop the Brazil route, stating that ‘route development is very expensive’.

Expert’s view

Aligbe, who spoke to Aviation Metric, likened Air Peace’s plans for the route to when the liquidated Nigeria Airways ventured into Dubai, United Arab Emirates (UAE) many years ago.

He said, “When Nigeria Airways entered the Dubai route, there were no flights. It was Nigeria Airways that opened the Dubai route. We didn’t know Emirates, or any other airline. It was after we opened it that Ethiopian Airlines, Kenya Airways and all of them started coming in. We opened the route. At that time, visas to Europe and other places had become so difficult. Apart from the visa for the US being difficult, the market in the Emirates was cheaper and offered a lot of goods that people can buy and sell”.

“It became an instant market. The two places where the market was thriving were Dubai and Istanbul. We took Dubai and developed Dubai, and it was almost instant, and within two months, that place became something else. What was high was cargo because people were buying and buying. Route development is very expensive. If you can stay on it, fine.”

He further stated that the key factor is the visa policy for Brazil, noting that Brazil is a destination in terms of tourist attractions and manufacturing.

He corrected insinuation in some quarters that do not have strong carriers, saying that LATAM ranks amongst the biggest airlines in Latin America.

 

“It used to be called TAM, but it is now LATAM. It became LAMTAM in 2020 when LAM Chile, the national carrier of Chile, bought a lot of equity in TAM. It was not a national carrier; it was a Brazilian flag carrier formed by a group of people, and it was doing well. Today, LATAM has moved from SkyTeam to Oneworld. They have 140 aircraft and 93 destinations in Latin America, the US and Europe. LATAM goes to South Africa, and the only African destination they fly to. People who say that they don’t have a strong airline don’t know what they are saying. They don’t know. People go about saying things they don’t know.”

“Let’s see how it goes and see how Air Peace can develop that route. It is very expensive. If it can go to India with only 50 passengers, it brings to the fore the marketing strategy. He can develop it, but it depends on the capacity to develop it, carry the cost of route development. It equally depends on the Nigerian visa policy. Brazil has a strong airline, LATAM.”

“Nigeria carriers have been urged to come together and form a merger. If they continue to operate alone, they will die. They can shout and they can abuse. This is what LAM Chile did with TAM. They were rated. TAM scheduled integrity was rated 85% and moved to 92%. That was the rating in terms of schedule integrity. That is the situation. I will keep saying to us that the best partner in a flag carrier with 5% equity we can have is Ethiopian Airlines”.

Last line

No airline sustains a route that is not profitable for it for a long time. Airlines are very wary of burning cash by remaining on unprofitable routes for a long time. They cut their costs by simply leaving the scene.

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