The current recession in Nigeria is ravaging businesses, as it is taking a huge toll on everybody with attendant job losses and uncertainties. Aviation forms part of the economy and any negative effect on it would also have a huge impact on air travel.

Already, airlines are overburdened. Over 40 per cent of operational cost is spent on aviation fuel. Today, that product sells between N200 and N230 per litre because it is imported.

Aside that, the carriers are burdened by the huge cost of maintenance of their aircraft, occasioned by depreciation of the naira. Everything about aircraft maintenance, including repairs and, most often, technical personnel, is imported and C-check is done overseas.

So, in a recession whereby over N400 is exchanging for $1, it is difficult for Nigerian airlines that sell tickets in naira to raise enough funds to maintain their aircraft.

In the face of these, not a few have called for reduction in the price of air fare, or, at best, the introduction of low cost model that they claimed have succeeded elsewhere.

The concept of a low cost airline was started in the seventies by the American domestic carrier Southwest with the sole objective of offering cheap airfares to the consumers.

This created a situation where already established flag ship carriers or legacy airlines lose a significant amount of the market share to these newly formed low cost airlines, purely because of their ability to charge a lower price over traditional full cost airlines. Many of the low cost airlines all around the world initially based their strategy on the South West’s model.

However, as the number of Low Cost Airlines (LCAs) increased over time, more and more of these airlines have deviated or ‘modified’ this model in order to survive in the industry due to competition.

The basis of operation of low cost airlines remains the same, which is to provide the lowest price for the consumers by undercutting the price levels of legacy carriers.

But because there are a number of airlines competing with each other, some LCAs have modified their strategy in order to try and stand out from their competition. This strategy is known as differentiation strategy.

This is when a company tries to offer something unique to make them stand out from the rest of the industry. The philosophy behind this being that if a company can differentiate their product in some dimension that the customers value and at the same time sustain this differentiation they will be an above average performer in the industry.

Airfares do not reflect the actual cost of operation because of the low disposable income of Nigerian citizens. At the current cost of aviation fuel and maintenance, for a Nigerian airline to make profit it should charge between N40,000 and N45,000 for one-hour flight and between N55,000 and N65,000 for one hour-plus one way trip.

This amount will appear too much for so many people whose salaries are less than N100,000 per month. But that is the actual pricing that could generate profitable revenue for airlines and make them to be in business. Currently, air fares oscillate between N19,000 and N25,000 and in rare cases N28,000.

This is not sustainable for any airline that wants to be in business as the carriers already offer what is generally termed ‘low-cost’. Only Arik charges between N30,000 and more because of higher maintenance cost by Lufthansa Technic, its maintenance partner.

This is even made worse because airlines have lost over 45 per cent of traffic since the beginning of the year and could reach 50 per cent before the year ends.

Nigerian carriers cannot make the mistake to charge N40,000 or above for one hour trip because of the negative reaction that would trail such action as many more would boycott air travel.

Early this year, there were indications that Nigeria might eventually adopt low cost airline model as a result of low traffic occasioned by tough economic situation rather than the willingness to do so. Already, because of the huge seat capacity that airlines provide on the domestic scene with low passenger traffic, many of the airlines offered then in June air fares as low as N12,000, depending on the time of booking.

The operators, investigations revealed, wanted to concentrate on huge volume to be able to apply the model because Nigeria provides such market to succeed.

They hope that at a very low cost, they would be able to attract more passengers to fill their aircraft, which would make up for the fares they are going to charge.

But this seems not to be realistic again following the continuous slide of the naira that has made it very cumbersome for airlines to be profitable.

Vice President, International Air Transport Association (IATA), Raphael Kuuchi, in an interview with WoleshadareNews in Dublin recently, said that low cost airlines, wherever they exist, play a very critical role contrary to thinking by some legacy carriers that low cost carriers have come to take over their market.

He noted that the model has a tendency to stimulate additional demand and come up with a new market segment that in most cases has not been seen before.

He, however, lamented that “unfortunately, what we are seeing in Africa is a concentration of low cost carriers still in a few markets,” adding that this was because the low cost business was based on low price and high volumes and in many markets in Africa, they have the volumes. He said: “The volumes are in South Africa domestic market.

To some extent, Nigeria might eventually come up with low cost model in the future. You see that in North Africa, we have low cost model in Egyptian market, in Morocco because of the volumes there.

“Within Africa, it is a huge challenge because the volumes are not there. The second limitation in the growth of the low cost carriers is the existing limited Bilateral Air Services Agreement (BASA).”

It would be recalled that Aero Contractors, seven years ago, introduced low fares on all the routes it operated. The fares were as low as N5,000. The model it adopted led to huge traffic for the carrier and huge cash flow for the airline, as passengers thronged the carrier.

The model entails that intending travellers made their bookings at least two weeks before their next flight. Low-cost airlines are taking off across the region, serving routes that cater to the continent’s growing middle class.

It hasn’t been easy for them. African nations signed an “open skies” agreement in 1988, similar to the one in Europe that cleared the way for successes such as easyJet. Most countries are yet to actually implement the agreement.

But as the number of potential travellers grows, the new low-cost airlines are slowly convincing the governments about the benefits of increased air travel. One of the most ambitious of the new carriers, fastjet took off in 2011 running domestic routes in Tanzania.

In upcoming markets such as Africa and Asia, it will take a few more years before the low cost market reaches maturity due to the restrictive nature of governments involved.