Economic Downturn:Getting Airlines Out Of The Woods

In any depressed economy, air operators naturally try to cut corners (even in the USA and UK). It takes a vigilant regulator and active checks and balances to prevent such practices from becoming the norm. WOLE SHADARE writes

Nigeria, others in recession

Nigeria is not the only nation hit by economic recession. Many countries are also in that situation but how countries get out of it is one that has dominated headlines. Aviation like every other business is not immune whenever the economic reality sets in, as aviation is said to contribute hugely to the Gross Domestic Product (GDP) of many countries. In Nigeria, the industry contributes less than two per cent to her GDP, whereas in some countries, the contribution is as high as six to seven per cent.

IATA’s fret

The International Air Transport Association (IATA), the clearing house for 260 airlines across the globe, recently expressed concern that the demand for air travel was growing at slow pace owing to the fragile and uncertain economic backdrop, political shock and a wave of terrorist attacks that are contributing to a softer demand environment. IATA’s Director General and Chief Executive Officer, Tony Tyler, stated this when he announced global passenger traffic data for June, which showed that demand (measured in revenue passenger kilometers or RPKs) rose by 5.2 per cent compared to a year-ago period. This was up slightly from the 4.8 per cent increase recorded in May (revised). However, the upward trend in seasonally-adjusted traffic has moderated since January. June capacity, according to IATA (available seat kilometers or ASKs) increased by 5.6 per cent, and load factor slipped 0.3 percentage points to 80.7 per cent. His words, “The demand for travel continues to increase, but at a slower pace. The fragile and uncertain economic backdrop, political shocks and a wave of terrorist attacks are all contributing to a softer demand environment.”

Traffic tumbles

For Nigeria, the signs are already showing. The volume of traffic in the Nigerian aviation industry has tumbled against the backdrop of the downturn in the economy. Total passenger traffic, which had been on decline since second quarter 2015, dipped further by end of the year, with fourth quarter figures at 3,810,758, showing a significant 8.5 per cent dip from 4,163,762 passengers recorded in the corresponding period of 2014. Though domestic traffic picked up in the second quarter of 2015 and increased quarter-on-quarter to reach 2,723,769 at end of the year, the fourth quarter domestic traffic was still lower than the corresponding period of 2014 by 245,971, showing about 8.3 per cent drop. Similarly, the number of international passengers also declined by a massive 16.2 per cent to 1,086,989 in the fourth quarter of 2015 against 1,296,822 in the corresponding period of 2014. According to the Nigerian Aviation Industry report unveiled by the National Bureau of Statistics, NBS, recently, Murtala Muhammed Airport, MMA, in Lagos, remained the busiest domestic airport in the second half of 2015, with 983,903 travelling through the airport in the fourth quarter, which represented 36.1 per cent of Nigeria’s domestic passenger traffic within the period. However, the report also shows a continued decline in MMA share of domestic passenger traffic, while Abuja domestic airport, which is the second largest in terms of passenger traffic, increased its share of passenger travel relative to 2014, although the share declined between the third and fourth quarter of 2015. In absolute terms, Abuja domestic airport recorded the largest year-on-year increase in passenger numbers in the third quarter of 2015, with an increase of 116,350 passengers.

Risks to airlines

In this precarious situation, airlines may device a way of cutting corners to remain afloat and still offer quality services. Nigerian airlines are short on service delivery and generally adjudged not to be prudent with the little resources at their disposal. This is where the Nigerian Civil Aviation Authority (NCAA) needs to up its game in ensuring better regulation of the sector. The aviation regulatory body had been accused of the tactics of, ’consistently weak economic regulation’. The first part involves ignoring obvious signs that airlines are facing serious cash flow problems. Usually evidenced by a host of abnormalities such as; staff salaries delayed for extensive periods, flights delayed because the 90-day credit limit with fuel vendors is breached and purchase of fuel by cash from ticket sales after passengers have boarded, coupled with the Nigerian Airspace Management Agency (NAMA) refusal to clear the aircraft to depart because navigation/landing/parking fees have not been settled when due.

Posers

Also, what else have the operators concealed? How much of non-mandatory training has been sliced off the books? How many times expired components are still on the plane simply because they are still functioning? Do the planes really depart with the required IFR minimum fuel reserves so they can hold when weather conditions suddenly deteriorate or they’ll just have to try and land in the thunderstorm and wind-shear because they didn’t have the extra fuel required for holding or diversion? President, Nigerian Aviation Safety Initiative (NASI), Capt. Dung Pam, said airlines must have clear business plans, defined business models and robust quality management systems in place, at which everything possible must be done to support by giving them tax breaks, duty free on consumables, zero interest loans and loan guarantees with aircraft manufacturers to facilitate procurement of new equipment and realistic lease/maintenance contracts. “The government can support the aviation development without throwing money at the airlines and this is what I want to prove. Giving them money I believe will just encourage fiddling and bribing to continue unabated,” he said.

Expert’s view

Pam stated that for those who are not aware, Nigeria’s population is 18 per cent (nearly 1/5) that of the entire African continent and currently has the second highest revenue passenger kilometer (RPK) second only to South Africa in the continent. To him, “Nigerian airlines present 60 per cent of commercial aviation activity in West Africa for now. In 2018, we’ll be the largest economy in Africa. The major advantage we have is that our GDP is predicted to grow at an average of 4.4% per cent for the next 20 years. Even China will have to pay attention to our potential.” He listed two strategies that he believes would cut down the operating cost of local airlines by about 15 per cent as granting the carriers under the aegis of something more than Airline Operators of Nigeria (AON), the licence to import Jet A1 and Avgas required by the industry stakeholders to be sold to all operators at a nonprofit pricing. He said: “I’m not dreaming this up; the Indian airline industry has tried that, though a bit too late for some of their operators.” I’ll facilitate a private sector initiative to setup a type rating training organicity (TRTO) in partnership with reputable foreign partners comprising of three full flight simulators (FFS) of the most popular type of commercial jet aircraft operating in the West African sub-region. This, he said, would save 65 per cent of the $16.3million Nigerian airlines spend yearly on pilot recurrent simulator training overseas to pay for visas, flight tickets, hotel accommodation, subsistence allowances, etc. The actual simulator training required only 35 per cent of the total amount spent.

Conclusion

Not a few believe that the current model with which the NCAA is regulating both safety and the economics of the industry is unsustainable and will result in losing strategic control of this vital tool for Nigeria’s economic development. Despite all the hues and cries, it is true that even the most spectacular musical rendition amounts to nothing, when the audience is deaf.

Wole Shadare