Fleet rationalisation as airlines’ competitive edge
The Nigerian aviation industry, faced with falling revenues and high fuel costs, will have to seriously deal with over-capacity on certain routes. Doing this will determine how they rationalise their fleet. WOLE SHADARE writes
Over-capacity
Over-capacity on certain routes, coupled with intense competition, has resulted in falling revenues. At the same time, there is an unusual rise in fuel prices. The two are pressing the airlines from both sides.
Over-capacity on most of the Nigerian routes, particularly on the Lagos-Abuja route and Lagos-Port Harcourt route is driving fares down. The carriers are undoing each other by lowering fares including some unethical practices.
At lower fares, load factors would be higher, though, if demand were sufficiently efficient elastic, the disadvantage of high load factors would at least partially be offset by greater flight frequency.
An airline operator, who spoke to Woleshadarenews on condition of anonymity, said the cost of Jet A1, otherwise known as aviation fuel is much higher. Therefore, the problem in Nigeria is much more serious than anywhere else in the world.
The over-capacity in Nigeria is not only on domestic routes, but also on regional routes, especially on the Lagos-Accra route. All these carriers will have to look at innovative methods to ensure that their revenue is more than the cost. The excess capacity is a global problem and not just in Nigeria.
Long-term plan
Experts said fleet renewal should be governed by the long term plans of the industry and not the short term ones, arguing that there should be a plan for adding aircraft in smaller numbers every year to phase out some old ones and meet the aircraft demand.
To them, “If such a plan is there, an airline will not only have a definite scheme for renewal of its fleet but also giving a good product to the passengers.
Most of the airlines have very shoddy aircraft utilisation coupled with wrong choice of aircraft type and failure to develop and create a niche for themselves on newly developed routes through their efforts. They stay on the already developed, over served and highly competitive routes to their detriments.
It is very unfortunate that the airlines are in pitiable, comatose and nearly irredeemable state, which unfortunately is what they visited on themselves. The government policies did not help either. The airlines as we are speaking have refused, neglected wise counsel from pressure groups and concerned persons.
Getting out of the woods
They have not acknowledged this by way of participation and or sponsorship where they are deliberating ways to get them out of the woods. The call for the airlines to be consolidated, to be corporative in one form of partnering, merging, friendly acquisition or hostile take-over, which would have resulted today into three strong domestic carriers fell on deaf ears.
The main reason for their refusal to do things that will keep them alive rather than the sudden death we have witnessed with all the airlines can be attributable to personal ego, uncompromising leadership issue, different quality and safety use and variable types of equipment. Most airlines do not have appropriate business plan, which is key to survival.
Experts’ views
Former Commandant, Murtala Muhammed Airport, Group Capt. John Ojikutu (Rtd), said what has changed and where the current operators are getting it wrong is in business plan that is tailored at flying all routes with Boeing and Airbus types of aircraft.
“You cannot fly all the routes at the same time. That is why I recommend that new airlines should start with a minimum of five aircraft and target about four or five routes. From Lagos, transport everyone to Abuja or Kano and from there use the smaller aircraft to distribute into other states. Flying big aircraft like Airbus without a full load is a big problem; you are losing money. And that is the major problem that I have seen here,” Ojikutu said.
Fact is that at least 90 per cent of airplanes in commercial operations in the country are the B737 series, which is considered fuel inefficient and runs at a loss without 90 to 95 per cent load factor per flight.
Former Managing Director of Defunct Virgin Nigeria, Capt. Dapo Olumide, said the B737 series are now rarely used on short haul services because of their low fuel efficiency. “So, it is now like buy one, get one free. That is why everyone is buying it here,” Olumide said.
Apparently in agreement with Ojikutu and Olumide, Captain Roland Iyayi, however, stressed that there is no separating the faulty business models and wrong types of equipment from the regulatory policies that permitted them and allowed the industry to stagnate.
Iyayi said a business model is a dictate of what obtains in an operating environment but “if the extant policies do not support the kind of business one wants to operate, such is bound to fail irrespective of how wonderful the model is.”
Iyayi, a former Managing Director of the Nigerian Airspace Management Agency (NAMA), explained that the policies of the NCAA are such that welcome all-comers “without due diligence of cross-checking business case assumptions in line with the realities and needs of market”.
He observed the new airlines in countries like Brazil, Ethiopia and even Ghana are hardly allowed into already established local market, to protect operating airlines from failing. So, new entrants must have their niche market.
“To do contrary is to end up with what we have here. You have a situation where all the airlines are concentrated on three routes, engaging in destructive competition because you are throwing too much capacity into the otherwise saturated market.
Last line
Because of falling demands, several Nigerian carriers have grounded their flights. Globally also, capacity rationalisation is something, which the airlines are resorting to, besides innovative methods to boost their revenues. How they do it is entirely up to them.
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