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Low fares changing Nigerian airlines’ market dynamics
The low fare ticketing prices are not sustainable for airline operators despite huge population that are not taking to flying. WOLE SHADARE writes
Liberalisation
The year 1990 was a landmark one for the airline industry. It was the year airline liberalisation was introduced in Nigeria.
Following the liberalisation, many airlines set up operation across the country and started to challenge the dominance of traditional full service carriers like Nigeria Airways. This translated to better service then and lowered fares for the consumers.
Airlines such as Okada Air, ADC, Bellview and later day Chanchangi flourished as they changed the narrative of flying. Competition became very keen as each one of them tried to undo the other with provision of quality services, on-time departure and low fares.Service quality includes such things as leg room, meals and movies for those doing international operations, However, the initial success of deregulation was short lived and by the late 1990s, most of the newly formed airlines either went out of business as a result of faulty business model and unfavourable government policies over the years that have done incalculable damage to their business and see them go extinct.
At lower fares, load factors would be higher, though, if demand were sufficiently efficient elastic, the disadvantage of high load factors would be at least partially offset by greater flight frequency.
Aero pioneers unstainable low fares
It would be recalled that Aero Contractors pioneered the very low N6, 000 book online fares that revolutionised the entire aviation industry. The airline had no capacity to handle the surge that came with it and had to quickly suspend their action. The fares as at that time was so low to buy fuel, which is the most important of airline business.
The airline offered promotional fare of N6, 000 for flights on all domestic routes to celebrate from 2009 to 2010.
The Nigerian fares are considerably lower than those charged in other African countries for flights that cover about the same number of miles.
Despite recent dip in the value of the naira (which stands at N360 to $1dollar) as well as the rise in cost of aviation fuel from N240 per litre to N260 per litre, air fare on economy class goes for between N21, 000 and N29, 000 depending on the time of ticket purchase.
A leading airline official said it doesn’t add up in situations where airlines in a bid to woo passengers will have to charge airfares in naira that are as low as N16, 000 to N20, 000 on routes where you fly for almost 45-50minites.
“That’s already like running at a loss. In the United States, no airline does a 50 -60 minutes flight and be charging $60 (about N25,000) which is what the airlines are doing right now in Nigeria,” he added.
“That’s already like running at a loss. In the United States, no airline does a 50 -60 minutes flight and be charging $60 (about N25,000) which is what the airlines are doing right now in Nigeria,” he added.
Ego issue
The Nigerian operators because of their ego, would rather go into extinction than for them to merge. They seem not to be bothered about seeking for better alternatives to flying one hour flights with low fare tickets at high operational cost to Abuja, Kano, Port-Harcourt, Kaduna from Lagos for less than $80 at low capacity.
Whereas, same distances or less on traditional carriers from New York to Washington DC, New York to Philadelphia, London to Manchester attract fares of between $200 and $300 depending on the time of travel.
Amid the huge situation the carriers found themselves, they contemplated raising fares last year when they faced a very dire situation.
They mulled the idea of a 100 per cent hike in air fares as one possible survival strategy for the industry.
“There is no way the price of fuel and forex will be going up at the rate we are currently witnessing in the country and we don’t increase air fares to match these realities and people expect that we can survive and be accountable to shareholders as businesses,” another airline chief told Woleshadare.net.
Backlash fear
Fearing a public backlash should they come out openly to announce increases in air fares, most airlines have opted to such subtle measures as raising fares on competitive routes (like the Lagos, Port Harcourt and Abuja) or those routes that they enjoy a sort of monopoly, while lowering fares on those with fewer number of passengers.
“We do aircraft maintenances in dollars, buy spares in dollars, pay for insurance in dollars, and even buy fuel in dollars. What the CBN supplies is still not sufficient for us. Most of us still get dollars at the parallel market. And by the time we are converting earnings in naira into the dollars, it becomes very obvious in simple economics that the current fares have to go up by more than 60 per cent if airlines must continue to fly and be profitable,” said an airline’s spokesman.
“To be honest, the cheapest or most realistic fare Nigerians should be paying on any route within the country should be N40, 000,” he added.
Former Commandant, Murtala Muhammed Airport, Group Capt. John Ojikutu (Rtd) said, “Let us be honest, the Nigerian domestic airlines cannot be selling passenger flight tickets at N25, 000 to Abuja if the dollar is selling at N360 to $1, the same price it was selling two years ago when dollar was at N200 to $1.”
“The present cost of aviation fuel, the high operational cost cannot justify the air fare of N25, 000 for an hour flight anywhere in Nigeria. The high operational cost also cannot be sustained except the airlines short change service providers and the supporting agencies or there are inflows of cheap monies coming from sources to sustain their operations”.
“The present cost of aviation fuel, the high operational cost cannot justify the air fare of N25, 000 for an hour flight anywhere in Nigeria. The high operational cost also cannot be sustained except the airlines short change service providers and the supporting agencies or there are inflows of cheap monies coming from sources to sustain their operations”.
Last line
Domestic airlines would be worst hit because of current ticket prices are not in sync or responsive to current realities and this is due to unhealthy price wars and pursuit of market dominance at the domestic side of airline business.
Increased economics of scale from mergers may help but sadly, most of our “ogas at the top” would rather own 100% of a 10 million Naira business than 25% of a 100 million Naira business.