New airlines: Same or purpose driven competition?

Green Africa is Nigeria’s newest airline having started flights last week. Nigerians are ready to travel again following COVID-19 pandemic. More airlines are offering services. Competition will become tougher as more people plan to join. What unique services would they be offering?  WOLE SHADARE raises some posers

Great expectation

Is it going to be the same or a purpose driven competition to benefit Nigerians? Time shall tell. Nigerians are ready to travel again for leisure and business after months of lock-down that put airlines and aviation in general in precarious situations. The traffic is increasing but not at the level of 2019. Amid the situation wrought by COVID-19 pandemic, airlines are bracing up for the slight increase in passenger traffic. More airlines are popping up to serve passengers.

Green Africa shows promise

Nigeria’s newest airline, Green Africa has come to add to the growing number of existing airlines. Work had been on in the last four years for an airline that went through the rigorous process of securing Air Operator Certificate (AOC). At a time, it appeared as if the entire project would not go through.

 

But for the tenacity of the management team who kept assuring the public of their seriousness to float an airline of international repute, the dream however came to pass when it made history as the Nigerian Civil Aviation Authority (NCAA) awarded it the certificate last week Monday.

The carrier quickly announced flight resumption as it operated its inaugural flights to Abuja and Port-Harcourt last week Thursday and Saturday to signpost its determination to offer prompt and reliable flight operations with three of its acquired ATR 72-600 which is quieter, faster than other turbo prop airplanes in its category, sparkling cabins and fuel efficient aircraft.

The carrier named its initial domestic destinations as Abuja (ABV), Akure (AKR), Enugu (ENU), Ilorin (ILR), Owerri (QOW) and Port Harcourt (PHC). These will be served with direct connections from the general aviation terminal at Lagos (LOS).

 

Stiff competition

Green Africa like new airlines that had since debuted are going against tough and established competitors to gain considerable market share in a depleted market occasioned by COVID-19.

There is no gain saying that the new airlines cannot topple the established carriers with good management structure, on-time departure, good services coupled with technological innovation. After all, Ibom Air which is relatively a new airline with less than two years in service is proving to be the preferred airlines of Nigerians because of its on-time departure, great service and technologically driven services.

Green Africa with the vision of its founder, Babawande Afolabi can surpass and leapfrog many of the established carriers. For many Nigerians, what counts is not the tag, ‘established’ but how reliable and efficient the services are. Gone are the days when Nigerians built loyalty with airlines. They are more concerned about how they are taken from point A to B with less stress, less delays and cancellation of flights.

Those carriers don’t often enjoy the best reputations among customers, something that Green Africa is aiming to change with a new attitude toward ultra-low-cost flying.

Dana Air has over the time proven to be reliable among the ‘established’ airlines and more reliable than the other ‘established’ airlines when it comes to timeliness and efficient services.

Green Africa began selling tickets in June with introductory fares as low as N16, 000 on all eight of its routes. The fares are undoubtedly low but not a few are curious to know if the fares are sustainable or just introductory fares.

Afolabi while receiving his carrier’s AOC said, “This is a watershed moment in our journey to use the power of air travel to create a better future. Thanks to the NCAA, the Gteam, our investors, and other stakeholders, Green Africa is now set to start serving customers.”

 

 

Small market

Nigerian airlines are small, with fleet sizes as low as four aircraft for some airlines. The actual market is equally small. Although market potentials exist along several under-utilised air corridors, the smallness of airlines does not permit them to explore these potential routes.

 Airlines may not be able to break even given the low load factors that are likely on such routes. Small size of carriers also constrains capacity to offer frequencies, and compete on regional and international routes. Nigeria’s domestic airlines are therefore not strong players in the international and regional markets.

Air fares are said to be on the high side. The most trafficked route on the network, Lagos-Abuja has an average fare of N30, 000 per passenger for an hour flight. This translates to about $83 at the current rate per passenger.

Meanwhile, flights on the B737 series in Europe offer $40 per passenger with the same equidistance. The influx of airlines could help to bring down fares especially on routes like Lagos-Abuja; Abuja-Port-Harcourt; Lagos-Owerri; Lagos-Enugu.

Customers’ confidence in Nigerian airlines is another reason air travel demand is deemed low. The aircraft stock shows that the average fleet age is about 22 years. This contrasts sharply with fleet age for Africa’s best airline Ethiopian Airlines for example is said to be an average fleet age of five years.

 

Fare reduction

While some have attributed the coming onto the scene by airlines as a factor that could drive down fares, others opined that it is economic parameters, and not having more airlines that determine airfares.

Airfares are dependent on cost of operation as no airline would sell tickets that would keep it unprofitable. To be honest, airlines have to look at more of the input into, because the fare is dependent on the cost of the operation. No airline will sell a ticket that keeps them unprofitable.

A lot of the input in the airline business in Nigeria is dependent on foreign maintenance of its aircraft for the input. Many of the airlines’ aircraft are in Europe for maintenance. Ninety  per cent of all the maintenance is done abroad. Yes, there are some Maintenance Repair Overhaul (MRO) locally but the level of service it can offer is limited and there are a lot of aircraft parked here and there, queuing for checks.

The situation is not always ideal. Maintenance is largely done overseas; all the spare parts are acquired in foreign currency; so the question of when people will have affordable fares is a function of the economy of the country.

If the foreign currency is rising day by day; there is no assurance that things will get better until the general economic situation gets better.

Unfortunately, the operating environment is not conducive. And apart from the input, there is always the talk about leasing, purchasing aircraft. When those things are sourced from abroad in foreign currency, there will be no hope at the end of the tunnel.

Propensity to travel

The basic concept of own-price elasticity of air travel in different market segments suggests that if air fares are reduced on Nigeria’s domestic routes, demand for air travel is likely to increase, since these routes are short-haul.

Nigeria has the lowest propensity to fly among countries like Venezuela and Egypt with almost similar demography specifically with population size range.

This story is a paradox of sorts, given that the geography as well as the demographic profile in Nigeria favours air travel. The country has a working population of over 73 million, which, in addition to the fact there are substantial inter-city distances, should favour propensity to travel by air.

The low GDP per capita probably provides some explanations for low Propensity To Travel (PTF), but again, Pakistan has a lower GDP per capita and still manages to record a higher PTF than Nigeria.

The number of active domestic airlines is also lower in Nigeria than in other countries, again indicating the low demand for air travel.

 

Expert’s view

Former CEO of Aero Contractors, Captain Ado Sanusi, told Aviation Metric recently that the emergence of new airlines was good for the nation’s economy. This, he said, was made possible by the government which created a conducive environment by introducing zero tariff for imported aircraft and spares, removal of VAT, which is a huge burden off domestic carriers.

Last line

Not a few believe that increased demand for air travel needs to be engineered. While the demographics and geography are favourable to air travel, the prohibitive costs of air travel is traced to supply side costs of operations, maintenance, taxes and other regulatory charges.

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