Nigerian airlines: Critical mass as survival option

 

Nigerian carriers need to coalesce to scale up to get a critical mass. Hence, WOLE SHADARE writes that they can work together to grow the sector

 

Market size
Nigeria is blessed with the biggest domestic aviation market on the African Continent, bigger than South Africa, Kenya, Ethiopia and many other countries. Surprisingly, Nigeria has not been able to harness this market for her benefit. The beneficiaries are foreign airlines. Nigerian airlines need to work together. The acquisition of 10, five or less aircraft is nothing in the world of aviation.
The total aircraft fleet in the Nigerian aviation industry by about six major airlines put together is less than 70; a situation that boldly advertises the precarious airline business in the country.
We have a situation in Nigeria today where we have too many airlines that are too small, and their market is fragmented. None of the airlines has a critical mass, in terms of fleet or route network to become effective and to make money.
Fleet depletion has seen considerable reduction in the number of aircraft acquisition by many of the operators.
Aero Contractors, which had over seven airplanes with many helicopters, now operates about three B737-500 aircraft.
Dana, on the other hand, has about five airplanes. Azman has about four airplanes. Air Peace has over 18 aircraft and is now dominating the Nigerian sky.

 

Shrinking fleet
Cumulatively, scheduled airlines in Nigeria have less than 40 airplanes in service, underscoring the shortage of equipment for a market of over 180 million people.
The wrong use of equipment has equally affected many carriers who have their aircraft grounded because of huge costs of maintaining their Boeing airplanes.
With the skyrocketing cost of aviation fuel, airlines are said to be spending more money on operation cost and may not save money to pay for high maintenance checks, such as C-Checks, which could cost as much as $600,000 or more.
The aviation industry in Nigeria is still crawling and not where it is supposed to be.
The core investors here, a lot of them have experiences from oil and gas where things are done in particular ways. When there is a standard operating procedure that is what you get. What Nigeria needs to create is a best practice company, a place where people want to walk in and invest.

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Unprofitable carriers
The Nigerian aviation sector is very vibrant. There are many airlines, which is a good thing in a way, but the problem is that none of them is really profitable. Not a few believe that Nigerian airlines need to work together. They can compete for example on Lagos-Abuja or Abuja-Port Harcourt. They can work together on training, on maintenance, on spares pooling, on spare parts purchasing.
They can still compete and collaborate. More importantly, many want to see Nigerian airlines come together.

 

Ego issue
Ego is a big factor for the operators. It is a negative factor in the airline industry in Nigeria, pulling the sector back. If you look around the world, British Airways is coming to Nigeria. Collectively within the IAG Group, they have about – 600 plus aircraft. Delta Air Lines, over 600 plus aircraft. Or the Emirates, one can imagine huge planes. And yet, we have the market in terms of passengers.
Everybody wants to come to Nigeria. They look at the market as one of the biggest in Africa and the most populous market in the continent. Because of that, foreign airline fill their aircraft probably from the front because Nigerians like to travel in style and can afford it. It is a strange market where the aircraft fills from the front. The first class, the business class and the economy are filled up.
Most of the foreign carriers do not get that in South Africa or in Ethiopia or Kenya. The aircraft tends to fill from the back, but Nigeria, it is from the front. That means that the premium, the ticket yield is very high, and it can be profitable. And of course, the load factor in Nigeria is unusually high, compare to the rest of Africa.
It is good to see Nigerian carriers work together. They need to codeshare. It is quite a surprise and a disappointment that no airline in Nigeria is code-sharing. For example, if a flight is delayed on airline A, you can quickly send your passengers to airline B if you have interline agreement and codeshare. It is what they do in the modern world and we need to do it in Nigeria.

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Airlines’ collapse
Over the years, many Nigerian carriers have collapsed while those that are in operation are going through excruciating pain. People talk about airlines that airlines are failing. It is because the airlines are not built in a way that they will create best practice company.
Speaking to Woleshadarenews, an airline operator who preferred anonymity, said the industry has to change, stressing, “big business is what you need to make this industry grow.”
His words, “When these big businesses come, what support do they get? Somebody is here buying more aircraft; everybody is saying he got the money from somewhere. When they put big money into the banks, who says where they got the money from and the banks are growing”.
“If this industry is going to grow, it is not with three aircraft. It is going to grow when big people come in. The three or four aircraft can be there. You go on a Delta aircraft. Some of the flights, they will tell you they are operated by ABC airline. May be ABC airline has only one aircraft but if you want to do the marketing of Delta, the reach of Delta, the operational support of Delta, it will cost you money”.
“What are we doing in Nigeria? We have airlines that are destroying wealth. If am going to Enugu once a day and I have an office in Enugu, I must pay the salary, pay the rent and four airlines are going to Enugu carrying 20 passengers each, it is destruction of wealth. The industry has to be shaped. As service providers, we will look at how to bring in efficiency to the business so that it can grow. Let the industry transform and I can see.
“When someone plans to bring in a 100 aircraft and we pray they bring it in and we will begin to see this industry go the way it should be. We need those numbers and when those numbers come, the type of consultants they will need, the kind of employment they will generate are humongous and will shape this industry and it will percolate. Even if it is somebody buying soap alone for 100 aircraft, it is different from someone bringing in 20 aircraft. We need those numbers.”

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Last line
Generally, the airline business is a business in which long term funds are needed but the funds available around in this neighbourhood are short-term funds. So, you find the airlines using short term funds to address long-term business. It will always result into problem.

Wole Shadare

COMMENTS

  • <cite class="fn">Abiodun</cite>

    I couldn’t agree more about the need for critical mass. Part of our problem is that most of the “ogas at the top” would rather own 100% of a 10 million Naira company that 30% of a 100 million Naira company.

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