Amid record failure, new airlines take centre stage



Feature

By Wole Shadare

Five new airlines are at the verge of joining existing ones. While it broadens the space for competition, WOLE SHADARE writes on how to mitigate the descent into a dog fight with no winner because of Nigeria’s low propensity to fly.

Rearing to go
The country may witness very stiff competition in the airline industry as five new airlines are set to debut. It is not yet clear the stages they have gone in the acquisition of very important Air Operator Certificate (AOC).

The new entrants are said to be Green Africa Airways, Value Jet, United Nigeria Airlines, Rahma Air Nigeria and Jet Airways.

Of all the five carriers expected to debut this quarter, United Nigeria Airways seems to be the most serious of the lot considering the steps it has taken to actualise that dream as it is set to start operations in few weeks.

Aerokeys just completed the carrier’s crew training and they will be starting operations with Embrear 145 50-seater regional jet and they intend starting with five aircraft.

The airline is said to be owned by the CEO of The Dome Entertainment Limited Abuja, Dr. Obiorah Okonkwo. There are indications that the airline would start operations in April 2020.

Despite the joy that trailed the commencement of Green Africa over two years ago, the airline is yet to take off but people very close to the owners said the founders were perfecting their act with a view to avoiding the mistakes other carriers made in the past that saw to their early extinction.

Green Africa had made incredible aircraft orders including the controversial B737MAX considered as one of the best aircraft Boeing has ever made before it was involved in two crashes in a space of one two year.

Green Africa is anchored by two former American Airlines executives, Chairman and CEO, Tom Horton and CCO Virash Vahidi, as well as William Shaw, founder and former CEO of VivaColombiaAirlines.

Failure in Nigeria are at a record high in recent history with over  50 carriers having exited the business according to records from the Nigerian Civil Aviation Authority (NCAA).

They range from big airlines like Nigeria Airways, ADC, Virgin Nigeria, IRS, Bellview, Sosoliso, Chanchangi and many smaller carrier and charter operators.

Uncertainties
The sector is heading into ‘northern winter,’ traditionally when demand is lower and yields weaker. This year, there is greater economic uncertainty and fuel price volatility. That operating and financial environment could see more markets exits.

Amid the gloom, there are still start-ups.  The West African nation of Nigeria has had a number of start- up –and failures, Green Africa, United Nigeria Airways and few others seem to have bold vision.

It remains to be seen how these new airlines cope in a tough airline environment considering the low number of flying public. Not a few had suggested and raised concern that with Nigeria’s relatively low numbers for the flying public, it may quickly descend into a dog fight with no winners.

Sector on edge
Two years ago, the sector was on a edge. The voluntary suspension of Medview’s Air’s operations coupled with the Nigerian Civil Aviation Authority (NCAA)-induced suspension of FirstNation Airways changed the travel dynamics in the country’s aviation industry and limited choices of air travellers. While Medview is not yet back to service, FirstNation is also hasn’t shown it wants to bounce back yet.

Consequently, the situation contributed to hike in fares, especially on the lucrative triangle Lagos- Abuja-Port-Harcourt route.

For those in operation, insufficient aircraft further compounded the situation; most of the reasons for delays passengers went through at the airports.

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.


One-of-the-new-entrants-United-Nigeria-Airlines-positioning-for-operations
Rivalry



With a glut on the route, this could engender competition and help to force down fares. Competition is a natural result of many players in an industry. However, as profit oriented actors, airlines will not venture into an industry where there is low propensity to fly.

The lack of airline competition and the absence of regional airport hubs are some of the constraints identified in Africa’s aviation.

Hopefully, competitive prices and better quality will result and trigger increased demand for air travel.

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 constraint capacity to offer frequencies, compete on regional and international routes. Nigeria’s domestic airlines are therefore not strong players in the international and regional markets.

High turnover
The industry has witnessed a high turnover of domestic carriers since deregulation. Generally, many of the local airlines, experiences in the sector have been short lived, with many often operating a few years and then folding up.

Currently, there are only about eight active scheduled domestic passenger airlines in Nigeria. Although total number of active Nigeria registered carriers is 24. Overall, the carriers with the new ones would struggle for market share on the domestic traffic of little over eight million.

It is a paradox that Nigeria with huge population of nearly 200 million has one of the lowest propensity to travel by air given that the geography as well as the demographic profile favours air travel.

The country has a working population of over 80 million, which, is in addition to the fact that there are substantial inter-city distances should favour propensity to travel by air.





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


Fare reduction
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 B737 series in Europe offer $35 per passenger with 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.

Customer 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.

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. Government has been urged to grant new entrants tax holiday and other regulatory charges to make for stability of their operations for at least two years.

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Credit: woleshadare.net

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