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Africa: How to Keep Nigerian Airports Viable as Aviation restarts

by Atqnews
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The Federal Airports Authority of Nigeria has been operating below installed capacity in financial terms.

The organization has not been able, for decades, to maximize her income creation, mobilization, and generation collection and optimization potentials due to the very vulnerable revenue models in operation.

In my many years as an Alternative Revenue Consultant, I have never seen such a porous revenue structure, where money is made by default following long standing traditions of services provision without a well-fortified collection regime.

There should actually have been no need for employing the service of a revenue collection/ harmonization consultant like AVITEK if the business model and the revenue models were designed with zero tolerance for delays or outright disrespect for service agreements.

Believe me, the huge chunk of FAAN’ revenue that has gone into the hands of AVITEK, MEAVIS and SITA etc, (please let the affect organizations whose names appear here note that no harm is intended by this author) should be enough to redevelop 4 airports, build Hotels and even operate a 1000 housing development units for FAAN staff in the 10 year span of this experience. I say this with great confidence because I know, first-hand what the figures were and what they should look like now.

There has been a strong and consistent effort by the new Managing Director of FAAN, Captain Yadudu, to control cost and prevent of waste within the existing business model.

This is commendable, but there is a strong need to put operating standards in place by designing a business model that will stand the test of time. I know that it is possible to create an agile revenue solution that does tolerate waste and leave no room for indebtedness of any sort for services rendered or lease agreements etc.

Borrowing from my experience as a member of the ministerial committee on aviation revenue 2014 and my unrestricted access to classified materials and documents on FAAN’ revenue channels I am abreast of certain gaps in revenue mobilization and collection mechanism in the organization created by some retired staff members as opportunities for self-aggrandizement but now have become perennial plagues to the organization.

My research and review of some of these documents have offered me a bird’s eye view into the existing business model and that is the focus of my presentation.

What is a Revenue Model?

A revenue model is a conceptual framework designed by an organization that describes her strategies for earning money. It must include products and services which the organization intends to sell to the public, the revenue sources, and techniques for generation, mobilization, collection and targeting of costumers.

Airports have aeronautical and non-aeronautical revenues. The aeronautical revenue components are statutory and do not require much creativity to attract them because they follow defined standards and procedures- BUILD THE PLATFORM AND THE BIRDS WILL COME.

The non-aeronautical revenue is where the challenge lies. This is what differentiates one airport operator from another. The ability to differentiate products and service offerings in airports determines the pull, push, drag and lift of airport revenue.

Non aeronautical revenues are generated from a myriad of sources, that can be in the form of commission, markup, arbitrage, rent, bids, etc. and can include recurring payments or just a one-time payment.

In sum, airport revenue model is how airports make money.
Dear friends, this is not a classroom; else I would have taken pains to outline 8 solid models that can provide FAAN with strong, highly profitable revenue channels without ever changing the Passenger Service Charge again.

In fact, I am of the opinion that for the industry to experience the Post COVID_19 revenue boom, that FAAN should even offer airline operators a huge tariff –holidays for the next one month so that air tickets will drop to between 14,000 – 16,000 naira for another one month to encourage air passengers to travel again by air. This strategy is known as FREEMIUM- the ability to differ immediate profit for a consistent long revenue surge.

Nothing will change in the immediate if FAAN sticks to her present game plan. Yes, there will be a slow but steady rise in passenger traffic but will the organizations bills wait? What FAAN will lose in airport tariffs and charges it will gain in manifold measures from the law of compound interest.

Am a strong believer in FAAN’ income potentials but the organization financial experience will invariably remain the same unless something fundamental happens to bring about a shift in the revenue models. I must attest to this irrefutable truth that there are very few banks in the whole of Africa that have equal income or revenue potentials as the FEDERAL AIRPORTS AUTHORITY OF NIGERIA and yet the organization is tottering almost irredeemably the path of financial collapse in spite of her huge advantages.

COVID-19 pandemic has revealed beyond question that something needs to be done urgently to reposition the organization financially without borrowing and without recourse to any foreign or domestic encumbrances on the organization that will further mortgage her future interest or even lead to loss of assets. That the organization struggled to pay staff salaries in the past few most is instructive enough to challenge us to review both the business model and the revenue model currently in place.

My contribution is based on observable issues in the organizations non-aeronautical revenue models and the need to leverage indigenous non- aeronautical revenue models that can guarantee a 600% revenue growth from the current revenue status in the next 12 months at zero cost to FAAN and without bringing any financial pressure on the travelling public.

When this happens, it will further validate my claim that FAAN is indeed a goose with golden eggs that need not be tampered with. Money gravitates towards value. The amount of money an organization is able to generate is traceable only to the quality and quantity of value it is able to generate. Mark my words, the main reason FAAN is struggling with CASH FLOW is poor value delivery. Airlines are complaining, passengers are complaining about poor state of airport terminals, concessions are suffering without alternatives and so payment for services becomes difficult.

Creating Value – FAAN needs to urgently create new products and offerings in line with existing services but restructured to meet the refined taste of the travelling public. This new product and service bundles will not require any foreign assistance because the organization has talented men and women with creative minds that do this. Any product designed without local content, no matter how beautiful it looks on paper will fail woefully when tested in the market.

There are about 43 new-creative non aeronautical revenues spin-offs from existing channels in FAAN not yet tapped and my prayer is that the organization awakens and lives truly to the trust bestowed on it by the Nigerian public. I am sure, that when these new products are created, they will help convert the overflowing redundancy level of the organization which is slightly above 65%, to one powerful profit center with clear cut revenue targets.

Delivering Value –Poor airport service culture is screaming to the high heavens in our terminals. Forget lip service certification and let’s get down to business. Take- it- or leave- it business model won’t work again in an era where passengers are better informed due to extensive travel experience and change in taste. The truth is that the service quality in our terminals is anything but excellent. To change FAAN’ revenue flow, we must of necessity change the service quality.

Delivering value is broken down into the revenue-generating activities – with the goal of generating more revenue than expenses (profit).

What I have is a renewal of my faith in the industry, my confidence in the overall leadership and management of the Federal Airports authority of Nigeria. Expect part 2.

By Daniel Young

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