Nigeria, a Growing Market for Foreign Airlines

Growing Market for airlinesMany foreign airlines that operate in Nigeria record high load factor and that is what keeps them coming. For Kenya Airways, Ethiopian Airlines, British Airways, Lufthansa, KLM and South Africa Airways Nigeria is their most profitable route. Since the last three and half years the US Federal Aviation Administration designated Nigeria as Category One safety status, more foreign airlines have been coming to operate in Nigeria, including fellow African countries like Rwand Air, Gambian Bird, Asky, CamAir and others. These new entrants are joined by the international carriers like Etihad, Delta Air Lines and United Airways. More foreign airlines are expected to come and operate in Nigeria but conversely the domestic market is shrinking. Few years ago, Nigeria had about 13 domestic carriers but this has shrunken to viable six airlines on scheduled service which include Arik Air, Aero Contractors, First Nation Airways, Dana Air, Medview Airlines and Overland Airways.

Passenger movement statistics from the Federal Airports Authority of Nigeria (FAAN) showed that in 2011 there were 14, 900, 396 passengers airlifted both by foreign and domestic carrier, which was about one million more than the passenger movement in 2010, which was 13, 981, 677. 

Domestic passenger movement was 11, 313, 577 which was higher than the previous year of 10, 267, 926. In 2011 foreign airlines air lifted 3, 588, 818, which was higher than the foreign passenger movement in 2010 of 3, 234, 853. In 2012 there was no marked improvement in passenger movement in the domestic market; in fact the market shrank when compared to that of the previous year as the total passenger market was 14, 370, 795 with growth less than that of 2011. But while the domestic market shrank, there was a marked growth in international passenger movement which rose from 3, 588, 818 in 2011 to 4, 066, 429 in 2012. In 2013 the domestic market shrank further with total passenger movement of 13, 950, 699 but with marked growth in international travel which rose to 4, 752, 413. Within this period more foreign airlines had joined the Nigerian market while some domestic airlines like IRS, Chanchangi, Capital Airlines, Associated Aviation and others had disappeared from the market.

It was Amos Akpan of Capital Airlines that noted that the Nigerian domestic market was not growing because of high fares, high fuel cost and other operational costs. He said that new passengers were not coming to fly because of the high cost, so the domestic market was recycling passengers. There are strong indications that more foreign airlines will start operation in Nigeria; in fact, THISDAY gathered that some international financiers were contemplating establishing domestic airline in Nigeria. Although there are new domestic airlines that would soon start operation like Azman Air Services Limited and Discovery Airways, but the market is stiff; unless more Nigerians who presently travel by road and other means choose to fly. This can be made possible if the airlines could bring down their fares.

Industry operator and CEO of Capital Airlines Amos Akpan analysed the Nigeria market and said that it was not yet profitable for Nigerian carriers.

“Nigerian airlines carry 90 per cent of the capacity they provide from Lagos to Abuja Monday to Wednesday mornings. They return from Abuja to Lagos same mornings of Monday to Wednesday with 40 per cent of same capacity. Same trend happens between Thursday and Friday evenings from Abuja to Lagos. Same aircraft needs to be utilised beyond that route to meet the minimum required hours of usage. “Movement of passengers follow the same pattern on the Kano – Abuja, Port Harcourt – Abuja. The developed routes replicate this pattern in Nigeria. Every airline operating today except (overland) based their feasibility and routes schedule on this pattern.”

Akpan confirmed the statistics above and said domestic passenger market had minimal growth because the market recycles passengers as follows: Ministry and parastatal workers on official trips to supervise, monitor or attend duties across cities in Nigeria; company officials chasing contract sales or marketing across cities; businessmen chasing deals; students at resumption or close of school periods and festivity movements once a year (Easter, idil fitir, Christmas). Currently, only six airlines are operating scheduled services but besides the peak periods, Akpan stated, airlines fly half empty cabins at other days and periods.

Travel expert, Ikechi Uko, said that there is growing opportunities for Nigerian carriers if government can give them incentives, adding that the foreign carriers are benefiting from a growing Nigerian market. “I think that with the population of Nigeria, 170 million and growing, and with oil and now the largest GDP in Africa, I believe that Nigeria has a carrying capacity for these (foreign) airlines. But this should not be at the expense of the Nigerian carriers. But my problem with this is that the Nigerian carriers are not playing at a high level. If you go to airline offices in Nigeria, you see young foreigners from other countries as expatriates. How many Nigerians who are into aviation have you seen as expatriates in other countries? How many Nigerian pilots, how many Nigerian aviators are we employing and exposing? Uko said that for Nigeria to take advantage of its growing market, government has to step in and facilitate the growth of a strong national carrier or flag carrier.

“We all say we want a national carrier that has minimal government control and more of private sector driven, but that has not happened. If they say they want a flag carrier, then they should do the Fly Nigeria Act and in doing the Fly Nigeria Act we know that Nigerian carriers cannot fly to every destination; then let there be codeshare: if I won’t fly let my partner fly. Automatically this will give Nigerian carriers high marketability in the market. More airlines will come and ask for codeshare. When we flagged Air Nigeria many airlines came to have codeshare with the airline; the same thing will happen if you do a Fly Nigeria Act with a codeshare capacity, the Nigerian airlines will do well. On the alternative, Uko said if Nigeria cannot do the Fly Nigeria Act, then it has to give money to the airlines.

“You can say that any airline that has flown consistently for 10 years, which means you have sustained your capacity for that period of time and has acquired and imparted skills, government should give them financial support that can help them grow their capacity and operations. This is because if a man has run an airline successfully for 10 years you won’t say he does not know that business. This was what the intervention fund was supposed to achieve but it was not well done. It was used to offset airlines debts with the banks, so the airlines did not have access to the fund to grow their operations.”

Industry expert and former Secretary General of African Airlines Association (AFRAA), Nick Fadugba, recently gave recommendations for profitable Nigerian carriers. He said Nigeria should not strive to have too many airlines because the market cannot sustain them, but it should empower three strong airlines that could take advantage of the market. “Nigeria as we speak cannot have more than three strong airlines and it will have several niche airlines. The market as we speak cannot support more than three, strong local airlines with several other niche airlines. The niche airlines will be servicing secondary routes etc. Ideally we could say two major airlines, then niche airlines. Because it is not every airline that needs to be national airline, if you service a niche you can still make money. It depends on your business plan,” Fadugba said. Also the chairman of Airlines Operators of Nigeria (AON), Captain Nogie Meggison, said the Nigerian government had done very well in terms of good intentions, but the policy makers could not translate it to improve the aviation sector.

“Funds had been given on two occasions that I know of in the past four years…intervention funds, which I spoke about. Those intervention funds did not filter down to the aviation sector. The last one, N350 billion to aviation and power sectors, the one for aviation actually went to the banks. It did not come to aviation, and as far as the President is concerned he would be thinking that it came to aviation because they called it aviation intervention fund. The other one got misdirected because of those at the helm of affairs. Till today they are dragging about what happened to the money.” Meggison said such money could be utilised properly, recalling that intervention funds had been given to the aviation sector on several occasions but it has not been applied in the proper way. “As we have said and we know today, it is clear that for you to grow more than five airplanes; you need to establish (Maintenance Repair Organisation) MRO. If some of those intervention funds were used to build a national hangar, today at least at the maintenance side we would have known where we are. If some of those intervention funds were even given to Warri Refinery to crack kerosene and take it one step higher to aviation fuel to draw down the cost of aviation fuel, today we would have known what the operation cost of aviation is.

“Today if you go to Libya, if you go to some African countries that produce fuel, they charge local rates which are lower than the international rates. Our fuel is expensive. We are importing kerosene from Dubai and from Europe. Those intervention funds should have been used to develop the section of the Warri Refinery that produces Jet A1 and make it working and the product should be sold back to us at N120 per litre and you will see that other African airlines will come in to buy aviation fuel from Nigeria,” Meggison also said. For Nigerian airlines to begin to benefit from the nation’s growing market, government and the local airlines should make concerted effort to develop airlines that would have capacity, map out programme to train local technical personnel and also establish MRO for the maintenance of aircraft.

http://www.thisdaylive.com/articles/nigeria-a-growing-market-for-foreign-airlines/178237/

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Edition 60May 2014

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