‘How local airlines will survive new normal, lean times’
The global aviation industry is in dire straits over coronavirus disruptions. With the curve still not flattened and air traffic at its lowest ebb, local airlines have a fighting chance via investments in smaller but efficient airplanes and the government’s backing through an enabling environment. WOLE OYEBADE writes.
Airline business has never been an easy venture. Coronavirus disruptions only made things dire.
About two months after flights resumed in Nigeria, poor local patronage still continues to dot the sector with average load factor pegged at 40 per cent. The numbers are also not adding up on the international routes too, two weeks after Lagos and Abuja airports partially reopened to selected foreign carriers. All manner of travel restrictions from one county to another and over 200 per cent spike in airfares could only mean traveller apathy and more uphill tasks for beleaguered airlines.
With the tell-tale signs already showing on local operators, stakeholders have said there was a need for new strategies to survive: having the right type of aircraft for profitable utilisation, and governments’ support through a friendly operating environment. On the first, some of the airlines are already on the right track, but not yet for governments’ cushioning effects.
Endless wait for N27 billion palliative grants
The lockdown was indeed a poisoned chalice for most businesses, including the aviation sector. In Africa alone, the economic impact of the collapse in air traffic in 2020 due to COVID-19 could be as much as 3.5 million lost jobs, and $35 billion in Gross Domestic Product (GDP). Estimates indicate that about N180 billion were lost in Nigeria, with 200,000 direct and indirect aviation jobs affected in the last few months.
In recognition of the huge financial burden on airlines’ survival and viability, the Federal Government prior to flight resumption pledged to support the industry with an N27billion buffer – in the form of grants and low-interest loans. Though formal requests were submitted by airlines, the palliative is yet to be seen, fuelling doubts among the operators and officials of the Ministry of Aviation.
Expensive cost of operations
Indeed, the airlines are making a valid case for a bailout to support their heavy cost of operations and meet critical financial obligations in fleet maintenance and payment of salary backlog.
Disagreements over wages and welfare issues are already affecting operations across the airlines, leading to the aviation workers’ unions picketing the entire operations of Arik Air early this week.
Similarly, unlike in other climes, the cost of routine maintenance is a major nemesis that stifles the local operators. It has worsened without revenue earnings for about three months of lockdown.
For instance, one of the major maintenance programmes – C-check – is done overseas every 18 months, and at a cost that ranges between N350 million and N700 million per aircraft.
Next are about 37 obnoxious charges that account for another 30 per cent of the airline’s earnings. The longsuffering airlines are then left with little for fuel, overhead, among other sundry obligations.
It is, therefore, a little surprise that the “the mortality rate of airlines in Nigeria in the last 12 years stands at 57 per cent,” according to an estimate by the Airlines Operators of Nigeria (AON).
New strategy to brave odds
While the airlines eagerly await the government’s support and proper reform of the sector, few airlines are already adjusting in a manner experts have described as strategic to surviving the hard times.
This week, new entrant, Ibom Air, expanded the operation into Enugu airport, flying its Bombardier CRJ aircraft recently acquired. Chief Executive Officer of the airline, George Uriesi, said the aircraft type is now the most important component in commercial aviation.
“What is important is that when you have the right equipment, 60 passengers is a good business for us. We burn less fuel than those who fly bigger aircraft. We have more reliability because the aircraft are relatively new and very well-maintained,” Uriesi said.
Travel agent, Benson Olumegbon, said the most impressive was the strategy adopted by Air Peace, using Embraer jets of about 50-passenger capacity to fly from one city to another.
“For me, that is the right aircraft type for this period. I have never been a fan of Boeing737 aircraft anywhere outside the triangular Lagos, Abuja, and Port Harcourt routes. You cannot be flying 120 or 150-seat Boeing aircraft to routes like Yola, Ibadan, Akure, and Sokoto that have a maximum of 40 to 50 travellers per day, and expect to make a profit or survive.
“This pandemic is a reality check for some of these operators. Air Peace, like Ibom Air is now doing, has made the right investments, using the proper model for our sector. Those that have done their feasibility studies would understand that less than 10 per cent of Nigerians fly, and the majority is between Lagos and Abuja. Using smaller aircraft, we can grow other routes and fly making profits even at lean times,” he said.
Indeed the air travel product is the most perishable commodity in the world. So, a good strategy for success is to be where the customer is and with the right equipment.
With over 20 airports across the country, Air Peace had embraced a ‘no-city-left-behind’ initiative dedicated to the air travelling middle class in all cities.
The Chairman, Allen Onyema, said it was for that purpose that the airline, under the Air Peace Hopper subsidiary, first acquired six low-capacity but fuel-efficient ERJ145 of 50 seats apiece, and subsequently placed orders for Embraer195 jets.
“Embraer’s new E195-E2 presents us with a marvel of economic performance. It’s also great that we will be the first E2 operator on the African continent. We already have the ERJ145s in our fleet, so we understand the high standards of Embraer products.
“Our plan is to massively expand our operations from our base in Lagos into mini-hubs across all regions of Nigeria and the West Coast of Africa. There is no doubt that as the leading and biggest airline in Nigeria with a fleet size of over 30 aircraft, we are now better positioned to transform air travel experience in Nigeria, the West Coast of Africa, and beyond. But more importantly, we are proud to use our flight services to build bridges of unity in Nigeria.
“We will be an airline that the rest of the world will have to contend with for the airspace. One major airline in Africa celebrated its 100th airplane in 60 years. Air Peace is talking about 60 planes, by the time the 40 come in, in about four years. So, which one is stronger? We are not being appreciated nor supported around here and that hurts me. It shows that in the next 10 years, we will overtake all airlines in Africa. So, with the support of the government and Nigerian people, it will come to pass,” Onyema said.
Air Peace earlier set a continental record with a firm order for 10 brand new Embraer 195-E2 aircraft. The deal that was unveiled during Embraer Business Meeting in Port Louis, Mauritius, makes Air Peace the first to order the brand of jets in the whole of Africa, thereby becoming the official launch customer of the brand of aircraft in Africa.
The order comprises purchase rights for another 20 E195-E2 jets. The aircraft is a 124-seater jet in dual-class and 146-seater jet in single class configurations respectively. With all purchase rights exercised, the contract was valued at N646.6 billion.
Imperative of support
Quite an ambitious plan by a Nigerian carrier, but it speaks volumes about possibilities among the Nigerian private sector. An aviation enthusiast, Daniel Akindele, saluted the courage of the airline operators that keep weathering the storm to sustain the industry.
“I have no doubt in my mind that there is nothing wrong with our operators. With almost all odds possible and without any support, they have been able to sustain the operation. But if the industry must truly develop, then it is up to the authorities to reshape the rules accordingly.
“We have been mouthing it all these years. We need to reform taxes and charges in aviation. No country in the world charges its airlines over 30 types of levies. Not even at a period of severe economic constraints. Given the complexity of the business, they should have access to cheaper funds. The banks are ready from the example of Air Peace and Fidelity. Let the government also show its support and then, the industry will blossom,” Akindele said.
Director-General of the Nigerian Civil Aviation Authority (NCAA), the apex regulatory body, Capt. Musa Nuhu, said he was not unaware of the complaints of local airlines, especially those hinged on aero politics
Nuhu advised operators to work closely with the Ministry of Aviation, the NCAA, and embassy officials when making plans to commence regional or international flights, to avoid unfair treatments.
He noted that it was the responsibility of the regulatory body to protect the interest of the airlines and ensure they grow, adding that if they were carried along in all bilateral processes, any treatment meted out to Nigerian airlines would be reciprocated to such countries’ airlines.
“A lot of airlines go and do a deal without us. But, we are here to help you grow; it is part of our responsibility. Carry us along; brief us, and we will help you. We are here to help our airlines grow both domestically, regionally, and internationally.
“I heard them talking about aero politics, yes, an airline from Nigeria wants to go team up with the airline in Cote d’Ivoire without us, and of course you will run into difficulties. But when you carry other officials along it means a difference because if you put unreasonable demands on my airline, we apply the same to your airline so it is in their benefits.”