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Availing Passengers More Airlines for Affordable Fares

22 Feb 2013

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Passengers at Lagos Airport



 
Since the beginning of this year air fares on domestic routes that were rising to the skies came down as more airlines began operations. Passengers want it that way, but airlines that reaped the exploitative fares in the past are frowning, reports Chinedu Eze.
 
The crash of Dana Air flight J9 0992 in Lagos on June 3, 2012 that killed 153 people on board led to the knee jack decisions and actions taken by the Federal Government and its agency, the Nigeria Civil Aviation Authority (NCAA), which on hindsight would make them demure and not beat their chests.

One of such actions was the grounding of Dana Air after the accident, which dovetailed with the expectations of Nigerians but was against international procedures. The accident seemed to have woken NCAA from its reverie as it grounded the operations of the Air Nigeria, which is now comatose, over the debts and salaries it owed its workers and suppliers.

While that action was commendable, it was suddenly taken as the shadow of the crash hung like a satanic halo over the horizon. That was the first time NCAA was grounding an airline for not paying workers. Over the past years it was an open secret that airlines owed workers, fuel marketers and others but no airline was grounded until after the Dana Air crash.

With Dana Air off the skies, followed by First Nation Airways, which took a strategic decision of returning its ageing aircraft for a modern fleet and later Air Nigeria, there were three airlines that effectively operated the primary domestic routes and to the busy destinations of Lagos, Abuja and Port Harcourt.
 
Passengers Surge
After the crash in June, fear of flying held the passengers back for a while, as it always happened after a tragic accident, and then the need for quick travel unleashed them to the airports. The passengers surged but there were fewer operating airlines, creating a near-monopoly and of course the inevitable rise in fares.

The greed of the airlines gaped and mocked the passengers who had to cough out some times N45, 000 for one hour flight at the busy routes. The airlines smiled to the banks, became unpretentious and conceited as passenger care and etiquette became eroded. Now, passengers begged for tickets and long queues became a routine at the Abuja and Lagos airports, an experience reminiscent of kerosene lines at filling stations in Abuja.

Although there are always touts at the General Aviation Terminal of the Lagos airport where Arik Air operates and at the Abuja airport, their number tripled and they landed on lucrative business of helping passengers buy air tickets, sometimes conniving with airline staff.
That period forced about 35 per cent of air passengers to the roads. And this can be confirmed by the undulating figures of passenger movement for domestic travel during the period between June and November, which marked low turning point in air travel.

The record showed a downturn in June and July last year, which was when passengers shunned the airports, and then from September, the high fares drove many passengers out of the airports. But airlines like Arik Air and Aero Contractors recorded 100 per cent load factor in over 95 per cent of their flights. IRS with relatively low capacity trudged on with equally high load factor. It was a bazaar for the domestic operators.
 
More Airlines Coming
Respite came in December when Med-View Airlines started operation. It benefitted from the most lucrative season in the history of domestic air transport in Nigeria, which is the Christmas holiday, but unfortunately it had few aircraft. Its Boeing 737-800 arrived after the Christmas. But it was the best season to start operation.

Fares were still high in early January but when Dana Air resumed operation it became indicative that the fares would crash; and crash it did. Now Med-View, Dana Air, Aero Contractors, IRS and Arik Air are operating; the fares had to come down. Although Arik hung on its high fares until few days ago when reality glared at it and crashed its prices, but passengers still believe that more airlines should join the fray.

Many passengers argue that one hour flight in Nigeria should come down to N16,000, but industry operators and others believe that such low fares would further impoverish the airlines which at the peak of the rip off of the passengers late last year, were said not to be making profits.

Government has provided incentive to the airlines that should make them lower their fares further. The waiver on Customs duties, which the airline heads lamented some time ago that it was outrageous and adversely affected their operations, as they pay hugely to import aircraft and parts.
 
Duty Waivers
It is estimated that the airlines could be saving about N10 billion annually from the waivers. Former Aero Managing Director, Akin George, painted a gory picture of what airlines lose to Customs as duties.

“If you buy an aircraft you pay duty on it and the rates are quite high. This is what shuts up the fares. For example, we imported a VIP Helicopter earlier this year. The value of that helicopter is $4 million (N636 million), we ended paying N143 million to clear it from Customs. When it was cleared, it went for stamp duty and we paid a couple of millions of naira. For the inspection after the assembly, we paid NCAA N1 million. We have not flown one hour on this helicopter but we have already spent N200 million.”

Also, commenting on taxes which airlines pay to government, the Managing Director of Bristow Helicopters, Akin Oni, said: “So you spend $4 million on import duty; that is why a lot of Nigerians cannot go into this business because with such import duty you are killing the opportunity for Nigerian entrepreneurs from going into this business. Nigerian is one of the few countries in the world that says you must pay duty on aircraft. Aircraft are mobile resources, they can move around the world so you don’t have to pay duties on them. The same applies to spare parts.”
Industry critics believe that more airlines would knock down the fares and make more Nigerians travel by air. If more Nigerians travel by air, in the long run, the airlines would start recording profits as they would consistently record high load factor.
 
Market Forces
But the snag is high cost of aviation fuel, which prices are locally inflated because they are sold under monopolistic gang up of oil marketers who had since jettisoned competition and arbitrarily set the prices for huge profit that they use to augment their losses in other products.

As long as the racket continues, the high prices would never be tamed, until government effectively step in by boosting supply or ensuring the local production of the product in the nation’s refineries.
Aviation consultant and  CEO of Belujane Konsult, Chris Aligbe, said that government should never allow the near-monopoly situation which occurred last year to happen again and lamented on how the airlines ripped off Nigerian passengers.

He, however, expressed elation that the situation had changed. “Arik Air has brought down its Lagos-Abuja fares to N21, 000 and Lagos-Yola that used to be N 29, 000 to N19, 000. This is a clear lesson that monopoly must be abhorred in this country, in any sector of the economy. When Dana Air went off, we faced monopoly which did not waste time in capitalising on it.”

Aligbe noted that when Med-View started operation, “it became clear that Nigerians were fed up with excessive fares. Dana Air came, Aero adjusted its fares; Arik learnt its lesson. Whether domestic or international, it is a question of demand and supply. British Airways during the controversy on its high fares on its Nigerian passengers argued that market forces determine the fares; that when there is more demand, there will be increase in fares.

“Those of us encouraging the establishment of national carriers know that it will bring down the fares. Kenya Airways forced down fares in Kenya; the same with Egypt Air, so the market will always respond to market forces, and passengers are better for it,” Aligbe observed.
Also reacting to the crash of air fares since this year, former Manager, Head of Communications, Virgin Nigeria, Francis Ayigbe, said the principle of economy of scale is that the fewer the airlines the more chances there are to fix prices, thus killing competition.

“With the collapse last year of Air Nigeria, the suspension of Dana Air, the temporary stoppage of Chanchangi Airlines, First Nation Airways and few aircraft in the fleet of IRS among others, the few airlines in operation went for the kill. The attendant result is that the two major airlines left, namely Aero and Arik introduced exploitative fares to all destinations. Indeed, Abuja and Port Harcourt were as high as N42, 000 for one way flight.”

Ayigbe said that but with the lifting of Dana Air licence, coming on the foot of Med-View in addition to Aero and Arik, fares dropped to N17,000 and N18,000 on one way for early booking.
“The fact remains that more operators should be encouraged to join the market to maintain the equilibrium because airfare should be affordable and reachable to the average Nigerian flyer; the regime of exploitation and fewer airlines should be discouraged. The public should have more chances for choice to engender competition and better service,” Ayigbe said.
 
Operational Cost
But Industry expert and seasoned pilot in one of the major domestic airlines admitted that hitherto the domestic carriers overpriced themselves, but present reality indicate that such high prices must have to come down, “but not to the ridiculous level that you cannot offset your operational cost.”
The pilot recommended that ideal fare for one hour flight should be N20, 00 so that the airlines would be able to offset operational cost and have funds to effectively maintain their aircraft and pay their workers.

Presently it is said that less than one per cent of Nigerians travel by air. Affordable fares would make more Nigerians to travel through the airports. In 2011 over seven million Nigerians travelled by air locally. The Federal Government and the airline should set a target of 20 million passengers travelling locally in the next 10 years. In that way, the airline would still smile to the banks, with their smiles hanging permanently on their faces.

Tags: Business, Nigeria, Featured, Passengers, Airlines, Fares

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