Mbanuzuo: Economic Downturn, Fuel Scarcity Threatening Existence of Nigerian Carriers

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Dana Air’s Accountable Manager, Obi Mbanuzuo warns that Nigerian airlines may go under except urgent action is taken by the government to salvage the situation. He spoke to Chinedu Eze. Excerpts:

How is fuel scarcity impacting on your operations?

One of Dana’s main selling points is on-time performance and onboard service. Currently the on-time performance has been affected by the scarcity of fuel. The longest domestic flight in Nigeria is one and half hours, so it does not make sense when you have one hour to one and half hours flight you sit waiting for the flight for about five hours. It is not really something to contemplate.

Our businessmen are always on the move and have limited time in their hands, but right now because of the scarcity it is really difficult to plan for the airline and for the passengers. If you arrive at your destination about 9:00 pm or beyond you face the challenge of how to get home. So this is a very big impediment.

What do you think that the marketers can do to make the product available despite the fact they import it and face the challenge of forex interruptions?

In the past marketers would inform us of price increase a month before but this time the price of the product changes weekly. Sometimes every two to three days new price comes up because of the value and how much they are going to purchase the new cargo. A cargo has been imported and they are selling but when the value of the naira plummets and they use the current exchange rate to buy the new cargo, the price would go up again.

I understand that the prices they are pushing to us are related to the value of the naira in the foreign exchange market. Whether they have a cartel or not, I do not know; they may have a union, just like the way airlines have union. So the value of the naira has affected the price we pay for aviation fuel. Of course, we either bear the price increase or pass it to our passengers but let the product be available.

It is obvious that if the product is produced locally it will be available and the prices will be low because it will not be decided by the value of naira in the forex market. So what do you think government can do to alleviate this problem?

One of the biggest solutions to this problem is local production. Even when it is imported amid the high value of foreign currencies against the naira, the prices of the product are still governed by demand and supply principles. So if Jet A1 is produced locally, hopefully the supply will be much improved and the price will fall.

So I think the first step is local production. Currently we are going abroad buying the product and paying for it and paying for transportation, for demurrage, landing cost and other expenses. But if it is produced locally the availability of the product will help the price as well.

When you spoke earlier you talked about high charges, which have contributed to the inability of the airlines to make profit but only generate revenues. What will you suggest that government should do to help airlines operate profitably?

Many aviation parastatals erroneously believe there is a lot of money in airline business. There is really high turnover, but I can say it authoritatively that no airline in Nigeria is making any profit. It is because of the high charges. Some of them are double charges. We pay to our regulator (the Nigerian Civil Aviation Authority) twice but in other countries it is only one payment.

Airlines pay charges to the regulator and they pay for any other thing they want to do with the agency. Airlines pay for issuance of pilots’ licences, if the regulator wants to inspect aircraft we pay for it. Then we pay the so-called 5 percent. It is however true we collect this money on their behalf but it also adds to the cost of the ticket.

It is the same thing with air navigation. The Nigerian Airspace Management Agency (NAMA) collect charges for en-route navigation, terminal navigation charges; yet NAMA still collects from the five percent charge. What we can say is that government should look at these charges with a view of reviewing them downwards; they should also look at other countries to see how they are doing it.

I know the United Kingdom very well. The regulator over there is self-financed as well. Everything you do with the regulator you pay for, just like Nigeria, but they do not ask for five percent charge. An airline through its own work, marketing and other strategies generates higher fares for its service; NCAA will come and take five percent of that higher fare. They collect it without doing anything, but they will say it is the law. I agree that it is the law but they have already collected for the services they provided.

So we should have a look and sit down and the airlines should be consulted so that there would be a review of the Civil Aviation Act where the five percent was mentioned. I believe that in the past when that thing came up the airlines didn’t have strong voice but right now we have an aviator as current Minister of State for Aviation. He is a pilot I believe that he will understand our challenges. Categorically, no airline is making any profit in Nigeria. You can quote me on this. We are only struggling to survive and trying to survive is really, really difficult.

But how tough is it, especially in the last 18 months?

Exactly that period you mentioned; it has been very, very tough. One of the reasons is that all the aviation parastatals have been let lose by the government. Government has stopped funding them and asking them to go and get their charges from the airlines. So the parastatals are after everybody. So these double charges are now being strongly demanded and the airlines cannot survive unless the government looks at it and realises that it has to review these charges to safe the airlines.

Don’t forget that the parastatals exist at the behest of the airlines; without the airlines there won’t be the parastatals. We have to look at it that way and the parastatals have to look at their activities and ensure that the funds they collect from the airlines are utilised. There has to be openness to that as well.

Many people are holding Dana responsible for diminishing the Accra-Lagos market because they believe that the route had saturated and very profitable before Dana destabilised the market?

I have not heard that before but Dana went into the market just like any other commercial venture to make money. We believed that it was a market that could be viable with proper fundamentals. But the time Dana went in was the time the foreign exchange market became very volatile. As you know, Ghana is a foreign country so everything has to be paid in foreign currency, so getting foreign currency that time was very difficult. So we temporarily halted the service until the forex market stabilises. You have to realise that every airline has a reason for its own actions. Dana believes that with the right fundamentals the Lagos-Accra route could be profitable.

As an example, while we have temporarily suspended our operation one of the domestic carriers still operating the route has increased frequencies. How could that have happened if we eroded the market? The market still has a space to accommodate more flights.

Do the economic realities of now threaten you and other domestic carriers that if care is not taken that some of you may go under?

The answer is yes. The operating environment is unstable, unpredictable, so it is very threatening in that sense.

Let us look at the overall load factor in the domestic market because you will have an incline to that. Can you allot a percentage to the reduction of the passenger traffic since last year?

What I can say is that the total market size of the people travelling in Nigeria has reduced. But luckily, Dana still held on to its market share of about 20-21 percent of that travelling public. That has been our market share since last year but the overall market has shrunk. Less people are travelling simply because of the economics. The fares have gone up because fuel price has gone up. What the airlines have to do now is to be more efficient. We carry less people, we pay a bit more for fuel, which is more than 40 percent of cost of our operation.

So being more efficient is flying our flights more efficiently, making sure that things are working better. For example, we just started a new route from Lagos to Owerri. Before we started we were told that the airfield lighting was working but we found out last week that yes, the lights were fixed but currently they are not working. So what we do is that by 6:00 pm we are out of there. Our flight takes off by 6:00 pm and arrives Lagos by 7:00 pm. After that time you cannot do anything. You cannot give passengers the time they want to travel. Currently it is only Abuja, Lagos, Port Harcourt and Kano that have airfield lighting. So the equipment of the airlines is grossly underutilised.

By December 2017 Africa will start full implementation of Yamoussoukro Decision (YD). How do you think Nigerian airlines will fare?

YD has been ongoing for a long time but now it will be fully implemented. But I feel that if YD is fully implemented now Nigeria will be in a very good position to exploit and benefit from it. I say this because when you look at West Coast, despite all our travails and difficulties in Nigeria we have five or six strong airlines. When I say strong I mean good equipment with standard safety status. Everyday you hear that Nigerian airlines are getting IATA Operational Safety Audit (IOSA); each airline is working towards actualising that.

When you compare us to our neighbours in West Africa, for example, Cameroon has Comair, which is practically under and begging government to keep it up, Ghana has only upcoming carriers, so the YD will enable us fly to anywhere in the sub-region. We do not need any government permission but we deal with the aviation authorities. This means that the Nigerian carriers will branch out. It also means that West Africa will become domestic for Nigerian carriers.

But some airlines in Nigeria are saying that the competitiveness is lopsided because, for example, Ethiopian Airlines has all the support from its government; the same with South Africa Airways, Kenya Airways, Egypt Air and others, but Nigerian airlines do not enjoy such support. What do you think government can do for Nigerian airlines so that they will remain competitive under YD?

You mentioned the three big airlines in Africa, Ethiopian Airlines, Kenya Airways and South Africa Airways, Ethiopian being the most commercially viable, but I still believe that the West Coast will still be controlled by Nigerian carriers. Ethiopian has the advantage because of their long haul destinations as passengers will come from different African nations to Addis Ababa and get connected to Asia and other international destinations. That is already happening. What I can tell you is that 50 percent of Ethiopian revenues currently come from Nigeria. But they will not be able to fly cabotage; Ethiopian will not be able to do Lagos to Enugu fights.

All YD will do is to allow them to come to Enugu, Lagos, Abuja and fly to Addis. To my own mind, they are already exploiting what they can, so what else can they do. But currently Nigerian airlines are restricted from flying to countries that cannot give them approval to fly into their cities because the airspace has not been liberalised. For example, Dana Air wants to go to Kumasi, Ghana but we can’t now because we cannot link Accra to Kumasi, which they would not allow. We can only go to Accra but if the airspace is fully liberalised we can do that.

What are the challenges you face in terms of flight scheduling occasioned by lack of airfield lighting in most of the nation’s airports?

It is tough. Like in Europe, an airline like Ryanair gets about 18 to 19 hours utilisation of its aircraft. In essence, their aircraft operates 18 to 19 hours in every 24 hours, so the aircraft is making money for the airline. Let’s assume the aircraft is leased for $200, 000 a month. The lease is a fixed figure but to meet up depends on how many times you fly it. So the higher you utilise it the more you will be able to generate the money to pay for the lease.

So the example of Ryanair compared to the Nigerian situation, the best Nigerian aircraft is not getting more than seven hours utilisation. Most of them are getting five hours. Currently Dana Air is getting seven hours, thirty minutes utilisation of our airplanes but that is the best you can do. The utilisation level could be better improved. In those days we didn’t believe that if you put aircraft by 6:00 am there would be passenger turn out but when we tried it we saw how successful it was. We put an aircraft at that time because we had charter and within a blink of an eye 50 passengers had booked on it.

What this means is that people will fly in Nigeria at anytime that suites them, in the mornings, in the evenings, even in the night if we have lighting system on the runways. It means the planes will be better utilised and now most cities have lights so security is much better, so the drawback is lack of landing facilities.

Has your airline ever faced a challenge where it has to delay in the air, burn more fuel because the landing equipment on ground was not ready for safe landing?

We really have not because while operating in Nigeria we take all these into account. There are legal requirement of the fuel you must have before you depart to a destination. For us that requirement is the minimum. For one-hour flight you can carry two hours fuel but you are with the weather reports so you can know where you are heading to. But this is necessary because suppose you are flying into Abuja that has only one runway and as you are getting into Abuja the runway is shut or an airplane has crashed on the runway? In Dana Air we have not experienced that but there is a possibility that such could happen to any airline.

With the adverse economic situation do you still nurture the plan to bring in more aircraft and what challenges are you facing in obtaining credit facility from the banks?

The questions are linked. It is actually very rare for any airline in the world to self-finance airplane acquisitions. Anywhere in the world, airlines would usually work with leasing companies, finance houses and banks to finance aircraft acquisitions. The difference with those places and Nigeria is that most of our finance houses are only just now learning how to do airline finance. In airline finance you can finance new equipment for 15 to 20 years. But here the banks are looking at five years.

Dana has been working with our bankers on fleet renewal. Last year the project was very advanced, but because of the current economic realities there is a bit of slow down but we are still waiting for our bankers, finance partners to make the evaluations but I cannot say whether it will happen tomorrow or not. We have all worked it out and we are waiting for feedback.

Everything depends on how the economy works. Things are not rosy so people want to be doubly sure before making commitments. So that is where we are not. We understand that fleet renewal is part of retaining and making our customers happy so we are looking at that.