Shrinking Air Travel Market


For more than a decade, Nigeria has recorded fewer aircraft operating scheduled services. There has also been a sharp decline in passenger traffic and the number of domestic airlines. Chinedu Eze examines the factors responsible for this slide in an environment with one of the fastest population growth rates in the world

It was predicted that by 2018, passenger traffic in Nigeria would increase to 22 million with over 100 commercial aircraft, but instead of increasing Nigerian airlines now have fewer aircraft. Compared to the past 10 years; there are fewer number of airlines, just as passenger traffic has also decreased during the same period.

Industry stakeholder and President of Aviation Round Table (ART), Gbenga Olowo observed recently there has been continuous depletion of the fleet of Nigerian airlines. He recalled that in 2010, Nigerian airlines had 54 commercial operating aircraft but by 2013 the fleet had reduced to 39 and currently they are about 42, noting that with declining fleet size, route expansion would be limited and robust schedule very difficult and down time for maintenance would impact negatively on schedule.

He attributed the failure of airlines to improve and add more aircraft to their fleet to the harsh operating environment, high charges paid by the airlines to aviation agencies and poor managerial skills by the airlines management.

“High cost of fuel, high cost of funds, exorbitant airport rent and airspace movement charges at home require government serious attention. On the other hand, poor management decisions and corporate governance by the airlines owners have resulted to high mortality rate in the industry,” Olowo said.

Poor Growth
Seasoned aviator and former director of Medview Airline, Lukeman Animaseun explained to THISDAY why the aviation industry is retarding. Animaseun said that there is poor capitalisation of the airlines and they are run as one man business. According to him, many of them have huge ego to the extent that they may not allow an investor to buy airplanes for them so they could be in partnership.

He said that when an airline is established, the business needs about five years gestation before the operator could break even and if, for example, the operator started the airline with only three aircraft, he cannot continue to operate same number of aircraft within the period; there would be need to add more aircraft.

“Within that five-year period the aircraft would go for major maintenance checks. If you are lucky you will spend about $1 million but if there are cracks or corrosion in the aircraft you will pay more; so average cost of C-check is about $1.2 million. The operator will even pay more in subsequent major checks like C-check 2, 3 and 4 on the same aircraft.
“You also need to replace the engines of the aircraft after three cycles. Where will you get the money? You sell your tickets in naira and you pay for the aircraft maintenance, spares and other services in dollars and you know the exchange rate. The air fares charged on passengers are not enough to make airline business profitable.” Animaseun said.

Ownership Syndrome
Animaseum said that for an airline to grow, the operator who started it cannot continue to be the owner. There should be time he would need to water down his takes and allow other investors to come in. He also remarked that many investors who establish airlines in Nigeria may not be interested in the intrinsic growth of the industry but just to make profits.
He noted that airlines pay excessive taxes and this is where government needs to intervene and help the airlines, adding that the fares airlines charge passengers cannot offset the huge cost of operation and still leave the airline with at least small margin profits.

One of the reasons why there is poor growth of the airline industry in Nigeria is because indigenous carriers find it difficult to lease aircraft. Animaseun attributed this to lack of goodwill and notoriety acquired in the past by Nigerian operators who did not keep to the terms of agreement when they lease aircraft.

“Lessors are not willing to lease aircraft to Nigerian airlines because of their past experience. For example, Medview bought four aircraft from Aircab on lease purchase. They wanted to sell the Boeing 737-800 to us but because of their awful experience with another Nigerian airline (name withheld) which used court to deny Aircab the re-possession of its aircraft when they were due to be taken back, the lessor refused to sell the aircraft to Medview.

“Besides, many of the lessors do not have classics, which are the major operating aircraft type in Nigeria. They have moved to modern aircraft types. It is not easy for Nigerian airlines to migrate to newer aircraft models not just because of the cost but the Nigerian Civil Aviation Authority (NCAA) may not have inspectors trained on the new aircraft types. This is a huge problem.”
“My advice to NCAA is that they should train their personnel on new aircraft even when Nigerian airlines have not acquired such and they should not be waiting for airlines to train their staff for them on new aircraft. Medview would have acquired Boeing 777 three years ago but NCAA did not have trained inspectors on the aircraft type. Recently one airline acquired it and it has to train NCAA inspectors on it. You acquire aircraft and park it because the regulatory authority does not have people certified on the aircraft,” Animaseun remarked.

Aircraft Reduction
Anumaseun explained that why there is less number of passengers that travel by air is because airlines have fewer aircraft which do not operate to many cities in the country. So people who want to go to those cities airlines do not operate would use other means of transport, adding that if there were more aircraft it would force down the fares and more people would travel by air. He also noted that any air fare that is less than N25, 000 for about one hour flight is not profitable for the airline

Economic Factors
The managing director of Aglow Aviation support Services, Tayo Ojuri, told THISDAY that economic factors contributed to the reduction of the number of people that travel by air in Nigeria.
“Realistically we have not seen significant increase or positive increase in passenger numbers in the last three to four years due to macro and micro economic reasons such as the recession, withdrawal of international airlines and most importantly aviation is the first hit and last to experience a quick rebounce. We also have issues of low disposal income by potential passenger as the passengers that normally ply the lucrative triangular routes (Lagos, Abuja and Port Harcourt) are mostly government officials and business driven traffic.

“Furthermore, the lack of adequate infrastructure to improve the passenger facilitation process is still endemic and the airport system has not been a great attraction for connecting passengers especially within the West African sub region. As a corollary, the lack of top notch navigational equipment to facilitate all weather flight operations coupled with the systemic challenges with most of the domestic airline operators have also contributed to the lull in passenger traffic,” Ojuri said.

He proffered solutions to these challenges, which include route development, incentives to operate at secondary airports such as Benin, Kaduna, Calabar and for government to expedite the development of maintenance, repair and overhaul (MRO) services in order to reduce cost of foreign maintenance and time lapse of equipment on check

Ojuri also advised that the Federal Airports Authority of Nigeria (FAAN) as airport operator should focus on improving the travelling/ facilitation process to be seamless by the installation of top notch navigational systems to improve flight operations, promote synergies and alliance with foreign partners to build capacity and increase inflow of foreign capital for domestic airline management.

Also another industry stakeholders and the director research, Zenith Travels, Olu Ohunayo examined the factors responsible for the poor growth of the aviation industry and passenger traffic in Nigeria and told THISDAY that having fewer operating aircraft in the country can simply be attributed to the poor governance culture; choice of aircraft which principally are Boeing B737 aircraft that reduces rotation but increases expenses and the airport infrastructure that limits operational hours and increases turnaround time.

He said these factors are exacerbated by excessive and numerous taxes that have increased air fares and cost to the detriment of rotation that would have given rise to robust airline operation in Nigeria. Ohunayo noted that the depletion of passengers was as a result of the recession which reduced economic activities in the country; the lull in political activities and obvious irritating security challenges that have soured all social activities that stimulate travel.

“Hopefully as we restore security and the upcoming congresses and elections, we expect enplanement to resume shortly. The economy is also reviving but we should be looking at new investors and airlines rather than any drastic improvement in state of existing carriers, except one. I doubt if any other airline can access credit from any of the local banks. Therefore, without credit facility extension to these airlines expansion will be difficult,” Ohunayo said.

More Investment
Industry observers said the solution to the poor growth of the air transport sector is that government should encourage people to invest more in the industry through incentives, including tax reduction, clement policies that would encourage and make domestic airline operation profitable. They also suggested that airlines should have more aircraft before they are given Air operator Certificate (AOC), pegging the number of aircraft to minimum of10.
Olowo said that airline operator that has five to 10 aircraft in its fleet cannot be described as a strong global player, noting that moving from two aircraft airline to five aircraft airline would be scratching the problem on the surface.

“If Nigeria is serious about redressing negative balance of trade against all partners and to all routes (UK, US, France, Germany, Emirate, Ethiopia, etc.,) the rule that every airline should have up to 20 aircraft should be established. That is 20 aircraft fleet at start up, grown by 20 every five years for any scheduled AOC operator; failure which such operator can either be in charter or ad hoc business and not scheduled,” Olowo said.
He said this regulation would encourage pooling of aircraft and resources, harmonised schedule, eliminate current unhealthy price war, avail more destinations with enhanced schedule and ample down time for maintenance.

Olowo noted that accessing credit facility from local banks would be difficult but government could guarantees for offshore funding, insurance cover etc for the airlines, adding that this would be the way government could support airlines with proven capacity and integrity.