Why Nigerian Airlines are Uncompetitive and Struggle for Survival

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Former Managing Director of Virgin Nigeria Airways and currently the CEO of Ropeways, Captain Dapo Olumid

Captain Dapo Olumide, the former managing director of Virgin Nigeria Airways and currently the CEO of Ropeways, is a household name in the Nigerian aviation industry and beyond. Olumide, who is a fellow of the prestigious Royal Aeronautical Society in England grew through the ranks to become the deputy managing director of Aero Contractor, which it transformed to a business to consumer airline from a business to business airline. He was also credited for the turn-around of Virgin Nigeria Airways, which was beleaguered with huge financial debt. Olumide, who spent over 30 years in aviation before he retired, tells Kunle Aderinokun and Chinedu Eze that Nigerian airlines struggle and remain uncompetitive due to poor infrastructure at the airports, lack of local maintenance facility and wrong business models adopted by the airlines. Excerpts:

Why don’t Nigerian airlines thrive for a long time?

There are factors that are responsible for this. I left the aviation sector the first time in 2006, when I left Aero Contractors. And I left for several reasons. One was because in the 20 years to 25 years that I have been there no improvement on airport infrastructure. And the growth of the industry is premised on only two things, one is the infrastructure and the other one is maintenance.

This is because without airport infrastructure the challenges are too great. I want to take you back to 2006 and 2007. Then the domestic runway at the Lagos airport was closed, it was not operational. And even till today, it doesn’t have functional night landing capabilities. It still doesn’t have the capability to land in the opposite direction of the runway. For example, during Harmattan, when you have strong wind coming from the North, ideally it should land in the other direction, but we are still forced to land with the tailwind, which is actually dangerous.

Look at the runways, the airport infrastructure, and I want to separate the two. When we talk about the airport, it is about the environment; I am not talking about the terminal. This is an area where a lot of people mix things up when we talk about airport infrastructure; they all go to talk about terminals. That is a separate discussion because if you are privatising(again, another misconception); if you are privatising an airport you actually privatise the terminal building. The runways and associated infrastructure around it is actually the responsibility of the government agency or the state.

However, you can’t concession the whole thing; it will be a very brave concessionaire that will take such responsibility. So, you can see that infrastructure is grossly inadequate at our airports. To secure facilities at the airports you ought to have perimeter fencing, which is patrolled with cameras and vehicle inspection all the time.

So that is on the one hand, airport infrastructure is inadequate. Secondly, maintenance. Aircraft are highly maintenance intensive in terms of cost. We don’t have the facilities in Nigeria, what we have are small snippets and sections, but you can’t do the whole package. You can’t do the entire spectrum of maintenance required on a typical commercial aircraft. Helicopters and small aircraft can be maintained in Nigeria, but when you talk about commercial aircraft from a regional jet and above, we don’t have the capabilities. Yes we can do A-Check or B-Check, but when it comes to C-Check, you got very few facilities here for C-Check.

Aero can now conduct C-check and I give credit to them, but generally in Nigeria, we don’t have the ability for operators to maintain their aircraft here. So they bear that huge cost of having to fly the aircraft abroad for maintenance. That is a huge expense, so you are no longer competitive. You are complaining about the foreign airlines coming in here, they have an advantage, of course, they do. Because they do the maintenance of their aircraft right where they depart from and they don’t have to worry about the cost of obtaining visas and paying for crew change and buying tickets for the crew because they are right there, they live about five miles away from the airport and the training facility is about five miles from the airport. The aircraft is maintained right at the airport so their cost is much, much lower than yours.

So those are the two big issues that I find holding back the industry. But there are other issues as to why operators in Nigeria are failing and have consistently failed.

What are the solutions to these problems?

First of all, you have to identify what the challenges are. I will give you the solution but you have to identify what the challenges or problems are. The first thing is that there is the infrastructure side and then there is the operator side, the two go together. And I just mentioned the infrastructure side of what the challenges are. We don’t have the maintenance capabilities and we don’t have the airport infrastructure. Again if you have a commercial aircraft, and if you leased it for example, you are committed to probably 200 hours a month from the lessor. But I don’t see any operator in Nigeria operating an aircraft up to 150 or 160 hours a month for many reasons.

One is that airports in Nigeria close after certain hours at night. For example, a lot of them close and even if they are open, passengers are reluctant to land at airports in Nigeria that are so far away from town. And that has to do with the security implication going by road from the airport into town. So many people are reluctant to embark on such a journey. And then you also have the problem of aircraft not keeping to schedule; they don’t keep to time and their departures. So you have the infrastructure that is holding back the airlines. Then you have the airlines themselves holding themselves back, that is for many reasons and it has been the same since I was a young co-pilot back in 1979, nothing has changed.

Another factor is the business plan. The business model of the airlines here is by and large wrong and their financial modeling is also wrong. We like to do what they call going for the low-hanging fruit, everybody wants to go to Abuja. But the more the airlines go to Abuja, the more capacity they are putting on the route and therefore the lower their load factor would be; therefore, their yield will drop and they will earn less money. You will find that all over the world, and if you look at Nigeria as well, the airlines that succeeded in the early stages were those that had a niche market. And that is the key to a successful airline. You’ve got to find your niche and stay there. Look at Aero in the old days, it was corporate airline for oil and gas to Port Harcourt and Warri. The airline wasn’t going to Abuja, Sokoto or Yola, it only operated to two airports Warri and Port Harcourt. That was its niche and it made a great name for itself.

If you look at Nigerian Airways, it was a great airline because it had a niche market, which was flying long haul, the domestic operation wasn’t profitable because of the government, they had to go to every airport. But on the long haul, they were good. They pushed out Pan Am from coming to Nigeria, they were in a niche market because they had the patronage of Nigerians. It had nothing to do with the Fly Nigeria Act, it is because they had a good reputation and that is your niche market.

Virgin Nigeria had a good reputation because it was in a niche market. You will remember when I was running it I created that niche, which was international standard. We never reduced our standards from international standard, which was number one, and number two, we went on time, I made it a priority that all our flights had to go on time. And if your flights go on time you can actually charge more than other airlines because people will use you. So, that is the niche the niche was to fly on time.

Why are we doing wrong in Nigeria?

So in Nigeria, we operate with very poor business plans, the business models are wrong. We all want to do the same thing whereas you should be thinking outside the box and you can actually make more money that way. And again the financial model that determines the revenue of an airline, the profitability is not done properly. It is a very simple set of numbers they put in there but they always get it wrong when it comes to things like the maintenance reserves. Because with maintenance reserves there are certain cost elements associated with the aircraft, landing gear, hardware consumables and so on. All of these things put together are called maintenance reserves and it means one thing, reserves means you are putting money aside. Because those checks, those expenses are due maybe in a year from now, maybe five years from now, but every hour you fly the aircraft, you should set aside a reserve. Let me simplify it by saying a savings account. You have to have a savings account somewhere, where you put that money and don’t touch it. This should be separate from your ticket sales, don’t touch it, so that when the maintenance comes you have the money for it. But Nigerian airlines don’t do that and so they suddenly find themselves saying they don’t have the money for it. That is on the one hand. Then we operate old aircraft, the problem with old aircraft.

What has age got to do with it?

I am not one who is concerned about the age of the aircraft because that is actually irrelevant; it is all about maintenance. You could see when the queen did her birthday in England, you have World War II aircraft flying overhead Buckingham palace, so it has nothing to do with the age of the aircraft it is all about maintenance.

So, why is it that we have a problem here? It goes back to what I said at the beginning which is, we don’t have the maintenance facilities here to maintain these old aircraft. And an old aircraft is an aircraft older than 10 years because beyond that age it goes into what they call an aging aircraft maintenance programme. And with that in mind your cost of maintenance doubles, for many reasons.

Again, old aircraft are cheap to acquire or lease, but they come with an Achilles heel, which means that yes it is cheap to lease or buy but the maintenance cost is going to be double what a person with a new aircraft is going to experience. Let me use a Boeing 737 as an example, because that seems to be the stable aircraft in Nigeria.

The 737 classics or all of them have what they call CFM 56 engines. Now the CFM 56 is very sensitive when it comes to flight cycle issues. A cycle is when you start the engine and then shut it down at the other end. The Boeing 737 was designed for one and half hour flight. If you fly it for one and half hours, the cost that you see in the brochure when you buy the aircraft would be spot on. If you fly the aircraft for longer than one and half hours like three and half hours, your maintenance cost will come down. But if you fly it for less than one and half hours, your maintenance cost goes up. Why? Because when you start an engine and taxi it to the runway and you take off and you apply full power to take off, the engine is under stress. And there is going to power all the way up till cruising altitude and then you descend and land, you stress the engine and shut it down. But if your flight is three hours the engine is cool for a long time in flight but if you are just flying for 40 minutes, Lagos to Owerri or something like that, you are stressing the engine.

So your maintenance cost is going to be pretty much double than what it was if you did a one and half-hour flight. That is not in the model, they didn’t factor that when they were building their financial model to determine the cost of maintenance on the aircraft. They didn’t realise that when they fly for only 40 minutes that the maintenance cost would double.

You also have issues with high operating cost in our environment, the operating cost are very high. Because the charges you receive from the authorities are very high, much higher than other countries. But even if they weren’t; the fact of the matter is that because fuel is so expensive here, you hear operators say our fuel is 40 per cent of our operating cost, yes. I would tell you why it is 40 per cent. It is so because you are operating old aircraft. In developed countries the cost of fuel for their operation is 25 per cent. Why is it 25 per cent and ours is 40 per cent? It is not because their price of fuel is low; it is because in those environments it is all about efficiencies.

They are operating new efficient aircraft. Then you have the infrastructure, I spoke to you about the airport infrastructure. When you know the cost of what our operators go through in changing tyres, brakes, because of debris on the runway, it is huge. We don’t sweep our runways. You read in the newspapers about Dubai airport, every morning before the runway is open, they have these four vehicles that sweeps the runway, they have the inspections and so on. These are things that we don’t do here so we have small debris that damages the tyres and the tyres have to be changed. These are all additional cost that impact negatively against our operations.

Then we also have the issue of on time performance (OTP). You might argue and say what does on time performance has to do why airlines in Nigeria are not successful? Well it is a very simple thing, if you don’t go on time you will lose your market, there is no rocket science about it. I have always been of the opinion that, you know you can actually have an airline that goes on time every flight. And it doesn’t need to have catering onboard. Because the priority of people or the passengers is OTP, on time performance, that is all they want. They want to go where they are going and know that they can schedule their lives and plan their lives around that. But again we can get away with it here because of lack of enforcement.

Why?

I will give you three reasons, one is lack of enforcement, lack of passenger rights, most passengers don’t know what their rights are just like on the road. They don’t realise that they have a right to complain. If a passenger knows his rights and he complains to the authorities and the authorities impose a penalty on the airline or let’s use a random example, which is not applicable, but let’s say for every hour your flight is delayed you must compensate the passenger N20, 000 and you have a 100 seats in the aircraft, that is N200, 000. If you do that delay every flight, during the day all the flights will be delayed, it will quickly come to about N10 million. The airlines themselves will know that they can’t sustain this, and they better start going on time. But until that happens they know that they can get away with it.

If you go and research on the European Union laws on passenger compensation and rights it’s very expensive. But here you can complain to the authorities but they just file it somewhere. I don’t know of any airline that has been fined or received a penalty. Then we have issues of manpower, you know, for some reason, I have never understood it, we don’t train in Nigeria, why? We want everything to be ready made, look at the stories with pilots, every pilot even from flying school must go and get a Boeing 737 type rating by himself before he is going to be employed. But this is what they call quick sand; the airline is going deeper and deeper into this mud because in the short term it is workable. I only want trained pilots, I only want trained engineers, I only want trained cabin crew, super.

But when the board of that airline goes on retreat and somebody raises the question, sir, do you realise that the average age of Nigerian engineers is 48. And the average age of Nigerian management is 53.

It means that in less than 10 years or seven years they have all reached retirement age. And when they retire, if we start training at that point, it takes five years ab initio (initial training) to be brought up to speed. What are we going to do then?

Now we are going to have to recruit foreigners and pay them in dollars and Euros, which wasn’t in our business plan. So our crew cost, salaries will triple and we will lose more money. Why don’t we train now, why don’t we do what Nigerian Airways used to do? I was a beneficiary of Nigerian airways in Zaria (College of Aviation Technology). Why don’t you do what Nigerian airways did? Why don’t you sponsor a whole group of people? I agree that some airlines like the smaller ones which have the contracts with the oil companies, they sponsor because it is built into their contract price. Which airline have you heard in recent time that has 10 cadets undergoing pilot training or 10 engineering students going for training? And the airlines will say, well, we don’t want to train them because as soon as you give them the type rating they pack their bags and go. Yes, pilots are machineries in the world over. If you offer a pilot N5,000 more a month he is going to the other airline. However, you can avoid that by sponsoring and bonding. Yes, you can say even if you bond them they might still leave and break the bond. But because we don’t do things right here when it comes to transfer of employment, there is such a thing in an application called referee. What does that mean? It is not just to call the person and say, this applicant applied for this job, do you know him? Are you willing to guarantee the training cost that we are going to send him on? If you give us your bank details and get us the letter from your bank that you will pay the cost if he leaves the company in five years? That is what a referee is, he is a reference that he is there to support this candidate.

Then the airline says okay because they have bank details, they have a letter from the bank, which they can go in five years if this pilot walks away from the airline. They will just take that letter to the bank and the bank will pay you. Then you use that money and sponsor another pilot. But here, because the airlines are desperate for pilots and engineers and cabin crew they don’t even look at the referee. Again we bring these problems upon ourselves. If you follow the procedures and this is all due to what is called corporate governance.