Will Nigerian Airlines Survive?

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Chinedu Eze writes on the likely impact of the recent civil unrest in some states on Nigerian carriers which came few weeks after the COVID-19 lockdown

Since July 8, 2020 when the nation’s airspace was reopened for domestic flight operations, Nigerian airlines have been brainstorming on how to survive when after over three months of lockdown they did not earn revenues, they still had to meet their financial obligations.

Realising that the palliatives which they critically needed was not going to come from government, the operators adjusted to the new reality and restrategised for survival, but still under threat and some of them still literally in comatose, when the airlines were hoping to increase load factor to 50 per cent, the #Endsars protest started. But hoping that it would come to an end peacefully, it was overtaken by riots, destructions and killings.

Many entrepreneurs have lost their businesses and this obviously would affect their purchasing power and industry operators say that airlines would experience less patronage because the middle class, who constitute majority of those who travel by air, have lost their businesses and the current situation breeds uncertainty that it is not known when things would return to normal and those whose businesses were destroyed by hoodlums would need time to rebuild their businesses.

Restrategising

Aviation economist and the lead consultant at ETIMFRI Group, Amos Akpan, said what has happened would keep the airlines management on their toes for them to survive, noting that Nigerian carriers have been facing economic problems before the #Endsars crises but they were about to launch their strategy after the COVID-19 lockdown when the protest and its attendant destruction started.

“Airlines did so many things to ensure their survival when they realised that the palliatives earlier hinted by government was not going to come. They realigned their aircraft to their routes, seeking the aircraft size that would break even at low load factor; they rationalised their routes, renegotiated loan agreements and reached agreements with staff on downsizing and salary adjustment.

“Then the protest came and its outcome was not anticipated. Its effect on the economy will be devastating and it has depleted the income of the middle class, these are the people who can afford to travel, but it is only those who can still manage their business that will be able to afford airfares.

“Luxury travel was killed by COVID-19; now we are talking of essential and business travel and these have been seriously hampered,” Akpan said.

He noted that currently, business is yet to start because there is insecurity; so nowhere is safe to operate business and there is no chance now for business owners to calculate their losses occasioned by the crisis.

Akpan also said entrepreneurs would have to know what they have lost in the mayhem before they would start making plans to restart their businesses and this situation would adversely affect the purchasing power of prospective air travellers; so the airlines would record low load factor for a long time.

“By this month of October, airlines have started making plan for December, but how many people would be able to purchase ticket and travel in December when their businesses are destroyed in October? So the airlines’ revenue will continue to deplete.

“They restrategised to have 40 per cent to 60 per cent load factor by bringing the aircraft type that can break even at 50 per cent load factor, but with the latest crisis, they will have to renegotiate between 20 per cent to 40 per cent load factor.

“How can the airlines get aeroplanes that can break even at 20 percent to 40 per cent load factor? So now the airlines face the problem of the right aircraft and finance,” he said.

Finance and Corporate Governance

Akpan said the basic thing that will choke an operator right now is finance because it is finance that will enable him to remain in operation; so it is the airline that has finance and good corporate governance that would survive; adding that adjusting to the reality of the time is very critical. He also called for urgent government intervention in the form of bailout, insisting that this is not the time for policy statements but for actions.

“This scenario does not permit policy statements and protocols. It requires urgent action otherwise domestic airlines will go under. You don’t make policy statements about health insurance and infrastructures when a sick man on sick bed needs oxygen; just plug in the oxygen on the man otherwise he dies. We have heard various statements about bail out for domestic operators. The domestic operators should come out to tell Nigerians if they have collected any form of bail out this year.

“The #Endsars crisis further constricts the number of people with capacity to buy airline products and services. Operators had worked out plan to adjust to the effects of COVID–19 and started to implement it. Now they have to go back to the drawing table to work out another strategy to combat the further reduction in purchasing power of likely customers.

“There is a lot of constriction and contraction in one year. Airlines that will survive need finances to pay compulsory operational bills; corporate governance systems that recognize innovation and flexibility; government assistance and these factors must be added to a restrategization. They have to trim and optimize utilization of resources,” Akpan added.

Laying Solid Foundation

The Founder and CEO of Jet West Partners, Dikko Nwachukwu speaking on Arise TV on Wednesday said that the COVID-19 lockdown and the #Endsars crisis have put Nigerian carriers in financially deleterious situation and they are making short term efforts to survive but considering the pivotal role of aviation in unlocking any nation’s economy, government should take urgent efforts to revamp the industry by laying a solid foundation for long term sustenance of the sector.

He reiterated that air travel is not luxury but essential service and government and stakeholders should recognise its significant contribution to the economy and then make efforts to prioritise the sector with policies that would facilitate its growth.

“The aviation industry provides essential services and the airlines need the palliative to survive. There is also the need to lay a solid foundation for long-term survival of the industry.

“The industry has been in a downward spiral since 2015, but we have to recognise that aviation contributes 04 per cent to the nation’s GDP. COVID-19 and #Endsars have dealt deathblow on the airlines so there is a need to think outside the box.”

Nwachukwu said although the airlines are waiting for federal government’s bail out of N27 billion, which is very little, but he suggested that airlines should think out of the box by finding ways to raise capital by looking inwards.

He noted that airlines own 90 per cent of their aircraft; they did not lease them; so they could find a constructive way of using the aircraft to raise funds through leasing in order to revamp their operations.

“They should sell their assets and leverage on the funds. Airlines should look inwards because the International Air Transport Association (IATA) said that the industry would make full recovery from the COVID-19 lockdown from 2023.

“That may be the year of recovery. Since the Coronavirus pandemic, many passengers are no more confident to travel. So there should be a strong foundation that should serve as foothold to grow the aviation sector in the next 10 to 20 years,” Nwachukwu said.

After Effect of COVID-19

Before the #Endsars crisis, domestic operators have lamented that it would be difficult to recover from the effects of Coronavirus pandemic lockdown, but the seemingly hopeless satiation has been exacerbated by the #Endsars crisis.

The Chief Accountable Manager of Dana Air, Obi Mbanuzuo, who explained recently that domestic airlines are not likely going to recover these losses incurred by the COVID-19 lockdown said, “I don’t think airlines can recover the losses they incurred in a year because it wasn’t just the fact that we were shut down, airlines still had to pay for several things.

“Some of the airplanes are leased and we have to pay for them, even the airplanes that were not being flown had to be looked after on a schedule.

Whether we fly or not, the engineers do some checks daily. Some engineers have to go in there, start up the engines, check major parts and fix what needed to be fixed. So, there was still money being spent even though we were not flying,” he said.

Mbanuzuo said even now, due to low passenger traffic, the airlines are still incurring cost and not making profits and expressed the fear being entertained in the industry that some airlines would go under.

“Now that we are flying it is even worse because we are not making profit, but we are paying for fuel, spare parts, landing charges and several other charges. So, the palliative we expected was to get us through.

“What I see is that some airlines may go down. It is not something we wish for but it will happen if these airlines don’t get support. Now we are flying, we are paying operational costs of flying these airplanes.

“We are just trying our best to conserve cash and keep jobs. Without the airlines, the airports will be shut down; the Nigeria Civil Aviation Authority (NCAA) won’t do anything. The aviation industry contributes a big chunk to the economy, to development and travel and tourism amongst others.

“We just have to get urgent support or else thousands of people may lose their jobs,” the Chief Accountable Manager of Dana Air said.

Low Purchasing Power

As explained by Amos Akpan above, airlines may not even have a choice to increase airfares because there is a general economic turn now worsened by the #Endsars crisis, which obviously would keep many hitherto prospective air travellers our of the airports.

This means that the load factor would further be depleted, as most entrepreneurs who operate small and medium scale businesses who were victims of destruction of their businesses by the hoodlums, would count their losses first.

The Dana Air Accountable Manager, Obi, has earlier explained why the airline has not significantly increased fares since it resumed operation after the lockdown.

“When we wanted to start flight operations, we sat down and looked at the dynamics and we knew that fares were going to go up, especially as the Federal Airports Authority of Nigeria, (FAAN) said they would increase Passenger Service Charge (PSC).

“So we were thinking whether to absorb these internally or pass it to the passengers. We knew that somehow fares would go up. However, we are in a competitive market and some have decided that they can survive at a lower price, which drives the market down. So, we are trying to be intelligent at what we are doing.

“We are trying to increase our average fares as we have a department that is focused on that. If you buy your tickets, you can still get some cheap prices but we have on average increased the fares,” he said.

This may also be the thinking of other airlines but THISDAY investigation revealed that airlines take advantage of the route where they dominate or operate along to introduce exploitative fares to make up to the fares in the competitive routes.