2 November 2012

Nigeria: Airlines - the Burden of Survival


Even in a stable economy, airlines find it hard to survive. The recurrent, critical operating factors like fuel, employee wages, catering, handling, traffic delays and so forth pile up to overload the financial burden of air carriers.

In Nigeria, in addition to the named factors above, unfavourable government policies, cost of funds, cost of fuel, and the hard operating environment create any chance of survival for the airlines.

The cost of Jet A1, the dominant fuel used by most commercial airplanes, is much higher in Nigeria than anywhere in the world, even in smaller countries like Togo, Republic of Benin and Liberia. One of the reasons for this anomalous situation is that: although Nigeria is one of the giant oil producers of the world, Jet A1 is not refined here. Other countries mentioned above are in the same league but less endowed, because they do not have a drop of oil on their shores. The answer to this puzzle is simple: the nature of constrictions or impediments oil importers go through in Nigeria is much higher than anywhere else.

Some of the hurdles include higher taxes and illegal charges imposed by corrupt members of the Directorate of Petroleum Resources (DPR), a government agency responsible for the determination of the source and purity of the imported fuel. The overall effect of these cut-throat processes is higher Jet A1 price to the airlines.

Murtala Muhammed Airport, Lagos, the busiest airport in the country, has one usable runway after 6pm. The domestic runway, 19L, has had no installed runway lighting system for the past six years. Airlines wishing to fly after 6pm must engage in prolonged taxi exercise from the domestic terminal to the international runway.

The inherent costs of night flight, especially for local flights in and out of Lagos, surmount other airports. While it is not entirely the fault of the current administration of the Federal Airports Authority of Nigeria (FAAN), since government is a continuum, it has become its responsibility to ensure that runway 19L's lighting system is functional.

Although air traffic management (ATM) in Nigeria has improved in the past year, the issue of a congested Kano Flight Information Region (FIR) due to poor radio communication between air traffic controllers and pilots still lingers. This dire situation has existed for too long, and seems irredeemable. It is unnecessary to mention, due to traffic delays, the associated costs to airline operators.

The minister of aviation, Stella Oduah, deserves every commendation, first, for the infrastructural development of our airport terminal buildings, and for helping to alleviate customs duties imposed on aircraft parts. These two major achievements will go a long way to reduce the overall excessive cost factors experienced by most carriers.

The major problem of airlines in the country is the inaccessibility of the bailout funds. Although, in theory, a majority of the three surviving airlines have accessed some funds from the bailout package, the physical cash ended up with the banks that guaranteed the loan. Since the airlines were, before bailout, indebted to the banks, releasing the money to the commercial banks was as good as offsetting the loans.

This has inevitably left the carriers in the same liquidity crunch. Although loan repayment pressure on Arik, Aero and IRS airlines is less, the carriers are not financially better now than before.

While most of the airlines in the country are now choked with the unremitted 5 per cent passenger service charge (PSC), it is glaring that bankruptcy is still at the door, even if a waiver is granted.

Despite air fare liberalization, the invisible hand of government still limits the autonomous status of the airlines to increase the price of a ticket. Another hindrance to better ticket pricing is the senseless competition among the carriers: the need to unite through code sharing is most urgent now, because it does not make any atom of sense for two airlines departing for Abuja at the same time to share just 60 passengers but by code sharing - whereby there is an interchange of tickets among the carriers via a strictly regulated clearing house - the benefit to everyone is unimaginable. This will minimize unnecessary loss and optimize profitability.

The challenge to unite the operators, even though we can accept different operational and organizational cultures, lies entirely with the airline operators of Nigeria (AON). Everyone knows how arrogant many of the airline operators are, and how this pride has created an impasse within the AON as the only recognized umbrella of commercial aviation in the country, but issues of collective survival must be the paramount motive to unite warring factions.

The greatest mistake an operator can make is to equate his aircraft fleet size with success. Arik Air, the largest carrier in the country, could sink, in seconds, if challenged by one draconian government policy; therefore, the need to work as a group and confront these challenges is higher now than ever.

It is in the interest of Arik, at this stage, to work with other airlines to mitigate or diffuse the N8 billion levied by both the Lagos State government, NCAA and NAMA because the more the airline tries to fight it alone, the more the negative stigma it will create on its corporate social responsibility or image. Only AON as an organization can tackle this crisis.

To avoid the temptation of touching the passenger service charge, and mount more future debts, the best way to handle the passenger service charge is for the airlines to hands off their collection or inclusion in the ticket fare. Let the agencies devise others means of collecting PSC without dragging the airlines into the mud any further.

While it is ethically wrong for carriers not to have remitted these fees, only those who understand the un-enabling environment in which they operate can testify to the difficulties of running an airline business in Nigeria.

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