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Tweaking aviation business model to stay afloat

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Tweaking aviation business model to stay afloat

To pare down their colossal operating costs, Nigerian carriers must restructure operations and eliminate complexity. WOLE SHADARE writes

 

 

Adaptation
One of the major problems of Nigerian carriers is the inability to tweak their operations when the model they start with appears not to be working. Yes, no airline goes into service with the sole aim of losing money or close shop quickly.
But the dynamics of the business makes it very important for the carriers to quickly adapt to changes to propel them sustain the highly capital intensive operations.
Any time a new airline signifies its intention to begin flight operations, the response of stakeholders is always not a cheery one.
The tendency is to see any start up airline as an oddity out of a magician’s hat, a kind of illusion that will soon fade away.
Those in aviation business and the general Nigerian public roll their eyes and say, “they have come again.” There is a sense that this too shall pass and hopefully, like the plague, pass over us.
An alternative to this posture of sceptical paralysis is to find a renew commitment on how to do business and see aviation as serious business and not as status symbol or one, which gives them access to huge loans and foreign exchange that are mostly diverted to issues not related to their core aviation business.

Low market penetration
Beyond the prevailing harsh operating environment, the faulty business models airlines’ operators often adopt may be responsible for the perennial low market penetration and short lifespan of local carriers in the country.
Poor extant policies of regulators are not encouraging niche markets and other innovations to maximise the potential market at large.
Rather, an environment is created where all operators converge on the small viable high traffic routes, with gross under-utilisation of available equipment and neglect of potential traffic.
The consequence is that less than seven per cent of the population travel by air till date, with perennial low turnover for operators and steady decline in terms of viability and lifespan of airlines.
Records made available by the Nigerian Civil Aviation Authority (NCAA) show that no fewer than 40 registered airlines, scheduled and non-scheduled, have collapsed in the last 15 years.

Overland stands out
A few of the airlines such as Overland Airways are sincere with their services, just that the enormity of the business is taking a huge toll on many of them, as they soldier on. Overland is the only airline in right that is somewhat optimally utilising and using the right equipment, ATR for its service. The aircraft are fuel efficient, less expensive to maintain and light efficient airplanes. That may have led to huge strength of the airline in its niche market.
The question is how long can airlines go in the face of hostile operating environment, tough economic reality, difficulty in accessing foreign exchange coupled with huge competition posed by mega airlines that are eating deep into their market.
Fact is that at least 90 per cent of airplanes in commercial operations in the country are the B737 series, which is considered fuel inefficient and runs at a loss without 90 to 95 per cent load factor per flight.
The new order is competition and deregulation. These are the twin monsters that have perpetually put the carriers down or made them to struggle. How long can they struggle before something snaps?

External factors
Since 1980s, several airlines have evolved, operate and collapsed in Nigeria as a result of unfavourable business conditions.
The major operational issue identified with airlines is incoherent manipulation of the components of their business models in response to competitive pressures and external factors within Nigeria’s air transportation systems.
Airline business is highly challenging and involves complex and capital intensive operations. Regrettably, the traditional business models (Full – Service, Low – Cost, and Charter Carriers) that have been deployed elsewhere do not adequately address the dynamics of air transport environment in the developing Nigeria economy.
The air transport services in Nigeria has been on the increase since 1980s that has brought about 50 airlines between mid-1980’s and early 2000 including domestic airlines in the likes of Aero Contractors, Afrijet Airlines, Arik Air, Air Nigeria, IRS, Nicon, etc.
According to Air Transport Action Group, the air transport industry generates and supports 6.7 million jobs in Africa and contributes $67.8 billion to Africa Gross Domestic Product (GDP) – direct, indirect and induced impacts.

Low traffic penetration
Indeed, Nigeria has about 180 million population and one of the lowest air traffic demands by population. For instance, the air travel sector in 2017 transported a total of 11.3 million passengers, which is a dip from 12.2 million that travelled in 2016, as shown by the NCAA’s factsheet. By implication, less than seven per cent of the population travel by air.
Meanwhile, there are 26 airports scattered across the country with more than two-third of the 36 states, including the Federal Capital Territory (FCT), having at least an airport.
Former Assistant Secretary General of Airline Operators of Nigeria (AON), Mohammed Tukur told New Telegraph that it is not that people in Yola, Sokoto, Jalingo, Jos, Markurdi, Minna, Yenogoa, Ibadan, Akure, Maiduguri and so on, don’t want to travel by air, being the fastest and safest mode of transportation. “But we all get frustrated having to sleep in airport for two to three days waiting for an airline that may not even come,” Tukur lamented.
Fact is that it makes no economic sense for airlines to fly to an airport where there is no guarantee of at least 80 per cent load factor as the Lagos, Abuja, Port Harcourt and, sometimes Kano, routes offer.

Experts’ views
Chief Operating Officer of one of the popular airlines said that it costs at least N800, 000 to N1million to fuel a Boeing 737 aircraft to do a frequency of two landings. “Imagine if all you have as passengers are 20 persons going and 10 on the return with each paying N24, 000 for ticket (N720, 000). Is that a profit or loss, on fuel alone?”
But route viability, as a determinant, was hardly the case in the 80s and 90s. Group Captain John Ojikutu (rtd), recalled that the defunct Nigerian Airways in its hey days strategically covered most parts of the country, including regional and international routes.
For example, the national carrier flew the B727 and B737 to Kano where it already positioned the Fokker F27 turboprop that would fly passengers destined to Sokoto, Kaduna and Jos twice daily and also to Makurdi and Yola. Besides, there were direct flights to Yola and Maiduguri from Lagos, once a day. There were 50-seat capacity F27 flights from Lagos to Ibadan and Benin too.
“Nigeria Airways was flying F28 aircraft mainly to other places such as Enugu, Port Harcourt, Calabar at least twice daily. The airline had 32 aircraft and could in addition fly the west coast. In addition, Nigeria Airways was flying to New York, London, Frankfurt, Amsterdam, Rome, Jedda, Nairobi, and so on.”

Last line
As it stands, situation is forcing carriers to think outside the box and find new ways — outside of just bookings — to generate revenue and remain relevant in the industry.

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