The poverty contagion in airlines industry

Nigeria’s civil aviation industry is in turbulent business weather. The industry is climbing laboriously out of the catastrophic storm kicked up by COVID-19 global pandemic. However, even before COVID-19 kicked up the storm in 2020, operators of the industry have been complaining about inclement business weather.
The high mortality rate of airlines in the industry is a sad reminder of this hard fact. In the last three decades, more than 30 airlines have been liquidated apparently due to inclement business weather.

At the moment, only 18 airlines are in scheduled and non-scheduled operations. The myriads of problems plaguing the industry include mismanagement, corruption, faulty business models and economic factors.

One problem that has persistently crippled business in the industry is high cost of aviation fuel.
Since the collapse of Nigeria’s four refineries which resulted in a senseless dependence on imported refined petroleum products, aviation fuel has been more expensive in Nigeria than any other part of west Africa.

The situation was worsened by deregulation of aviation fuel price by the federal government. The cabal that cornered the supply of aviation fuel dictated price arbitrarily as the federal government feigned ignorance of the merciless grip on consumers.

Aviation fuel constitute about 40 per cent of the cost of airlines operations. For the flight from Abuja to Lagos, a Boeing 737, the most popular airliner in most of Nigeria’s airlines fleet, burns 3,928 liters of aviation fuel.

At the current pump price of N256.56 per liter, airlines spend N1,007,610 on fuel alone. A Boeing 737-800 series, depending on its configuration, has capacity for 153 passengers. At an average fare of N40,000 per seat, the airlines make N6,120,000 for the flight from Abuja to Lagos.

That is an ambitious projection. COVID-19, high unemployment and the naira’s embarrassing outing in the foreign exchange market have combined to reduce the passenger turnout for Nigerian airlines.

Most of the time, the airliner labours into the sky with 50 per cent of the passenger load while fuel chalks up almost 50 per cent of the proceeds of the air fares.

In recent times, the 737s only fly when there are enough passengers. Light aircraft like Embraer and CRJ with capacity for 60 seats are the ones flying most of the time.

Even as worsening security crisis has driven many in the higher end of the middle class to the airlines, the patronage is atrociously low.
The airlines charge anything from N40,000 for a one-hour flight. However, if one buys the ticket at peak period, he may pay as high as N70,000 for a one-hour flight.

Conversely, one could get a seat for as low as N30,000 if the booking is made two weeks in advance. The truth about air fare in Nigeria is that the airlines are short-changing themselves in a desperate bid to keep their heads above water in a turbulent period.

Average air fare for a one-hour flight is $100. With the naira trading for N530 to the dollar in the parallel market, an airfare of $100 for a one-hour flight amounts to N53,000 for the journey from Lagos to Abuja.

The airlines charge N30,000 for long-term booking and at times N40,000 for a day or two booking. It therefore follows that they may be losing anything from N23, 000 per seat for long term bookings at a time when most air travelers have learnt to book in advance to cut cost.
The airlines would be driving away the few who now brave the seemingly high fare to travel by air, if they rigidly fix their fare at the equivalent of $100 per one-hour flight. Ironically, passengers consider fares even at N40, 000 as very high.
The airlines problem with passengers over perceived high cost of air fares emanates from the trouncing of the naira in the foreign exchange market. When the naira was trading at N150 to the dollar in 2012, $100, which is the acceptable cost for a one-hour flight, amounted to N15,000.

That explains why many who used to travel by air, now risk armed robbery, kidnappings and banditry to travel on poorly maintained roads.
Depreciation of the naira does not only bedevil air lines with perceived high air fares, it escalates their aircraft maintenance cost, as major checks are done abroad and paid in dollars. Perhaps the most grievous aspect of the hostile business environment in the civil aviation industry is the poverty plaguing Nigerian airports.

Nigeria has 24 airports but only two, Murtala Mohammed International Airport, Lagos and Nnamdi Azikiwe International Airport, Abuja, meet the International Air Transport Association (IATA) criteria for viable airports.

IATA believes that for an airport to be viable, it must be used by a minimum of 5 million passengers in a year. By that definition, 22 airports in Nigeria have failed the viability test.
The poverty of the 22 airports is partially responsible for the dwindling fortune of Nigeria’s airlines. The impoverished 22 airports close shops by 6pm. Some even close as early as 5pm.

Any airline that operates a flight into the impoverished airport after their early closing time has to induce them financially to stay longer. That, again, adds to the high operating cost of the airlines in a hostile business environment.

The worst effect of the airports’ poverty on airlines is their inability to develop their environment into tourists’ attractions that would generate passengers for the airlines who would in turn pay the airports to overcome their poverty.

There is a symbiotic financial empowerment relationship between airlines and airports. In developed economies, airports develop their environment in a way that attract tourists who patronize airlines. The airlines pay the airports for the services rendered.

The absence of that symbiotic financial empowerment is responsible for the poverty of the airports and the high mortality rate of airlines in the industry.

The airports and FAAN, their landlord, lack the funds to invest in infrastructure that would attract tourists and generate passengers for the airlines.
The solution to the symbiotic poverty in the industry lies in concession of the airports to private investors with the financial muscle to do what FAAN and the impoverished airports could not do.

However, FAAN workers stridently reject concession. They are worried that they would be thrown into the streets like their former colleagues in Nigeria Airways.
The federal government can allay workers’ fears with irrevocable commitment to pay severance packages of retrenched staff as their termination letters are handed them.
Only concessionaires can manage the airports in a way that would end the poverty contagion in the industry.