•Jimoh Ibrahim
A recent decision by Air Nigeria to restart international operations stirs competitive envy as Virgin, BA retools to maintain lead. But industry experts say the cost implications may be too prohibitive for the new airline.
Air Nigeria, one of Nigeria's leading airlines recently announced its intention to restart operations on Lagos-London, Lagos- Johannesburg routes.
According to information made available on its website, “Air Nigeria will on May 16 commence scheduled direct flights from Murtala Mohammed International Airport, Lagos to London Gatwick with affordable fares for a return economy ticket, while, it will also on May 17, commence flights to O.R. Tambo International Airport, Johannesburg, South Africa, using a modern Airbus A330-200 aircraft to service both routes”, a statement on the airlines' website announced.
“At the inauguration of the international flight operations on May 16 and 17, Air Nigeria will operate three flights weekly to both London and Johannesburg, and by June 16, 2012, increase the frequency on the Lagos-London Gatwick route to daily flights.
The long-haul services will be operated with the recently acquired modern Airbus A330-200 aircraft in two class configuration of 24 Business seats and 244 Economy class seats. The aircraft is equipped with state-of-the-art iPADS for in-flight entertainment in the business class cabin, making Air Nigeria one of the first African airline to offer such a product to passengers”, it said.
In recent weeks, a huge row has ignited between Nigeria's Ministry of Aviation and the two airlines following the discovery that BA and Virgin have been feeding fat on discriminatory airfares in disfavour of Nigerian travellers. Industry insiders see the new move by AirNigeria as a market strategy to whittle the dominance of the two airlines on the route.
Virgin Nigeria was the national career promoted by former President Olusegun Obasanjo to tackle the menace of foreign airlines, which had hitherto dominated international routes from the country. But, the agreement between Virgin Atlantic and Nigeria fell apart after Obasanjo left office and his successor, Late President Musa Yar'dua could not keep to the terms of the agreement, as, according to industry experts, the terms abnormally favoured Virgin Atlantic to the detriment of local airlines. The formal pullout of Virgin Atlantic eventually gave rise to Air Nigeria, which is now poised to give the international airline a strong fight on the routes that they (BA, Virgin etc) has dominated for decades.
Findings by BH confirm that the airline's withdrawal in 2009, from long-haul operations was due to the influx of foreign carriers which depressed fares to fill their seats on those routes, thus weeding out other emerging airlines from making any economic gains plying the Lagos-London and Lagos-Johannesburg routes.
But analysts and industry insiders are nursing the fear that Air Nigeria may retreat soon as the cost implications may compromise and hurt its turnover, especially as the foreign airlines, are already enjoying the economies of scale derived from the long years of plying the routes.
So, what has changed now?
The airline has wet-leased an Airbus A330 to service both routes and Mr Richard Aisuebeogun, immediate past managing director of the Federal Airports Authority of Nigeria (FAAN) has been named the new executive director, international operations. But competition is now stiffer. It does not have its own pilot and crew for those routes and that means it is going to be expensive operating that route.
Bigger airlines with economies of scale can still depress fares easily and muscle out small players. For instance, BH learnt that south African airways, a major competitor on that route has six aircraft dedicated to that route alone. Nigeria's Arik Air has a substantial market share on that route too. While there are calls for more local carriers to ply international routes, stakeholders say the time is not just right for Air Nigeria to go international when it has not yet consolidated on its local and regional routes. Business expansion is not bad but when it does not improve the bottom line, it becomes a problem.
Looking critically at the airlines latest move, an industry expert who would not want to be named said, “Air Nigeria has a good structure so what is its problem? The business model that started what today transformed to Air Nigeria was properly designed by Virgin Group to serve their purpose. It was to be a very strong domestic and regional airline that was meant to feed Virgin Atlantic. They were not creating it for Nigeria to have a vibrant international airline that competes. When they left, I know that the immediate past MD Captain Olumide was trying to restructure that business model. He hadn't achieved it when he left and then the new person is there now. It is not yet clear what his business model is. They want to start international flights to Gatwick. That will be one of their greatest undoing. If you are flying to UK and you don't fly to Heathrow, forget it. No matter what you do, you have already limited your market. Arik has a good destination in flying into Heathrow but again pricing is the problem”, the expert said.
Billionaire owner of virgin Atlantic, Richard Branson in his book, “Losing my virginity” lamented how his airline almost went bankrupt when it was confined to Gatwick with limited connections. Slots at Gatwick do not mean much compared to Heathrow which explains why airlines grit their teeth in frustration if they cannot secure landing slots there.
How can air Nigeria survive
Industry observers who spoke with BH said the airline has a right to try its luck on any route it chooses. It is only the result that will determine whether it made the right choice or not. Gatwick, compared to Heathrow has limited interlining and connectivity although slots are cheap there. But having a thousand and one landing slots to land an empty aircraft does not make economic sense. An aviation analyst Chris Aligbe said while air Nigeria's entrant into the London route could give Nigerians more options, a flight to Gatwick instead of Heathrow is not a perfect reciprocity to the bilateral air services agreement BASA between Nigeria and Britain. Gatwick route is inferior compared to Heathrow. Mr Aligbe cautioned that the flight operations must be managed well so that it won't put too much pressure on the airline's bottom line. “I believe for them to decide on Gatwick, they must have done their homework very well and considered some very important factors. I wish them well but let's see how far they can go”, he said.
But Air Nigeria says Gatwick provides a gateway to other parts of the world. “Air Nigeria's flights to London will be operated from Lagos Murtala Muhammed International Airport to the South Terminal of London Gatwick Airport where passengers will have the ease of connectivity across Europe as well as onwards to North America while London bound passengers will have excellent links to London, the North of England, and the South coast”.
One thing is worrisome. Of all the 22 international airlines that operate in Nigeria, non goes to Gatwick from BH investigations. This immediately raises questions as to why. Is it so unprofitable that nobody wants to touch? If it is a virgin and potentially viable route why is nobody interested in developing it until now? or are there other reasons?
Any airport can be viable according to Sam Akerele, secretary general Aviation Roundtable (an aviation pressure group based in Lagos). All Air Nigeria needs to do is budget more money for publicity and advertisement in a bid to create awareness. It also has to be regular on that route, develop and dominate it. But this will not be easy. Capitalization of Nigerian airlines is very low campared to others even in Africa. It is not clear how long the airline can sustain its operations on that route, its expected breakeven point and what its plan B is if it does not break even when it expected to.
Frustrations of unmet expectations could injure the airline's resolve and make it backtrack into the path its predecessor took.
BA, VAA effect
It is obvious Air Nigeria knows it cannot secure landing slot at Heathrow, hence it does not bother about it. It appears the British authorities reserve Heathrow for its flag carriers while Gatwick is free for all. BH investigations reveal that over 90% of UK flights terminates at Heathrow because of ease of connectivity and interlining. British carriers- British Airways (BA) and Virgin Atlantic Airways (VAA) have been battling price fixing and tax evasion charges in Nigeria in recent months.
In spite of the obvious regional fare disparity, a significant number of Nigerian travellers mostly for lack of viable alternatives still prefer to fly them. according to Dele Ore, chairman, Aviation Roundtable, Nigerians fly foreign aircraft for lack of alternatives. “You can't be wrong defending your own. But you can only defend your own when it will not let you down. You can only defend your own when the passengers we are trying to protect will have a good choice among our own. If they don't, they will turn round and say they are not giving us international standards. I will just refer to the fact that we are having a war between BA and Virgin Atlantic because of the way they treat our passengers. And I make bold to say that most of the Nigerian passengers that have flown over the years feel more comfortable in Nigerian registered aircraft, owned and operated by Nigerian carriers. But some of them believe it is a status symbol that they find themselves in a foreign aircraft. Some of them sit sheepishly and comply without complaining. The ones we are trying to protect today are not the ordinary Nigerians because these airlines we are complaining about are engaged in business practices which are endorsed internationally”, he said.
In terms of capitalization, no Nigerian airline is close to the British ones. British Airways in 2011 alone made a gross revenue of €11.482 billion. It operates a fleet of 236 aircraft with 36 more on order. With 169 destinations around the globe BA is home and dry.
VAA operates 39 aircraft to 35 destinations. 12 months to February 2011, the carrier raked in £2,700 million as revenue. Within the same period, its operating income stood at £18.5 million. British carriers have clearly dusted Nigerian ones in size, capacity and in the depth of their pocket.
From its operational base at the Murtala Mohammed Airport, Lagos, Air Nigeria currently operates to Owerri, Port Harcourt, Abuja, Sokoto and Enugu on the domestic routes while on the regional routes, it operates to Brazzaville, Accra, Douala, Dakar, Monrovia, Cotonou, Banjul, Libreville, Abidjan and Sao Tome & Principe.
In the next few months focus will definitely be shifted on Air Nigeria and how it manages its new business idea.
