Nigeria: Airline Merger Will Kill Competition

Nigeria: Airline Merger Will Kill Competition

Nigeria: Airline Merger Will Kill Competition

The airline industry in Nigeria is undergoing a crisis period. In this interview, Captain Akin George - Aero's Managing Director - highlights some of the challenges facing the sector.

How has the Aviation Intervention Fund affected the operations of indigenous airlines?

Now going back to the intervention fund, the airlines came together some years ago to talk about Aviation Intervention Fund. We had actually gone to Abuja, sat down with the finance ministry, and requested that we needed something to be done. From the time we asked for the money to the time it became available, the whole industry had totally changed. We had told them the industry was dying and by the time the solution became available those things we wanted to solve had actually become worse.

By the time we asked for intervention fund, fuel was actually N80 per litre. But when they came and said we can do something for you, fuel was no longer N80 per litre but N200. So, what they said you will give us and what was given were completely different again. Now when the fund came, the fund did not come out as cash - that is the mistake a lot of people are making, what the fund was used for was actually to refinance the banks, because it was a banking problem that actually came up. All we (airlines) got out of it was, for instance, if you owe a bank N10 and you are paying 30% interest on it, they will give you the money to retire that debt and you now owe the Bank of Industry (BoI) and instead of paying 30% interest, you can now pay 7% interest on it. That is all that happened. They did not come in and say 'Ok, take cash, what do you want to buy? So it was not like they gave us cash, and they said go and start operating. It was a change of interest rate from 38, 40% - those ridiculously high interest rates - to 7%.

At recent seminar in Abuja, the Minister of Aviation said the government was considering to further reduce the age limit on aircraft that airlines can fly in the country from 22 years to 16 years; how will this affect the airlines?

It is not the case that aircraft above the age of 22 years cannot fly in Nigeria. The case is that you cannot bring in aircraft of the age into the country. But once it is within the country, it can continue to fly as long as it is maintained according to regulation, you can continue flying it.

Now we want the airlines to buy brand new aircraft. How much is a brand new Boeing 737aircraft? Ok, if you go to the Boeing website, there might be offers for discount, but when you go there and say you have cash to purchase the aircraft, you are going to pay about $65 million. So where is that money coming from? And I will come here and say I want to import it, because of the percentage involved, instead of paying N100 or N200 million on it, I will be paying a N1billion or so on top of that aircraft again.

So, my concern is, by the time you push us into buying high value aircraft, where do you expect us to get the money from. By the time I want to charge N100,000 to Abuja, you will say 'Ah! Aero Contractors, you have started again.'

I was discussing with somebody, a businessman, and he said that for him to move his goods from Lagos to Kano by road - because of the security situation and others, it now takes about 11 days. So, for somebody who is doing business, how can you say you need these goods now, when the goods can be delivered within 11 days? So, how do we want the economy of this nation to grow? These are some of the things hampering the growth of this country.

In a nutshell, I will say transportation in any country is very vital, whether it is road, train, car, tram or air - they all have a role to play; they are all important. Because of infrastructure in Nigeria, aviation plays a dominant role. We know that people need to move between Kano, Abuja, Port Harcourt and Lagos and other destinations.

Often analysts have urged airlines to merge their operations in order for them to become more competitive and compete in the international market...

My view is this: if we say somebody is sick, and another person is also sick, and you want to put the two of them together, who is going to carry who? I am trying to see the logic in it. You must have somebody who is healthy to come and support the person who is sick. You are saying the industry is sick, so who is going to carry who?

Now you are saying you want us to merge and consolidate, are you saying you don't want competition? Basically, what you are saying is all of us should come and say 'well we are going to charge N100, 000 to Abuja, for instance, so you can take it or leave it'. But the best is that you can say I want to go to Abuja and you go to the terminal, and depending on whether if time is a factor for you, you can sit down and say 'well, Airline A is charging N7, Airline B is N9, and Airline C is N10; I am going with the airline that is charging N7. And if all passengers are going with the N7 airline, the others (airlines) can say 'I also I want some of that market and I can reduce my own fare to match the N7 to attract customers'. That is competition.

So, the question is, do you want competition or not? Of course, competition must be done within a certain bracket, but by the time we all go crazy and start charging free-for-all fares, of course it is not going to work. The fact remains that at a particular point in time, some airlines would have to go, and new airlines would have to come in.

Aero Contractors will not go to all the airports out there; we will go to those places where we know our business plan will work. We will love to fly those routes; it is not easy to fly on the international route and make money. Anyone who starts flying on the international route must have cash to burn. You must be ready to throw money away. The route will become profitable at a particular point in time, but the fact is, how long are you able to sustain it before it starts to generate fund? And by the time it starts to generate, will it be able to cover your cost. So that is why I say operating international flights is not for everyone. We have a few airlines doing that, and we wish them all the best. When we have enough funds to join them, we will join them.

Are airlines making money?

Actually, the total number of people travelling by air in Nigeria has dropped. Though capacity has reduced, the number of people travelling has also dropped. So, the whole industry needs to focus on what to do to ensure that the passengers come back. Aviation is still the safest means of travel.

What is your view on interlining as means of reducing flight delays, cancellations?

We are on to the Nigerian Civil Aviation Authority (NCAA) on this. We understand where they are coming from, but is it going to solve the problem? I don't think it is going to solve the problem completely. This is because apart from the financial issues involved, if a person buys a N10,000 ticket on Airline A, and Airline B's ticket is N20,000 where does the N10,000 difference come from? Airline A instead of paying the N10,000 difference, will rather tell the passenger to wait for its next flight. Ok, let's say the tickets on both airlines are N10,000, and a commission will have to be paid to someone, is it the airlines that are going to benefit from the commission? No.

So out of the measly N10, 000 you have collected for which you have paid taxes on, and if you are to pay a commission out of it you are going into the negative. At the end of the month when you want to reconcile account, and you say Airline B needs to pay Airline A N240 million, and Airline B says you know I did not operate flights within that month, please let's see next month, so what happens?

That is why when you look at the billing system in International Air Transport Association (IATA), if you are unable to pay your bills they will tell you this airline is in default. So these are some of the issues that we have to tackle. It is not a Christmas package.

All the airlines have come together and we are working on it. We must get all the modalities right so that no airline suffers, or, at least, to reduce it to the barest minimum. It is when you start operating that the you will see some of the problems surfacing. For instance, that commission, who is going to charge for it - is it NCAA or the federal government? These are issues that keep coming out. So we need to take some time to attend to some issues to make it work.

How efficient is Aero's online booking?

Booking online is not gambling. There is no airline in this world that does not book online. The fact is that we are the airline that has promoted online booking in Nigeria. We have to appreciate where Nigeria is in terms of e-commerce .The Internet infrastructure in Nigeria is not very strong. The system has a time limit for you to make the booking. At least some of you browse on the Internet. It is still the same problem. But in America, once you click on a page, it is there, but here you click on a page and you first go and talk to your wife, when you come back to it, you will see about three quarters of it; and just when you think it is going to open, it will say your web page cannot be opened again. It is infrastructure problem that we have.

As a means of getting additional revenue, can't airlines invest in building aircraft hangars to do major checks in Nigeria?

Well, there's also going to be a problem there, where you say: ok, Aero contractors can do C Check, Arik Air can do C Checks, Air Nigeria can do C Checks and so on. How many C Checks are actually required in a year? The manufacturer of the aircraft said you can do it either every 4,000 hours of flight or every 24 months. The Director-General of NCAA says in Nigeria we are going to pick 18 months; so he has reduced it. Whether you get up to the 4,000 hours or not in 18 months you must do your C Check. So that means for each aircraft I have I will do the C Check every 18 months.

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