By Simon Tumba
Early this month I was watching Quest Means Business on CNN, and the story was on how Ryan Air, Europe’s second largest regional carrier was making efforts to cut cost, by cajoling its cabin crew into losing weight, which was aimed at reducing the weight on the aircraft, and further cut the cost of the airline’s operation. More cost cutting measures include, using less ice in the drinks served passengers and cutting the size of inflight magazines.
The lower the weight carried aboard the aircraft, the lower the fuel consumption, hence, the lower the airline’s cost of operation, of which fuel constitutes about 40 per cent of an airline’s operating costs. A reduction in the cabin, any cabin crew weight, from 100 kilos to 50 kilos, would save the carrier about GBP 5,000 monthly or annually.
But what got me thinking was another angle to the story that Ryan Air had planned to remove the arm rests to its seats in order to reduce weight of the aircraft; all in a bid to cut cost! The airline, last year, removed two toilets out of three in its fleet, in a cost cutting plan aimed at reducing fares. Ryan Air’s business mantra is to offer low fares, no matter what, without compromising safety.
Unfortunately this cannot be replicated in Nigeria for three major reasons: most Nigerian carriers are in business with no knowledge of the nitty-gritty of the business; they lack a decent business plan, business model and innovative ideas on how to approach the business with reasonable expansionary strategy. Secondly, there is lack of suitable credit lines from the banking sector and harsh government policies and economic climate prevalent in the industry. A third reason is that the Nigerian Civil Aviation Authority (NCAA) would not permit innovative ideas like Ryan Air’s, either because of political pressure, ignorance, or both.
About two years ago, an innovative Nigerian carrier decided to launch low fares mixing and matching its pricing strategy along a rejuvenated Business Class, but that drew the flak of NCAA, which insisted that the model was anti-competitive and unwelcome in the Nigerian market. There were all kind of claims that the airline was over selling seats and diluting the market. It was alleged that a foremost and dominant carrier which was losing market share to this innovative was behind the pressure mounted by NCAA.
But quite frankly, airline business is not a Jankara market business. It requires strategic thinking on how to develop a brand, identifying a niche market, targeting market audience, reaching them, knowing what makes them tick, keeping customers loyal to the brand, et al. The business truly turns men mad, as they grow grey hair overnight! It’s a very thin margin business where the best run airlines make an average of 10 per cent return on investment. Over the last 50-60 years airlines have made more loses than profits.
A market largely dominated by foreign carriers, is bound to create problems as is being witnessed with the EU carriers, especially British Airways, which appears to be the scapegoat. BA has been in this market for over 70 years, and over this period has developed brand loyalty for two or more generations in some families.
The recent wave of anti-BA sentiment is unnecessary and misplaced for many reasons: It puts Nigeria on the wrong side of investment map, especially in the airline industry. After the Justice George Oguntade panel struck out the case against BA and Virgin Atlantic, someone thought they had to get their pound of flesh and the fare discrimination campaign was resurrected with so much frenzy and misplaced national sentiment. Truly, there is a huge fare disparity between Ghana and Nigeria in the premium cabins, and it takes a discerning mind to know why this is so.
Fares are generally a combination of many factors: cost of operations, market profile, capacity, etc. A major factor many fail to understand is that the profile of Nigeria’s airline market, based on capacity, probably has one of the highest demand for premium seats in the world. On the supply side, only BA offers First Class seats directly to London, with a total of 28 seats a day. There are 168 Business Class seats daily in the Nigerian market on Arik, BA and Virgin Atlantic, making a total of 196 premium seats a day directly to the UK.
Nigerians are globally known for their flamboyance and high taste for the good things of life, including air travel. An average Nigerian millionaire travels First or Business Class. Nearly 60 per cent of Nigerians in the premium cabins are paid for by the government. Check this roll call of government officials who travel in premium cabins at least once or more a year: at the state level, speakers of the 36 houses of assembly with their spouse(s), 108 first class chiefs (traditional rulers), 36 governors and their spouses(s), 72 deputy speakers/governors with their spouse(s). Others are at least 500 commissioners, aides of the governors, state legislatures and directors in the ministries and parastatals, chairmen and councilors of 774 local governments.
At the federal level starting with the presidency, we have special advisers, senior special advisers and permanent secretaries, 42 ministers and their advisers, directors; the legislature covers 109 Senators and 360 members of the House of Representatives as well as their senior aides; and departments and agencies of government includes security agencies, heads of parastatals and their directors. In the judiciary, starting from the Supreme Court, Appeal Court, Federal High Courts and State High Courts, Sharia and Magistrate Courts, we also have judges and grand khadis who also fly in premium cabins overseas.
This gives a significant picture of the premium market in Nigeria. That is why the EU carriers are inundated with calls to confirm the seats of ministers, legislators, governors and other officials who may be on the wait list. The premium cabins have been elevated to a form of status symbol, where you need to belong to be reckoned with. Where in the world do you have ministers and legislators travelling in premium cabins regularly?
In January 2012, Prime Minister David Cameron of Britain, the world’s seventh largest economy, travelled on a regular BA Business Class from London to Washington to meet President Obama, although that was against protocol. But that saved his nation over 200,000 GBP. He even rejected a First Class ticket. With this sense of modesty, Cameron ordered his cabinet members to fly Economy Class. In Canada, also, there are very stringent rules governing official trips of ministers. The issue is that if our politicians, civil servants and policy makers in government would cut their high taste for premium cabins, premium fares would drop.
The huge disparity in airfares in an equidistant zone is nothing new. Brussels a 45 minute flight from London, shares a wide fare disparity on the New York route (6 hours 40 mins from London and 8 hours from Brussels). Yet a First Class seat to New York from London is $14,800, while in Brussels it costs, $8,781; a Club World ticket costs $6,462 from London while it is $2,625 from Brussels. But the economy fare is cheaper out of London than it is from Brussels at $1,070 and $2,043 respectively – quite similar to the disparity between Ghana and Nigeria.
However, based on the Bilateral Services Agreement (BASA) signed between the UK and Nigeria, the latter has no business brow beating BA into reducing fares, or interfering in issues relating to fixing fares. Apart from anti-trust issues, for which we lack a law, NCAA has no basis interfering or commenting on the fares of airlines. The irony is that the same NCAA often presides over meetings with local airlines to increase fares. It is laughable that NCAA would not condone the ‘infractions’ by foreign airlines, but approves similar ‘infractions’ by local airlines.
The BASA with the UK has a ‘double disapproval’ clause where parties must totally agree or disagree on any issue; otherwise, the aggrieved party is required to approach an international arbitration panel for resolution. Where in the world do we find a regulatory body fixing the prices of services or products? When MTN and Econet introduced high call rates at the initial stage of their business in Nigeria, market forces through Glo forced them to change their pricing strategy. So let the market forces check the exorbitant fares of BA. The level of personal vendetta against BA is driving embarrassing government decisions and pronouncements.
Policy makers in our aviation industry are painting a worrying picture for local and foreign investors in the sector, and this must stop. It is globally recognised that this sector is a major catalyst to economic development, which we dearly need. I feel sad that in this modern age, there are calls for the re-establishment of another national carrier. The same corruption, free tickets galore, political cronyism, and parochial and myopic business decisions that killed Nigeria Airways will continue with the new carrier. Knowing the level of corruption in Nigeria today, the airline is a dead duck, as there is no any government-owned commercially driven enterprise running efficiently and profitably today.
Unfortunately, Arik Air which should be in a position to take advantage of the vast opportunities in the market is unable to see beyond its nose. The airline hasn’t displayed any idea, model or innovation to tap into this huge market. For instance, its economy seats have the best leg room in this market, but there has been no marketing strategy on its part to leverage on this advantage. Arik has hired many competent foreign experts with credible experience to turn the airline into a world class success, but often, they get fired or quit for whatever reason.
Nigeria’s aviation like the nation is at a crossroads and we need a serious surgical operation to get it back to life. May God help Nigeria!
•Tumba is the CEO of SY& T Communications Ltd, a PR firm.