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By Chinelo Obogo, [email protected]
The soaring cost of flight tickets on domestic and international routes has reignited the conversation on the need for a national carrier, an issue that left a sore spot in the consciousness of Nigerians after the botched attempt by the administration of former President Muhammadu Buhari to set up Nigeria Air.
Nigeria Air, founded in 2018 with ownership stakes divided among Ethiopian Airlines (49%), Nigeria Sovereign Investment Authority (NSIA) (46%), and the Nigerian Federal Government (5%), received its first aircraft in May 2023 just days before the expiration of Buhari’s tenure. But the deal signed between the immediate past minister of aviation and aerospace development, Hadi Sirika and Ethiopian Airlines was halted shortly after the current minister, Festus Keyamo assumed office.
At a Federal Executive Council (FEC) meeting last year, Keyamo expressed concerns over some aspects of the deal, revealing that in the agreement between the Nigerian government and Ethiopian Airline, which was the major investor in Nigeria Air, was that the national carrier would be given a five-year tax waiver, a move he said would have destroyed domestic airlines. He stated that critical details of the agreement with Ethiopian Airlines required reevaluation, citing concerns about staffing and the potential for creating a monopoly at the expense of other local airlines.
With the astronomical increase in the cost of air travel, the national carrier conversation is once again on the front burner. Those in favour believe that it would help in bringing down the high cost of domestic travel which at the moment hovers between an average of N120, 000 and N230, 000 depending on the destination, airline and time of travel.
Price fixing
The President, National Association of Nigerian Traveling Agents (NANTA), Susan Akporiaye, told Daily Sun that a national carrier would help in preventing price fixing, saying: “If the entire market is controlled by privately-owned airlines, they can come together and decide to fix prices but if there is a national carrier, the government would have a stake in the pricing even though it is privately run.
“The government would be like the neutral body to ensure that there is no fixing among the domestic and international airlines and that is why we are clamouring for a national carrier. It would help a lot in preventing other airlines from doing what they want to do. If we have Nigeria Air doing domestic operations and for instance, they fix both legs of a flight at N100, 000, no airline would want to charge N200, 000 because they know that if they charge much higher, they won’t get passengers, which is the way a national carrier can affect air fares.”
The president of the National Association of Aircraft Pilots and Engineers (NAAPE) Abednego Galadima, who has always supported the establishment of a national carrier, told Daily Sun that it has many advantages for the country. He said that besides helping to boost local capacity, a national carrier would be able to reciprocate all the BASA agreements that Nigeria has with other countries so that the country does not continue to lose out on revenue. “When the supply end is good, the price would normally be down. With the increasing demand in air travel, I think it is important that we boost capacity both locally and internationally. Nigeria is one of the countries suffering from high cost of air fare. We saw how Air Peace traveling to London impacted the cost of air fare, so imagine if we have a national carrier,” he said.
An aviation expert, Amos Akpan, differed from Akporaiye on national carrier crashing air fares.
He told Daily Sun that “there is no guarantee that the national carrier will bring down the current air fares if it will be operated as a business concern’. He said that contrary to the assumption of Nigerian passengers, domestic carriers do not conspire to fix prices but that the cost of tickets is a reaction to the prevailing economic realities.
“Because of what passengers consider high airfares, they presume that domestic airlines have come together to “fix prices” beyond the reach of average Nigerian? This assumption comes from inadequate information and shortage of knowledge on airline economics. About 96% of the cost inputs to produce one seat on one hour flight is obtained in forex ($ – USD). To operate the aircraft types prevalent amongst domestic airlines on an hour’s flight, the fare is N150, 000 one way and N300, 000 return.
“At the current exchange rate of naira to US dollars, N300, 000 is $200 US dollars. Taking the cost of operations into consideration, this pricing is reasonable. The people that fly such distances in other countries would not say this pricing is higher than the amount they pay to travel in those other countries. If we further consider the many obstacles placed against the domestic airlines operators by the Nigerian environment, we will appreciate their efforts to offer the services that they do and at the price they offer.
“The national carrier they want to set up will operate in the same environment. They will buy aviation fuel from the same marketers, they will buy spare parts and carry out maintenance with the same approved MRO, aeronautical facilities, airports and pool of human resources. They may get higher allocation of forex and government guarantee on investment funds, but the field of operations is the same, and the market is open target for all operators according to what each operator can attract. A price war will be a loss-all scenario for operators, and a temporary win for the customers. I am not against the setup of a national carrier, but I do not see indicators in the environment that will enable the national carrier blossom as the clamourers envisage,” he said.
An aviation analyst, Olumide Ohunayo, also expressed the same view, insisting that unlike the cost of ground handling charges which never drops, the cost of domestic air travel fluctuates based on the cost of operations. He said: “When I was in Abuja recently and was trying to get a ticket to come to Lagos, the cheapest I saw was over N230, 000 and I checked all the websites. Two days ago, when a friend asked that I book a flight from Abuja, I saw the same return ticket for N130,000, that is, N100,000 less than when I wanted to travel. So, the basic laws of time of travel and flight you choose contributes to the amount you pay. The airlines do not fix prices. They simply react to cost of aviation fuel, exchange rate and every other cost as at the time you want to fly and that is why I support the question that if the ground handlers want to increase their rate, would they be as flexible as the air tickets that comes down and goes up? Because for the handling rate, it is always fixed. It doesn’t go down. These are the things we need to look at and not the issue of a national carrier. I am not a fan but provided you don’t give the national carrier extra advantage over other airlines. There must be level playing ground because all the other operators are Nigerians too who have invested in the economy.”
Another expert, Sindy Foster told Daily Sun that domestic airlines have no control over the cost of forex, the cost of capital, inflation, or the numerous costly regulatory requirements and that the majority of their costs are in dollars, whilst their revenue is in naira. She said fares are high because of all of these inherited issues and a national carrier will not be immune to all of these issues.
“Creating a monopoly has never led to long-term reduced prices in the history of man. A national carrier plying international routes where currently there is no direct route or Nigerian operator will be beneficial for the country. It will bring more connectivity, reduce prices (as we have seen with the Lagos-London route as soon as Air Peace announced their start date and fares). We need to think strategically and not do the usual thing of disadvantaging the private sector, so the public sector can engage unsuccessfully in business,” she said.
But on whether the government still plans to go on with plans to establish a carrier, Keyamo answered in the affirmative. In a television interview last month, he said: “I will push for a national flag carrier and I am working on one. But I want to state publicly that no local airline would be designated a flag carrier. No one should think that I am working with any local airline to promote it. I am saying as a matter of policy and I have informed them that no local airline would be designated a flag carrier. We would establish a proper national carrier. Many investors are already talking to us on this issue.”
Aviation security expert, John Ojikutu disagrees with the minister. He told Daily Sun that national carriers are no longer a global practice, instead, focus should be on a flag carrier that can compete with foreign airlines.
“National carrier is no longer a global practice but flag carriers if they must operate on the BASA international, continental and regional routes and compete with the foreign airlines on these routes. Having a national carrier on domestic routes is not a solution to the high cost of air fares but the regulations or the control of the air services tariffs which include, fuel price, air navigational charges, airport services charges, ground handling services, etc. These are provided for in the Nig CARs Economic Regulations Part 18.14.
“On the issue of cost of air fare, let me repeat what I have been saying in the last five years: there is no way the average rate of air fares in Nigeria can be less than $100 which it was in the early 90s when we were refining fuel in Nigeria and when the FCAA directed the domestic airlines to factor the local air fare against the dollar rate…”
That was the time average air fare was N3, 800/N4, 000 for about an hour flight and dollar was $/N40 under the same tariffs as they are today. Don’t expect anything different today when we are importing fuel and dollar is $/N1, 200. The average air fare today for an hour flight can there not be less than $120/$150 factored against the dollar rate,” he said.
Way forward
Akpan said the government should prioritise an enabling environment for the aviation industry to grow especially for the airline operators as they don’t need monetary grants as bail outs. He said airlines need maintenance repairs and overhaul facilities that will repair aircraft and release it back into service within a calculable and predictable timeframe.
“When airlines bid for and pay naira to get forex, they should get the transfer timely because the lessor agreements have penalties for late payments both on aircraft parts and on full aircraft lease. The Nigerian College of Aviation Technology in Zaria should be enabled to ramp up training of manpower to meet the needs of the domestic aviation industry. More of the existing airports need to give more hours to flight operations to enhance aircraft utilisation by domestic airlines.
“They need the agencies providing services to the operators to work with basic world class acceptable minimal standards. Currently, these agencies offer their services like they are doing the operators a favour; instead of treating it like a transaction that is guided by existing service level standards. Train more personnel for Nigerian Civil Aviation Authority to be able to carry out effective regulatory oversight functions on all operators and agencies in the industry,” he said.
