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By Chinelo Obogo, [email protected]
International travellers in Nigeria are in jubilant mood. Airfares to popular destinations like London have dropped significantly, thanks to stronger naira and increased competition spurred by Air Peace’s entry into the lucrative Lagos-London route. With the naira appreciating to N1,340 per dollar, an 8.21 per cent gain, foreign airlines have been motivated to unblock low-priced fares, easing pressure on forex exchange.
However, aviation analysts are preaching cautious optimism as the development remains volatile and fragile.
The entry of Nigeria’s Air Peace into the competitive route has also sparked discussions about its long-term sustainability. Analysts are watching closely to see if the airline can avoid the pitfalls faced by its predecessors like Arik Air, Bellview, and Medview.
Lower airfares
Chairman of Air Peace, Allen Onyema, at a recent television interview, stated that his airline has been a game-changer for Nigerian travellers as other airlines reportedly adjusted their fares downwards, with some business class tickets dropping from a staggering N15 million to N5 million in order to compete with Air Peace business class tickets which sells at N4 million, significantly lower than previously offered fares.
“Our flights are already sold out till September which shows that Nigerians have embraced us. Nigerians used to pay N15 million to get a business class ticket from Nigeria to the UK, some people paid N17 million and because some people couldn’t afford this, Nigerians were going to South Africa just to get a cheaper fare to London. When we came on board, what we did was to put business class ticket at N4 million and brought economy to N1.2 million and at the same time, we were giving students a rebate. As soon as we did that, the same airlines that were giving excuses for fleecing Nigerians came down within 24 hours. Air Peace distorted the market and these airlines brought their fares down from N15 million to N5 million. I met someone at the airport who told me that what he would have used to fly two members of his family on foreign airlines, he is using to fly six members of his family. Right from the day we announced our fares, our seats sold out within days till September,” Onyema said.
But the president of National Association of Nigeria Travel Agencies (NANTA), Susan Akporiaye, told Daily Sun that while Air Peace’s arrival has certainly shaken things up, the main reason for the drop in flight ticket prices, particularly with foreign airlines, is the recent appreciation of the naira. She explained that the exchange rate plays a crucial role. A ticket that used to cost N1.8 million at N1,800/$1 now comes down to N1.3 million with the naira at N1300/$1. She said although the dollar price of the ticket remains the same, the lower naira exchange rate makes it more affordable for Nigerian travelers.
“There has been a drop in the cost of flight tickets but it is because of the exchange rate and not because of Air Peace. I see a lot of people attributing the drop in prices solely to Air Peace but it is not exactly true. I would not lie to you to favour anyone. I don’t particularly like what foreign airlines are doing but I would not say what is not true. The drop you are seeing with other foreign airlines is because forex has dropped. It used to sell for N1,800/$1 but it is now N1, 300/$1. The same class of tickets which used to sell for $1,000 at the time that the rate of exchange was N1,808, exchanged for N1.8 million but now that exchange rate is N1,300, flight ticket has gone down to N1.3 million but the $1,000 still remains. It has not dropped.
“I know that the news of Air Peace commencing London routes must have encouraged them few weeks before Air Peace started its London operations, NCAA called for a meeting with NANTA, foreign airlines and other stakeholders and the purpose of that meeting was for them to release the lower inventories and most of the foreign airlines released the lower inventories which was the fallout of our meeting.
“I agree that Air Peace entering the London market would contribute but this downward review of prices is majorly because of the rate of exchange. Tickets are priced in dollars and the rate of exchange is what we pay in naira. I would not challenge the Air Peace chairman when he says they are responsible for the reduction in the cost of air fare because we have promised to support them but the truth is that prices of air fare has not been reviewed, what is happening is the effect of the exchange rate. The only thing that is happening which is the truth is that some of the airlines started doing promo for their business class, because Air Peace came with N4 million, so airlines started doing promo for theirs for N4.5 to N5 million. That is the aspect we can say is as a result of Air Peace entering the London market.”
However, an aviation consultant, Sean Mendis, also said in a television interview that despite fare reductions, further significant price drops are unlikely because increased competition from Air Peace has squeezed margins for airlines and naira volatility remains a challenge for businesses.
He said: “The main issue with the naira is that it is still volatile, it is not something that gives business a lot of confidence in making their plans for cost and revenue. What has really helped the aviation market is increased competition and it is always going to be a positive. Air Peace has entered the Lagos to London market and that is the largest single market from Nigeria as over half a million passengers travelled between Nigeria and London last year, dwarfing Accra which comes second with 200,000 passengers. So, when you look at that, the increase of about 25 percent additional capacity in that market is immediately going to have an impact on the marginal players who are fighting on price for the bottom end of the market. We have seen the response from that in terms of having to reduce their fares to remain competitive.
“We are not likely to see a significant reduction in prices, what we would see is more strength. As we see more stability in the naira, airlines would maintain their fares but I doubt if we are going to see any significant reductions. You would not see any significant decrease in price by British Airways or Vigirn Atlantic because they have the corporate travel and business class. It is going to be the other airlines like KLM, Royal AirMaroc that would have a less attractive product than Air Peace’s inflight between Lagos and London for example. In order to make themselves more attractive to passengers, you would see promotions. I looked at the fares and cheap fares from Nigeria to London are currently available in the N800,000 range because we are in the off peak season. We would still see fares between the N1.1 and N1.2 million range during the peak season. A few weeks ago, you would be struggling to find anything less than N1.3 million in the off peak. If Air Peace is able to show reliability, the fares to London will peg itself below N1 million in the off peak.”
Challenges
While revealing the challenges Air Peace faced in launching its London route, Onyema said Gatwick Airport, which is their London operational base, initially demanded an unusually high security deposit, and ground handling companies required upfront payments.
He said however, that the biggest hurdles came from within Nigeria’s aviation authorities. Despite receiving the necessary designation from the Federal Ministry of Aviation, Air Peace was initially denied permission by the Nigerian Civil Aviation Authority (NCAA) to apply for the required third-country operator (TCO) permit, insisting on an IATA TCO audit despite Air Peace already holding the industry-standard IOSA certification.
“First of all, we were told by Gatwick airport to deposit over two million pounds for security deposit but I asked if British Airways and Virgin Atlantic were paying that kind of amount to Nigerian airports as security deposits. When we asked when we would get the money back, they said it is until we stop flying to Gatwick. They finally reduced the price. The fact is that when they want to deal with you, they use everyone around you. The ground handling companies will demand for security deposit, we paid over N1.6 billion for catering.
“We suffered internal and external conspiracy. We got the approval to start flying London six years ago and since then, it has been a cat and mouse game. We procured three tipple sevens for this route, however, we were not allowed because of international aeropolitics which is very dirty. We applied to get the TCO and they wrote the Nigerian government asking if they are aware of the designation to fly London and the Nigerian government denied us. We went back to the Director General of the NCAA and they told us that we didn’t tell them when we wanted to appy. Who designated us? It was the Federal Ministry of Aviation whose duty it was and is still is to do that. We said we were ready but the NCAA refused and said it is until they allow us to apply.
“We got the designation from the FG and the NCAA under the same FG was telling us that we should not make any application towards flying to the UK, meanwhile, you approved our China and India operations which is over 10 hours, yet you didn’t find the airline worthy to fly to a six hour destination. We continued the cat and mouse game until the immediate past DG of NCAA, Capt. Musa Nuhu said we should be allowed. They then said we have to prove to them that we can pass the TCO and that we should get consultancy firms from IATA to conduct an audit on us. We paid over N200 million to get IATA to conduct a TCO audit on Air Peace despite the fact that we are IOSA certified and we passed. While this was going on, the country was being fleeced by all the airlines going to London from Nigeria. People were paying five times more than what they should have been paying.”
Pitfalls
How can Air Peace avoid the pitfalls of its predecessors; Arik Air, Belliview and Medview? An aviation expert, Amos Akpan tells Daily Sun that he expects established airlines like British Airways and Virgin Atlantic to employ various strategies to compete with Air Peace on the lucrative Lagos-London route. He however advised Air Peace to avoid publicly discussing the tactics used by competitors and maintain its focus on a well-defined plan while responding strategically to the evolving situation in the market.
He said: “British Airways and Virgin Atlantic will use whatever they have to make sure Air Peace does not take over their share of the market in the route. This is expected. What arsenals they deploy is left for the regulators in both countries to ensure all parties act within acceptable norms. It must be mentioned that countries have their template for the strategies they deploy in this kind of fight. Which agencies and groups they use are properly briefed and they know the steps to take when the war to capture, to retain, and to protect the market starts. They don’t mention the tools like airport authority, handling companies, aeronautical services providers; each knows what role to play while remaining professional in their approach.
“My advice to Air Peace and the Nigerian aviation agencies is to avoid making public comments about the strategies and tools deployed to execute the “war”. Just act according to your script in response to what is happening in the field. The airports in the UAE and UK knew what to do to frustrate Air Peace, they didn’t make it look like their national agenda, and they did not wait for their ministers to announce it as policy. Air Peace know what to do in this scenario. They have maintained integrity, sincerity of purpose, and displayed proof of capacity. They have tried not to give the host country’s authority reason to reject their participation in the route. This has worked in so far.”
Akporiaye said lack of government support can be a major hurdle for Nigerian airlines entering new routes, especially competitive ones like London and a crucial factor in Air Peace’s success will be ensuring reciprocity between the Nigerian and UK governments. If the UK imposes additional hurdles or fees on Air Peace, the Nigerian government should advocate for fair treatment and implement similar measures for UK carriers operating in Nigeria.
“I know that the UK government would push back because the competition is very high, so the question now is if Air Peace can withstand a pushback? I learned that one of the reasons the previous airlines failed on the London route was because there was no support from the Nigerian government when the UK government came up with bottlenecks. This is why the Nigerian government needs to step up to make sure that the UK government does not treat Air Peace differently from the way Nigeria treats UK carriers. If the UK asks Air Peace to pay for security deposit, the question is, did the Nigerian government ask British Airways and Virgin Atlantic to pay that money as well? If they did not, then the Nigerian government needs to reject it, which is how the government can help Air Peace. There must be reciprocity. The government must not leave Air Peace alone when the UK government starts to deal with them because it is going to happen. It happens everywhere in the world. It is only in Nigeria that foreign airlines are treated better than indigenous airlines,” she said.
For aviation security expert, John Ojikutu, one of the ways a repeat of the failure of other indigenous carriers on the Lagos-London route would be for the Federal Government to designate two indigenous airlines as national flag carriers. He tells Daily Sun that by designating Air Peace and any other domestic airline as an NFC, the government could free up resources for other aviation needs.
“The government should designate Air Peace as a national flag carrier in the absence of a national carrier and not to cause the repeat of what happened to those before Air Peace. A national carrier by the understanding of the political office holders in the administration of our government is a government carrier. We have been on this national carrier for well over 30 years and it has not worked and it will not work, not now and not tomorrow. Designate two of the airlines as the national flag carriers, one for regional and continental and the other intercontinental and stop the waste of the scarce financial resources on commercial aviation services that should be given for concessions, privatisation and commercialisation since 2000,” he said.
