Africa: Partnership As Key To Survival Of Domestic Airlines
Nigeria has a buoyant international and domestic air transport market but most of the airlines have not been able to succeed. In this piece, ANTHONY AWUNOR observes that partnership is key to the airlines’ survival.
The adage that two heads are better than one may explain why a lot of entrepreneurs and small business owners create partnerships. In airlines business, interlining, code-sharing & joint operations are some of the areas where operators collaborate so as to benefit from each other.
Codeshare, which is most common amongst airlines, is an arrangement where one airline puts its number and name—or “designator code”—on a flight operated by another airline, and sells tickets on that flight. For instance, if a passenger books Los Angeles International Airport (LAX) to Kuala Lumpur (KUL) on American Airlines, that passenger could fly on AA on the first leg to Tokyo Narita and Japan Airlines on the second to KUL, as AA doesn’t fly there. Such arrangements work perfectly and examples of some other collaboration include the ones done by Ethiopian Airlines, ASKY , Malawian Airlines , Zambia; IAG: BA, Iberia , Aer Lingus , Vueling; Delta , Virgin, Air France , KLM and LATAM.
Most often, these airlines also get understanding in areas of training, maintain repair and overhaul (MRO), spares pooling and joint purchases. It also extends to sealing of deals with lessors, banks, original equipment manufacturers (OEMs), MROs and others. Even the United States Department of Transportation admits that “airlines throughout the world continue to form code-share arrangements to strengthen or expand their market presence and competitive ability.” For domestic airlines in Nigeria, experts have equally advised that there was the need for a robust win-win partnership arrangements, so as to benefit optimally from the industry.
Speaking at a seminar organised by League Of Airports And Aviation Correspondents (LAAC) recently, chief executive officer, African Aviation Services Limited, Nick Fadugba, stated that partnerships were key to the survival of domestic airlines in Nigeria. In his paper titled: “Partnerships: Key to Survival of Domestic Airlines,” Fadugba pointed out that Nigeria has a buoyant international and domestic air transport market but that most beneficiaries, to date, were foreign airlines.
According to him, the Nigerian airline industry is characterised by numerous small, weak and under-capitalised carriers who often default on their financial obligations. He listed lack of airline business knowledge and acumen as a major constraint as in the areas of fleet planning, route network scheduling and aircraft finance and lease negotiations. To him, lack of cooperation, joint ventures, interlining and code-sharing, limited aviation manpower development had equally contributed to the difficulties domestic airlines were facing in Nigeria.
On way forward, Fadugba said, “Domestic airlines need co-operation; Joint training, MRO, spares pooling, joint operations, interlining, code-sharing. There is need to overhaul current business plans with emphasis on unit cost, load factor & yield. “They should raise more equity and capital to strengthen balance sheets and also abide by air finance and lease obligations or re-negotiate rather than default.” He said that in aircraft transactions, it was important that operators take expert advice on structuring deals on the best terms, bearing in mind that the power balance was often with the airlines and not the lessors.
Emphasising that win-win partnerships were key to success, Fadugba also stated that another strategy for success was for Nigeria and other African countries to create strong hub airports. He said, “Strong hub airports are the key to airline connectivity. Airline connectivity in turn stimulates economic growth. There are strong hub airports in East Africa, South Africa and North Africa. These hub airports account for most of the scheduled capacity in Africa.
“In contrast, West and Central Africa have not been so successful in establishing strong hub airports. Strong hub airports enable efficient passenger and cargo transfers. Effective hub and spoke operations multiply the number of city pairs that can be connected.” Confirming that Nigeria did not yet have an enabling environment for aviation, Fadugba listed other challenges to include uncertainty over government’s national carrier strategy, non-availability and high cost of aviation fuel, foreign exchange fluctuations, poor aviation infrastructure, excessive government taxation, multiple charges by the regulatory bodies.
According to Fadugba, disagreements over airline market access, the need for an independent and effective executing agency, full compliance with competition rules by dominant players were some of the challenges that were militating against the Single African Air Transport Market (SAATM) initiative. He therefore, advocated for a conducive regulatory and economic operating environment for African airlines, emphasizing the need for strong African airlines, modern airport and ATC infrastructure and strong hub airports in the continent. Fadugba disclosed that the market share of foreign airlines on routes to and from Nigeria was over 90 per cent, stressing that the international airlines operate over 300 frequencies weekly into and out of Nigeria, a situation which is detrimental to the local carriers.
While Ethiopian Airways has the highest entry points of five into Nigeria, the East African carrier combined with that of ASKY together operate 54 frequencies weekly into Nigeria. British Airways and Virgin Atlantic, he said, operate 21 frequencies weekly into Nigeria. Meanwhile, the International Air Transport Association (IATA) has continuously encouraged partnerships among all stakeholders, including governments, to help aviation fulfil its important role as a catalyst for global economic growth and development.
Speaking at the Singapore Airshow Aviation Leadership Summit hosted by the Singapore government, Experian Events and IATA few years ago, former director- general of IATA, Tony Tyler, identified safety, sustainability and infrastructure development as three areas where partnerships are vital to meeting forecast demand for connectivity. On safety, Tyler said, “Safety is our highest priority and we are seeing steady progress through our partnership approach involving airlines, airports, air navigation services providers, manufacturers, governments and other stakeholders. “If we look at jet aircraft, in 2015 we had one major accident for every 3.1 million flights.
That’s a significant improvement on the five-year average (2010-2014) of one accident for every 2.2 million flights. Yet the last two years have also seen events that can only be classified as ‘unthinkable’, including the disappearance of an aircraft, the downing of an aircraft by a missile, and the deliberate destruction of an aircraft by a suicidal pilot. “We must add to that the loss of an aircraft in what is suspected of being an act of terrorism.
There are no simple solutions to the issues raised by these terrible tragedies. But we must honour those who lost their lives, and their friends and loved ones, by re-dedicating ourselves to making flying even safer. “Working with our partners in government and industry will drive improvements based on global standards and best practices,” he added. On sustainability, the former IATA DG said, “Environmental sustainability is our license to grow.
The aviation industry has adopted a four-pillar strategy based on technology, operations, infrastructure, and market-based measures to address its CO2 emissions, and has adopted ambitious carbon reduction targets,” he said. On infrastructure development, he added, “We will add 3.2 billion new air travelers in less than two decades. Of these, 1.8 billion—56 per cent will be in Asia-Pacific—the vast majority on routes linked to China. If we can realize that growth potential, then jobs and economic activity will follow. By 2034 aviation in the region could be supporting over 70 million jobs and some $1.3 trillion in economic activity. But that’s dependent on the industry having sufficient infrastructure.”