Opening the door: Bringing more international carriers in will require a careful approach

Aerial passenger traffic has risen dramatically since 2007, when 8.5m people took to the Nigerian skies. In 2011 the figure was 14.6m — a 72% increase in four years. Of those, 12m flew on domestic flights, underscoring the key role of the country’s carriers.

The largest of these is Aero, which has a domestic market share of around 35%. Aero’s occupancy rate on its flights in 2011 was 84%, reflecting a sector trend as demand for air travel has increased rapidly. Due to a national strike in January 2012, the year started very slowly for the airline industry. Aero’s occupancy rate had fallen to 45% in March 2012, but recovered by May to 78%. Air Nigeria also had a profitable 2011 and controlled around 25% of the domestic market. However, in June 2012 its offices were raided by government authorities, and its managing director was arrested for allegedly failing to pay $30m in taxes from when Virgin Atlantic owned the airline, prior to 2010. The Nigerian Civil Aviation Authority grounded all Air Nigeria domestic flights until a full financial audit could be carried out.

GOLDEN TRIANGLE: The most profitable aerial route is the triangle between Lagos, Abuja and Port Harcourt. Traffic is increasing around the Port Harcourt area to surrounding states – mainly to the port cities of Calabar and Warri. Aero, for example, features eight flights per day between Lagos and Abuja, five flights between Lagos and Port Harcourt, and two flights between Abuja and Port Harcourt.

With passenger volumes on the rise, the aviation industry’s infrastructure takes on even greater importance, and there is much to be done in this regard. Nigeria lacks the large-scale airline maintenance facilities seen in developed countries. As a result, domestic airlines can typically only have basic maintenance performed in Nigeria, while heavier work is done in other countries, such as the UK and Italy.

MODERNISATION NEEDS: Given rising passenger volumes and the increasing number of international players in the market, the need for a more modern aviation infrastructure is acute. Murtala Muhammed International Airport (MMIA) — the largest airport in West Africa — services Lagos and the surrounding region. In 2010 MMIA saw 6.3m passengers, an 11.4% increase over 2009.

Abuja’s Nnamdi Azikiwe International Airport is the country’s second-busiest, and in 2010 it processed 3.9m passengers, a 23.3% increase from 2009, according to the Ministry of Aviation. The third-busiest is Port Harcourt International Airport, and together these three account for around 80% of passenger volume in the country.

Although MMIA has infrastructural shortcomings, steps have been taken to modernise the facilities.

After a fire gutted the domestic terminal in 2000, the government and Bi-Courtney Aviation Services entered into a PPP to rebuild it. Known as MMA2, it opened in May 2007 and exhibits all the hallmarks of a modern airport terminal, including car rental agencies, banks, telecoms shops, restaurants, bus terminals and a multi-storey parking garage. MMA2 was financed by six Nigerian banks at a cost of $134m, and has an annual passenger capacity of 5m.

INFRASTRUCTURE: The Federal Airports Authority of Nigeria (FAAN) faces some challenges when it comes to airport infrastructure. Runways need to be resurfaced and light installations have been delayed on some runways and on the domestic terminals.

Sometimes airlines have to taxi flights to the international runways when it gets dark, which causes congestion and can burn up to 300 litres of fuel per flight.

In addition to the lack of adequate maintenance facilities to service planes, local carriers face other hurdles that contribute to a high cost base. Among these is a shortage of domestic human resources, such as engineers. Airlines frequently have to bring in expatriates to perform maintenance work, which is costlier than using domestic workers; but in many cases airlines do not have a choice. Another factor is airline insurance premiums. Despite its generally safe aviation record and Category One rating by the US Federal Aviation Administration – the highest safety classification – Nigeria is considered by insurance firms to be an elevated safety risk. However, there are indications that the tide may be turning on the insurance issue. Aero, for example, has managed to bring its premiums down to a manageable level. The company has both local and international brokers, and has been able to bring costs down gradually over the past four years. Security premiums are decreasing and in May 2012 there were four insurance firms bidding for business with Aero.

GOVERNMENT SUPPORT: Although 2011 was profitable for Nigeria’s carriers, the airline industry is pushing the government to take proactive measures to support domestic carriers, not with subsidies but through long-term financing vehicles and other methods. For now, Nigerian carriers are not ready for the kind of international competition that open skies agreements would bring. If it is to compete globally, Nigeria’s airline industry – with the help of the government through non-protectionist means – must overcome these challenges.

Some 25 foreign airlines operate in Nigeria, including British Airways, Lufthansa and Virgin Atlantic. Ohis Ehmiaghe, the regional manager for North, West and Central Africa at South African Airways (SAA), told OBG; “The government has been very accommodating and helpful. We have no major concerns. Every big international carrier is here and they are not just doing one or two flights per week like in other African countries. They’re flying daily, and there is huge volume at MMIA.” Ehmiaghe said that business trips account for 60% of the Johannesburg-based airline’s traffic, while leisure constitutes 40%. SAA currently operates at a 70% occupancy rate.

There are signs of increasing government support for domestic airlines too, particularly from the Federal Ministry of Aviation (FMA) headed by Stella Oduah, who has taken a tough stance in protecting domestic aviation. A 2012 spat between Nigeria and the UK over their Bilateral Air Services Agreement, and a separate dispute over the alleged overcharging of Nigeria-bound customers by British Airways and Virgin Atlantic indicated that the FMA would take action to ensure Nigerian airlines and consumers received fair treatment from foreign firms.

There are now hopes for more consistency in the sector. The government has indicated its intention to support up to two Nigerian airlines in a bid to make them the national carriers. Air Nigeria was the only Nigerian carrier accredited by the International Air Transport Association’s Operational Safety Audit.

This support is needed for long-haul flights, which are currently dominated by foreign firms.

New planes will go towards network expansion starting with London, Johannesburg, Dubai and the US. More focus will also be put on code-sharing and interline partners. The federal government in early September 2012 approved N106bn ($678.4m) for 11 new international airport buildings – with a concessionary loan from China Nexim Bank for 22 years with a five years moratorium at an interest rate of 2%, as part of the government's agenda to transform transport into a major contributor to GDP.

HOLISTIC APPROACH: Moving forward, the government can help facilitate the expansion of the domestic aviation industry by attracting international carriers through accommodative policies that nurture the sector as a whole. The public and private sectors must continue working together in several key areas. Among the tasks is ensuring that Nigeria has sufficient human resources to meet the labour demands of the sector by facilitating ample and proper training of workers. Also, robust aviation maintenance facilities are required to bring down the cost of doing business. The government may also look to ensuring the availability of long-term financing vehicles, in order to remain adaptive to the ever-changing demands of the aviation industry.

Developing stronger relationships between airlines and the supplier base should also prove productive.

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The Report: Nigeria 2012

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