Should Nigeria launch a national carrier or support indigenous airlines?

By Temitayo Lawal
Posted on Wednesday, 3 August 2022 18:55

Air Peace Boeing 777-300 aircarft at Lagos airport, Nigeria September 11, 2019. REUTERS/Temilade Adelaja

Air Peace, a Nigerian private airline, expanded its operations to Asia by launching its direct one-weekly flight to Guangzhou, China on 13 July, bringing the airline's international routes to three, including Dubai and Johannesburg.

The carrier flew a total of 240 passengers from Lagos directly to China on its Boeing 777 aircraft. This was a major milestone for an airline that was launched barely eight years ago – and one that is operating in Nigeria’s tumultuous aviation industry conditions.

“We are not stopping with Guangzhou – India is next, and Israel is in the works,” said Air Peace Chief Operating Officer, Oluwatoyin Olajide, at the launch of the China flight operations.

Also planned for subsequent launches are Malabo in Equatorial Guinea and Kinshasa in the DRC. Meanwhile, plans are underway for the relaunch of Nigeria’s defunct national carrier, Nigeria Air.

The minister of aviation, Hadi Sirika, said late last month that the Federal Executive Council (FEC ) had authorised the lease of three aircrafts to kick-start the national carrier.

“We will start with domestic flights, then grow to become international and then we move to become regional and intercontinental,” said Sirika during the announcement.

While Nigeria Air has struggled to manage its finances in the past, some critics question why the government is not supporting local airlines instead, to help solve their challenges to survive and scale at a time when the country is struggling with mounting debt.

Nigeria’s debt service finally surpassed its revenue in the first quarter of 2022, despite the rise in crude oil prices. In addition, many of the country’s national private airlines already have sizeable fleets and have built capacity across national, regional and international networks. Air Peace for instance has over 30 aircraft and covers 20 domestic routes, seven regional routes and three international destinations.

Indeed, in March this year, Sirika projected that the local aviation industry could add fiver per cent to the GDP (from its current 0.6%) and earn $14.16bn in annual revenue, if its potential is sufficiently unlocked.

Industry problems

Even though Nigeria’s air transportation only accounted for 0.14% of the GDP (compared to South Africa’s 3.2% for example), it grew by 32.9% to N198.62bn in 2019 from N149.35bn in 2018.

But the Covid-19 pandemic greatly decimated the sector as most countries closed airstrips to enforce lockdowns aimed at preventing the spread of the deadly virus. Consequently, statistics compiled by the Nigeria Bureau of Statistics (NBS) shows that total domestic passengers fell from over 3.3 million in Q2 2019 to around 1.8 million in Q2 2020 while total foreign passengers declined from over 1.1 million in Q2 2019 to just 20,000 in Q2 2020. And while the industry is beginning to recover, it is still marred by several challenges.

“Airlines are suffering a combination of calamities – not of their own making,” says Sindy Foster, Principal Managing Partner, Avaero Capital Partners. “Scarcity and high cost of fuel; scarcity and high cost of forex; and closed domestic runway for 90 days resulting in schedule delays and additional fuel burn. All of these have resulted in higher cost of travel, which in turn will lead to lower number of passengers.”

In February this year, domestic airlines under guidance of Airline Operators of Nigeria (AON) doubled airfares. Chief among the reasons for this was the increase in the price of aviation fuel which they said had more than doubled to over N400 per litre from N200 in December 2021. Fuel now sells for about N800 and has adversely affected their operations, leading to flight delays, cancellations and even total suspension of operations by some airlines.

The aviation fuel import bill has skyrocketed given the high prices. Nigeria’s aviation fuel importation cost in the first quarter of 2022 spiked by 287% to N292.56bn (4.96% of Nigeria’s total import of N5.9tn) from N75.54bn spent in the corresponding period in 2021, according to the NBS in its foreign trade statistics report.

“It appears that the CBN is working against the interest of the industry,” Foster says, in relation to the FX challenges that the airline operators face.

In August last year, airlines through the International Air Transport Association (IATA) complained about the difficulty they faced in repatriating over $143m made in Nigeria. Emirates announced that by 15 August, it would reduce its weekly flights to Nigeria from Dubai from eleven to seven due to its inability to repatriate its $85m revenue from Nigeria.

“Capacity has been reduced by the temporary (voluntary) suspension of Aero Contractors [Nigeria’s oldest airline] scheduled passenger service, and the regulatory suspension of Dana [Air]. This in turn is likely to lead to increased fares for passengers, as demand is likely to exceed supply on some routes. Nigerian Airlines have hard choices to make on a daily basis and some routes may be unsustainable in the future,” Foster says.

Air Peace strides and prospects

But despite these challenges, some airlines are weathering the storm. Air Peace’s corporate communications supervisor, Stanley Olisa, tells The Africa Report that they have been able to do this because of their “future-proof blueprint” and their higher purpose which is beyond making profits but aimed at creating employment and providing affordable connectivity for Nigerians and Africans.

“Yes, there have been challenges… but as a vibrant airline, we are dynamic, evolving novel strategies to sustain our operations and extend our wings to other destinations because we know we have a market to serve, even in the face of the aforementioned challenges besetting the industry,” Olisa says.

Covid-19 and other systematic industrial issues have had a toll on Air Peace operations as they did on others, but the airline still maintained at least 40% of domestic operations in 2021, down from over 50% it used to control. Increasing competition from existing players and new entrants like Ibom Air (2019) and Green Africa (2021) are also responsible.

However, with the lingering local industry problems, many analysts wonder if Air Peace will replicate its fare reduction strategy, as it did with its Dubai flights, in its recent and planned expansion and how sustainable that could be.

“The strategy is providing affordable peaceful connectivity for Africans. While we launch new routes, we also carefully factor the economic power of our target market and try to reflect this as much as possible in our fares, in such a way that balances customer satisfaction with business sustainability,” Olisa says.

Need for a national carrier

The relative success of Air Peace shows what is possible if local airlines are not held back by the myriad of problems felt by the sector. But since they have demonstrated capacity, should the government focus on solving the critical problems clipping their wings instead of pursuing its national carrier dreams? Wouldn’t they serve the same purpose as the national carrier better with little or no burden to the government?

“As faced with the choice of financially supporting the industry, which is driven by private investors, they may prefer to invest funds into the National Carrier, which they have an ownership stake in,” says Foster

The minister of aviation, Hadi Sirika, has promised that the federal government will only own five per cent of the carrier while 95% goes to the public with the core investor owning 49% equity.

“But the availability of supply and cost of aviation fuel and the availability and cost of forex, if left unaddressed will cripple the aviation sector in Nigeria. Even if the government launches the National carrier, these issues still need to be addressed,” says Foster. “The National Carrier will also need fuel and forex. Changing the players does not change the game,” she adds.

As Olisa says, the government has supported Air Peace and the airline wouldn’t have achieved so much like the launch of new routes, acquisition of new aircraft, operation of charter flights to various countries in the world without it. But the fuel and forex crises are biting hard and should be addressed to “considerably boost the economics of the industry.”

“Governance in Nigeria appears to be a series of transactions rather than strategic, policy-driven initiatives,” says Foster. “Right now, we are seeing infrastructure investment in airports, national carriers, aircraft leasing company, aerotropolis, etc. when the life blood of aviation, fuel, is unavailable. And there is no plan to make it available.”

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