AON: A DISAPPOINTING CARTEL

(article written Mar 2010)

Recently the committee set up by the Federal Government submitted its report on bailout.

The airlines represented by Airline Operators of Nigeria (AON) were given ten days to report back to the government on modalities for the bailout plan. It took them three months, after being lampooned by the authorities for the slow pace of work.

On submission, the body had two different and obviously opposite positions on the bailout issue. One faction supported bailout, the other wanted stoppage of promotional fares and doubling of domestic fares. This is simply absurd!!

Asking Government to legislate or collude in doubling air fares is regimental and retrogressive in a deregulated industry. If any airline wants to triple its current fares, it can please go ahead by filing the new fares with the appropriate authorities and test the will of Nigerian passengers. It should not be legislated neither do we want collusion.

We should be reminded that the industry is frowning at and punishing with hefty fines, airlines caught colluding in fixing fares or tariffs. Western countries started it, and it has gotten to Africa with the current investigation of some airlines in South Africa, who were accused of fixing fares for the upcoming 2010 World Cup.

The promotional fares and on line ticket purchase, introduced last year by some Nigeria carriers are laudable and in tandem with multiple fares regime obtained in other climes. It generally increases en-planeing, booking ahead via the internet and improves load factor. The model is a marketing gimmick with the objective of attracting passengers from other transport modes.

Though, it has a low yield initially with appropriate fare mix it generates brand loyalty, market share and becomes profitable in the long run, if properly managed. Profitable low cost carriers world over have used promotional fares to their advantage at the peril of legacy carriers who are made to slash, burn, run or in the alternative set up competitive low cost carriers. These airlines have gone further in developing their social media marketing network by placing promotional fares, schedules and related information on facebook, twitter, flickr, youtube e.t.c, while using same to respond to passengers’ complaints

AON also requested for some waivers and lower charges. With recent happenings in the industry, it will be difficult to monitor and ensure that only scheduled operators enjoy such waivers and relief, because the process has always been abused by operators, who have assisted the non-scheduled operators, such as charter operators, businessmen, bankers, jet age preachers, serving and ex governors etc to bring in aircraft, spares and other related equipment thereby depriving the same treasury that will be doling out bailout, the juicy luxury tax and charges.

Most of these private and non-schedule operators whose service are for the affluent, later give their aircraft and equipment to registered carriers to manage at a fee and are made to generate revenue for the owners and new managers.

On the issue of outstanding debt to the agencies, it should be negotiated not forgiven and tied to whatever funds that will be released, because the agencies need to meet their responsibilities too. It is also nice to hear AON consenting to Nigerian Civil Aviation Authority (NCAA) as the body to advise government on airlines qualified to get bailout. So where was the economic audit team of the NCAA, when these airlines went into a financial tailspin?

The AON surprisingly did not raise the issue of market bailout; simply put - traveling with public funds on a Nigerian Carrier. The American carriers who are happy and covet the domestic market more than the international market had ‘Fly American Act’ in 1974 and have continuously amended it till date. It protects their carriers and keeps public expenditure within the economy, despite the absence of American carriers on most international routes at that period in time. AON seems contented with the "buy some seats I operate to your state" deals with some state governors, while overlooking publicly funded international charters and travels being carted away by foreign registered carriers and aircraft with accompanying crew.

On fuel, which constitutes a huge chunk of operating cost, it will be appropriate to consider fuel subsidies or the Middle Eastern state method of selling at a rate much lower than the market rate-with the acronym PLATTS. Airlines from this region have quietly enjoyed it while boosting their cash reserve; they have used the cash, to ask for more frequencies and dumping excess capacities on Nigerian routes. Airlines such as Saudia, Etihad, Qatar, Emirates, and Air Arabia are beneficiaries. Also, in the USA scheduled operators pay 21.9 cents per gallon for aviation fuel tax, while non schedule and private operators pay 36 cents.

The operators, in their presentation preferred the fat cheques and have gone ahead to blame external factors such as fuel price, charges, taxes, meltdown, promotional fares, infrastructure while refusing to address fundamental structural problems such as ownership, management and capacity that have become glaring liabilities for our carriers.

It is noteworthy that it was not total doomsday in the industry last year as we are made to believe by operators. Airlines such as American private carriers- Air Tran, Jet blue and Southwest; European carriers Ryan Air, Easy jet and Lufthansa; South American LAN, COPA (Panama); and Ethiopian Airlines in Africa all declared profits. In Nigeria, we have not seen a financial report yet we expect serious investors to partner with them.

In aligning with the Government disappointment at the submission of the Report, we really need to make it clear to AON that scheduled operators should be separated from charter operators. They must guarantee that private aircraft being managed by some of them will not benefit from taxpayers fund or the approved bailout plan and should endeavour to re-engineer their ownership and management processes to attract investors.

Most importantly they must stop the ego tripping, divisive bickering and unite with one voice. Anything short of this indicates that we should rather talk of stimulus for the entire industry than having bailout for airlines without clear cut business objectives and national initiative in outlook.