WHY WE HAVE HIGH FARES {Let look inwards}

Presentation by Olumide Ohunayo Director Research & Strategy Zenith Travel & Tours The Chairman Senate Committee on Aviation Distinguished members of the Committee Distinguished Participants and Stakeholders This presentation is from our organisation Zenith Travel & Tours with warm regards from the CEO Ayo Olonilua and other members of his team. We need to look at the issue from the following perspectives: Regulations: Administration & Implementation. Supply: Inadequacy of Nigerian Competitors. Demand: Public Travel Expenditure. REGULATIONS: An Airline Protection Unit should be set up in the NCAA to protect our carriers. They should participate in BASA, SLOT and other competitive issues. The unit should liaise regularly with the recently establish economic protection department of the CBN, to monitor revenue transfer by foreign carriers while ensuring strong competitive regulations. A company with significant market power and dominant position operating in a jurisdiction without standard competition law rules and a competition authority can in effect engage in any anti-competitive practice without fear, sadly Nigeria is one of those jurisdictions. We are giving ultimatums and running from one public hearing hall to another when the British anti-trust body called Office of the fair trade (OFT) has fined and collected the fines from BA and VAA for the same offence committed in Nigeria. The senate should expedite action on the anti-trust law and the establishment of a complimenting body, the document is presently, gathering cobwebs somewhere in the hallowed chambers. The Fly Nigeria Act should also be looked into by the legislative arm of government. It’s a critical market bailout law employed by countries to keep public funds within the economy and shore up market capacity for home grown carriers. It will ginger competition and bring down fares. Air Nigeria is in IATA clearing house which has given them commercial leverage with other foreign carriers .We can start the act with charter flights and point to point flight rather than ignore it in totality. Financial Instruments: the CBN’s newly created economic protection unit should consider introducing policies that will discourage ferrying of all funds generated by foreign carriers. That policy will be a negotiating instrument if it is well implemented. This may sound draconian but what can be more draconian if it cost Nigerians twice the fare offered to our Ghanaian counterpart. The CBN can talk to their counterpart in Venezuela and the Philippines, when they implemented this policy the foreign carriers buckled. The ministry of Aviation should also begin the process of reviewing the bilateral air services agreement [BASA] , these agreement are not only skewed in favour of the foreign carriers, they inherently do not protect our carriers principally at airports with slot allocation issues, considering the ease at which we offer multiple entries. We need to review the Nigerian Civil Aviation Act: the recent decision of the administrative panel set up by NCAA to review decisions taken against the British Carriers with respect to Passenger fuel Surcharge is another sour remainder of the irritating cease and desist order. Alleged High Cost of Operation in Nigeria: When the cost of operation is high in a country or to a particular airport in that country, the options open to airlines world over is to reduce frequencies, capacity, close their bases or stop operations pending review of those cost. Also, IATA an international body responsible for coordinating commercial activities of the industry usually issue alerts and advice countries with such problems to quickly make amends or review. Nigeria has not gotten that alert. Rather the foreign carriers have been increasing capacities, frequencies and points of entry yet they cling to cost of operations as an excuse for high fares. The A380 is the biggest passenger aircraft in world; it is not operating into Nigeria because we do not have facilities to handle it. The new B747-8 which is second biggest aircraft will be operating into Nigeria very soon through a foreign airline, which shows how juicy the Nigerian routes can be. We need to facilitate competition and must ensure that facilities and legislations provided are not diverted or given to non scheduled operators whose appearance, equipment and ownership are opaque. We should not be deceived into increasing frequencies for the foreign carriers as encapsulated by BA country manager; rather we must empower our carriers and fast track the national carrier project without recourse to public funds. SUPPLY: LACK OF COMPETITION: Government intervention in commercial aviation is usually built on the following pillars: Tax policies. Infrastructure provision. Civil and Labour Regulations. Aviation Security. Protection and Encouragement of domestic carriers in a competitive environment The lack of protection which is one of the pillars has shackled our carriers’ ability to compete on the international route and has also made them unattractive to foreign investors. Government should urgently consider a regulatory consolidation regime; reduce duties paid on aircrafts, spares and other critical operational needs. Low interest loans should also be considered for these carriers, while aviation fuel which is a major cost component of the industry though de-regulated needs to be guided as obtained in some countries like Argentina or expanded to incorporate airline participation. [India recently gave approval to their carriers] Who should benefit and the conditions? Airlines with active AOC’s. Schedule airline operators. Submission of a verifiable business plan. Submission of a verifiable financial statement. Strict compliance and monitoring by the regulatory or appointed agencies. Distinct separation of passenger and corporate jets. DEMAND: Public Travel Expenditure: We need to address the high propensity to travel at all cost for the most rudimentary reasons; therefore we should reduce public travel expenditure in line with present day realities and as a palliative support to the fuel subsidy removal. We should place a ceiling on fares approved for public officials by warehousing public travel. We should also plan our travel well ahead with requisite approval given on time. Our orientation of having retreats, capacity building over sight and other Social Programmes that are non essential outside the country should be reduced or completely discarded. In conclusion the foreign carriers are guilty and have over the years exploited Nigerians, legislating or forcing it down their throat will be give temporal relief, to have an enduring relief we need to look inwards, or else will be aiding and abetting the clandestine plan of making Accra the hub West Africa.

FAAN /MAEVIS DEAL:PUBLIC OR CORPORATE INTEREST

FAAN/MAEVIS DEAL: PUBLIC OR CORPORATE INTEREST ?

The commando takeover of MAEVIS facilities and forceful termination of the agreement despite having a restraining court order is a tragic Nollywood presentation that will surely damage our reputation in the international investors’ forum.

In my article titled “The Rumored Cancellation”, written and published sometime in the first quarter of 2011, I advised both parties to seek re-negotiation rather than cancellation, because that option usually leads to prolonged litigation, freezing of bank accounts and assets as witnessed in the past.

It started with Pan Africa Express, Sanderton a while ago, Nigeria Aviation Handling Company (NAHCO) thereafter and now MAEVIS, the current victim. Going by the press briefing of FAAN MD, they are already preparing to bulldoze other organisations based on the principle of sub-optimal agreement given as bazaar by the Federal Government through its appointees in FAAN and the Ministry.
The MD of FAAN has also forwarded the MAEVIS file to EFCC and ICPC, I sincerely hope the names of the FAAN MD, Director of Commercial, Head Legal and the Minister’s SA at that time were attached to the petition. These people and their backers in the ministry turned a blind to anti public enhancement fee that is principally used for settling the “settlables”.

Going down memory lane, in 1993 NAHCO, FAAN and Spring Fountain the purveyor of MAEVIS were to jointly start a domestic handling company, but after making necessary financial contributions, the deal fell flat and refunds were demanded in a typical Nigerian ding-dong movement between the parties.

NAHCO again under Musa Agboneni, Chris Hassan and AGM Ops Mr. Olu Afolabi sometime in 1995 introduced computerised handling and check-in procedure at MMIA. In their quest to improve and update the facilities, they got a technical partner NATHECH and a North American company ARNIC Systems to assist and ensure the mission is accomplished.
NAHCO invited FAAN and SAHCOL (the latter had her vision blinded by the ill fated Nigeria Airways at that period in time) to come on board with requisite moral and financial contributions. These organisations failed to catch the vision and consequently backed out.

NAHCO in 2003, went ahead to provide the Airport Operations Management System, investing a lot of funds, while also refurbishing all the check-in counters at the MMIA. Their request to include the flight information display system (FIDS) was flatly turned down by FAAN.

Later, SAHCOL became an independent entity with a clear vision of participating and competing in the provision of ground handling services. They petitioned the ministry, alleging that NAHCO was being favoured and given undue advantage at the MMIA.

NAHCO responded by purchasing additional equipment worth $360,000 to enable SAHCOL key into the programme seamlessly. When SAHCOL was asked to pay, they backed out of the deal, again. Thereafter NAHCO went ahead with the processes and system unperturbed, though with a major hitch, the exclusion of non NAHCO passengers.

In 2007, the agreement with MAEVIS was signed to the surprise of industry watchers because MAEVIS won the deal over and above other experienced organisations that applied for the contract; organisations such as SITA, NAHCO-ARNIC etc.

The Company went to work investing and providing services that improved facilitation for passengers and airlines, while also capturing and generating revenue for FAAN before the bubble burst in 2010.

It has been a cat and mouse game ever since, MAEVIS was charging $1.40cent per passenger and the contentious 35% enhancement fee from revenue generated, SITA will be charging the same $1.40cent without enhancement, which is a better deal, while NAHCO was charging below $1 per passenger for the same services.

The MAEVIS/FAAN case is in court. While watching the drama in the legal and public opinion court, we need to be reminded that the equipment NAHCO used before they were forced to move out for the MAEVIS deal are still lying somewhere in the same airport that MAEVIS equipment are lying in right now. Peradventure, SITA’s equipment suffers the same fate this will increase the computerised carcass inventory at MMIA.

Questions that keep recurring in our PPP or is it concession agreements are: Why do we make the same mistake always? How did SITA win this contract? Was it through an open and transparent bidding process? Did SITA deal with FAAN directly, or through their agents which may have hiked the total cost of the deal? When will the toothless Infrastructure Concession Regulatory Commission be able to bark and bite?

MAEVIS was absolutely right in saying enhancement fee was entrenched in most FAAN domiciled concession agreements, so the MD FAAN must also be perfectly right to have promised to review those sub-optimal agreements and for boldly aligning with public interest in contrast to MAEVIS’ position of aligning with corporate interest, which must have necessitated their refusal to renegotiate or is it resort to legal delay tactics.

When the legal processes are completed, I sincerely hope the BASA fund designated for critical safety and infrastructural projects, which is being diverted to offset Government liabilities of late will be sufficient enough to clear liabilities arising from sub optimum agreements.
Concession is the way forward and must be accompanied by transparent, robust and independent economic regulations supported by effective industry consultations.

This is what the concessionaire and concessionee in this soap opera lacked from the beginning when they started their romance in 1993, they should look back and ensure the problem is settled amicably considering MAEVIS have invested a lot resources.