Adeola Adeyemo
In an increasingly globalized world, smart governments recognize the importance of having their flags fluttering in as many places as possible. Nations need their own carriers to stimulate trade, boost tourism and, in many cases, assert their sovereignty. It’s a message that certainly hasn’t been lost on Nigeria, whose government once owned the highly respected Nigeria Airlines. While this airline was in operation, it served as part of our national identity and growth strategy.
Today, Nigeria is without a national airline and losing out in the global aviation marketplace. This is mind-blowing for a country of 190 million people!
Owning a national carrier could be likened to owning a football team. It is a country’s brand to the world. Asides from serving as a medium of transporting passengers to destinations around the world, a national carrier remains a tool for international trade and relations. Research shows that Nigeria loses about $2 Billion to international airlines operating in Nigeria on an annual basis. What is seldom mentioned, however, is the simple matter of national pride. Perhaps the key term in “national flag carrier” is, simply, “flag.”
In August 2015 shortly after his inauguration as President, Muhammadu Buhari directed quick action on the establishment of a new airline for the country. A 13-member committee, set up in just two weeks, has just got down to work, with its terms of reference including ‘to consult with interested international partners on setting up a national carrier on a public-private partnership basis,’ and ‘to develop the best model for the airline for Nigeria’. Buhari, sworn in in May, said that he was worried that a country of Nigeria’s stature as the continent’s largest economy did not have its own airline. State-owned Nigeria Airways stopped operations in 2003, and the country’s biggest airline is now closely-held Arik Air Ltd, which is based in Lagos.
Considering the vital nature of the service it provides and its invaluable contribution to making the world a smaller place, why is the airline industry synonymous with ongoing losses and insolvency? Many unprofitable airlines continue to remain in business despite years of substantial losses because various stakeholders cannot afford to let them close.
Closing down a large unprofitable airline would involve the loss of thousands of jobs, inconvenience to hundreds of thousands of travelers, and millions in losses for the airline’s creditors. Not to mention the loss of national pride if the airline in question is a national carrier.
Conventional wisdom suggests that states have no business running airlines. Indeed, the past few decades have seen most major economies sell their flag carriers to other airline groups or list them on the local stock exchange. The results have been mixed, at best. On a good day, a national airline is an embassy with wings transporting culture, cuisine, commerce and goodwill around the world.
The call for a National Airline
In Africa, about 47 out of 54 countries own airlines or have a majority shareholding or minority shares in designated national airlines or flag carriers. The benefits of having a national carrier cannot be underestimated. The benefits achieved by Kenya, Ethiopia, Egypt, and South Africa through their respective airlines are there for any interested party to see.
According to the World Tourism Organization, the top 5 countries with the highest direct contribution of Travel & Tourism to GDP greatest in 2016 are United States, China, Germany, Japan, and the United Kingdom. This comes as no surprise as some of these countries have the highest investment in their tourism industry. In the ranking of countries with the highest capital investment in Travel & Tourism in 2016, the United States also tops the list. Following closely are China, France, Japan, and India.
Interestingly, in the ranking for the countries with the highest growth in visitor exports in 2016, Nigeria tops the list. Following closely are Azerbaijan, Kazakhstan, Mongolia, Iceland, and Mexico. International tourism receipts grew to US$1.4 trillion in 2017, corresponding to an increase in real terms of 3.9% from 2016. It’s evident that the billions of dollars raked in by tourism are also shared by the national carriers of the respective countries. Nigeria shouldn’t be missing out on this.
Of the top largest airlines by passengers carried, four of them are based in the United States; three of them are based in China. Well, here we could argue that the US and China are vast territorial countries. The list is also populated by Irish and UK low-cost budget airlines Ryanair and Easyjet making it to the top ten respectively. When it comes to fleet size, still five out of ten are based in the US, China has two, Germany, France, and Canada with their respective national carriers Lufthansa, Air France and Air Canada making it to the top ten. In terms of the countries visited by airlines, the top four airlines are national carriers namely Turkish, Lufthansa, Air France, and Qatar Airways. It’s evident that a functional national carrier spurs growth in tourism which is a multiplier effect in the profitability of the airline business.
A global problem
Challenges facing the airline industry are familiar and persistent: cyclical nature of the business, slowing down of the global economy, the uncertainty of fuel prices, technology, environment, and slow pace of liberalization. African airlines and Latin American airlines are struggling to survive even in the best of times—2015, 2016, 2017. Asian, European, and Middle Eastern airlines are still below the cost of capital, shareholders’ expected rate of return on invested capital (ROIC). The only airlines that seem to be spared from this are American airlines, which have shown robust net profits and ROIC above expectations of shareholders.
An airline business needs top management; aviation is a highly volatile business and needs great care and handling. The main reason why most of the national carriers have gone under is mismanagement. In most African countries, the challenges include multiple taxations, high cost of acquiring aviation fuel, high cost of procuring spare parts and importing them. Nigeria is a very harsh operating environment for any airline, especially the domestic airlines. Adding to these problems are poor airport infrastructure which is unfavorable for both the airlines and the passengers.
Enhancing the Aviation Industry
The aviation sector is a key driver for economic and social development as it facilitates international trade, stimulates tourism and investment, and helps connect people. Air transport infrastructure has traditionally been the preserve of the public sector. Facing increased demand from citizens for better infrastructure, more governments are now recognizing that the private sector can play a major role in developing their transportation and aviation networks. Experience around the world has shown that private capital and expertise, as well as commercial discipline, can make a big difference in the delivery of aviation services and infrastructure as they contribute to more efficient services and substantial savings for governments.
To improve on existing levels of aviation safety in the light of the continuing growth of the industry, additional measures are needed. One such measure is to encourage individual operators to introduce their own Safety Management System. Such a system is as important to business survival as a financial management system and the implementation of a Safety Management System should lead to the achievement of one of civil aviation’s key business goals: enhanced safety performance aiming at best practice and moving beyond mere compliance with regulatory requirements.
Today’s savvy travelers are seeking solitude in technology, and aviation companies are working to keep up with the advancements. It’s the way of the world now. We’ve all become habitual multi-taskers, and the aviation industry, like many others, is scrambling to align itself with the evolving needs of its customers. New business and process models will help the aviation sector in optimizing cost and improving efficiency. Digital solutions could also revolutionize the way talent is skilled and groomed to enter the sector. The country’s aviation sector is on the cusp of aggressive growth and technology disruption. The key to success for airports and airlines would be to create a carefully crafted digital strategy and road map. Under the guidance of governments, the industry works hard to improve processes and develop new technology to counter the evolving threat to aviation security. Lengthy processes to get new technology into operation is, however, a bottleneck that needs to be fixed.
The right approach to re-thinking aviation in the digital paradigm is to design new business and process models rather than simply the automation of the various process areas for ease of traversing customer journeys, increasing efficiencies and cost optimization. As the outlook for demand in the sector for the next five years, both airports and airlines need to smartly deploy cutting edge digital solutions such as analytics and artificial intelligence. This would help to increase operational efficiency as well as enhance revenue generation.
Although the prior studies have proposed tools for measuring airline safety performance, they all had one thing in common: they did not discover the genuine cause of accidents. Further research is required so as to reveal the causality between root factors, causes, and accidents. This situation opens a window for further research. With the discovery of root factors leading to causes of accidents, a model that targets on accident prevention and safety training could be formulated.
What next for Nigeria?
At the beginning of the year, Nigeria’s Minister of Aviation, Sirika Hadi, told journalists in Abuja that Nigeria will have a very strong, viable national airline before the end of 2017. According to Hadi, the national carrier will be driven by the public and private sector partnership. Taking a clue from the Ethiopian airline, it has proven that the government is incapable of running a national carrier on its own promising that the national carrier will provide good service.
It is our hope that this government learns from past mistakes and gets it right this time around. Setting up a national airline will enhance a healthy competition between airlines thereby promoting a better quality of service.
According to research, growth in passenger traffic peaked at over 15 million in 2014, surpassing the 2013 record by 5%. In 2016 however, the Nigerian aviation industry saw a decline in passenger traffic due to the deep economic crises.
Airlines provide a vital service, but factors including the continuing existence of loss-making carriers, bloated cost structure, vulnerability to exogenous events and a reputation for poor service combine to present a huge impediment to profitability. While a handful of low-cost airlines have successfully managed to post consistent profits, by and large, profitable airlines are few and far between.
For the new carrier, resilience will seemingly be the byword following the financial trauma of the last few years, with the alternative being not to beat but out rightly flatten the odds.
This article was published in Maktoub Magazine
