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Consolidation: Can Nigerian airlines go it alone?

Nigerian airlines are wobbling occasioned by poor business model, dearth of infrastructure and huge encumbrances that has made them to be in serious financial dire straits. WOLE SHADARE writes that the airlines should begins to tinker with many opportunities that are opened to them to get out of the woods. For close to five years, Nigerian airlines have been struggling to make appreciable impact in the intricate airline business in Africa and in the world.

THEY are burdened with many problems that could soon lead the sector to slip into a deeper recession, if urgent steps are not taken by government.
Stakeholders are wondering if Nigerian airlines will ever get out of their present predicament. With problems ranging from huge debts, poor infrastructure, poor business model among others, they appear to be groaning.

With the controversy that has trailed the release of government’s intervention fund for the sector, their problems appear very daunting.

The economy has also not helped matters. The roads have become alternative to air travel as many, occasioned by seemingly high cost of air fares has driven them out of the airports.

The carriers no doubt have contributed immensely to the strength of the economy and one of the drivers of the economy, but they have not been helped by the policy of the government that has contributed to their woes.

A cursory look at the sector since the time of Nigeria Airways would help to appreciate the enormity of the problem at hand. When Nigeria Airways was winding down in 2003/2004, it was left with only one flying plane, a B737-200. The liquidation of the airline led to the dominance of private sector airlines.
Over the last 20 years, private sector aviation member airlines have been serving Nigeria meritoriously in the absence of the Nigeria Airways.

There are about 21 privately owned airlines that provide 100 per cent air travel, provide employment for regular 12,240 and affiliate 17,760 workforce or about (95.68 per cent) at all levels, while European and other African airlines employ a meager 553 workers representing 4.32 per cent.

The operators play significant roles in contributing to the Gross Domestic Product (GDP) of Nigeria , amounting to N7.370 billion, while N1.370 billion is paid in taxes to government, N2.10 billion in airport fees to the Federal Airports Authority of Nigeria (FAAN) and N3.90 billion in charges to the Nigeria Civil Aviation Authority (NCAA) and Nigeria Airspace Management Agency (NAMA).

Despite the huge potential for growth, the airlines are unable to compete effectively with European airlines whose capital flight out of Nigeria is over $900 million yearly. Other African airlines have also grown in the market, adding more to the capital flight.

Also, despite the semi-private nature of the European airlines and wholly government-owned African airlines, their respective governments still provide financial assistance in one form or the other.

Despite these challenges, the airlines have carried on as if they can go it alone, without looking at the possibility of collaborating for maximum benefit. In other climes, big carriers are merging, code-sharing and interlining even when they have the muscles to go it all alone.

In any other sector, consolidation would have naturally occurred a long time ago. Now, as many carriers struggle to sustain their financial viability, there is a window of opportunity to redesign the airline business model and address historical constraints, such as the narrow interpretation of antitrust regulation, international air traffic rights, and labour relations that have hampered combinations in the market.

Study shows that aside airlines, big corporations are equally collaborating to ensure success in their fields of endeavour.
Nearly all carriers are reporting dramatic losses, capacity reductions, and huge staffing cutbacks. A few, such as Swissair had long entered into bankruptcy proceedings, and a further shakeout.

In the immediate term, airline senior executives will have to focus on cost reductions-both variable and fixed-and pressing cash management concerns.

As they put out the more urgent fires, they need to start scouting out opportunities to pool resources, share costs with other carriers and create organizations that can attract private capital.
In fact, given the largely regional structure of the industry on both sides of the Atlantic and the events of September 11, consolidation may be the way out of the structural dilemma.

A look at popular airline mergers shows that as far back as 2009, Delta and Northwest Airlines formalised their plans to merge their vast domestic and international networks, creating the world’s largest airline with more than 800 jets, 6,400 daily flights and nearly $32 billion in annual revenue.

Continental Airlines just last year was busy discussing a merger with United Airlines, two years after the Houston-based carrier abandoned similar talks and declared its desire to stay independent.

The renewed talks were kick-started after word got out last recently that United and US Airways had started merger discussions of their own.
A merger of Continental and United would make it the largest carrier, surpassing the now-merged Delta and Northwest.

Many years ago, Air France-KLM equally got together to form one of the biggest airline partnerships in Europe, same with British Airways and Iberia which merger is at advanced stages of completion.

Apart from merger, carriers are equally forming interlining and code share arrangements to further boost their operations, coupled with different alliances that have come to shape airline operations.

While in Europe and the United States  airlines are benefiting hugely from these partnerships, Nigerian airlines are finding it difficult to tie down any. Air Nigeria , penultimate year entered into a code share agreement with the most prosperous African airline, Ethiopian Airlines.

The former chief executive officer of the airline, Captain Dapo Olumide had worked tirelessly to cement the deal in far away Addis Ababa. The deal according to experts who welcomed the development would have seen the carrier rise to international prominence and give it the edge against its competitors. It is not clear whether the deal still stays after Olumide’s exit from the airline he helped to stabilize.

Air Nigeria ’s loss may be Arik’s gain, as Arik plans to enter into code share and interlining pacts with some airlines to give it the international appeal and boost its operations in Africa and beyond.

Arik’s Senior Vice-President (Commercial), Kevin Steele made the disclosure on Tuesday at an interaction with reporters in Lagos .

Steele who refused to give the names of the airlines they are already in talks with, said they will make the outcome known when eventually the deal is sealed.

No matter how the operators view it and their plans to remain as chief executives of shaky airlines, the solution to their predicament is to embrace merger, interlining and code-share as done in other climes.

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Posted by on Jan 22 2011. Filed under Headlines. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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