Many start-ups are emerging from the COVID-19 crisis. There is an old gag within the industry, that says: “How to become a millionaire in aviation? Start as a billionaire!” If that is the situation, how come, many rich people are still interested in a sector that can quickly pauparise them? What is the attraction with the way airlines are springing up, even in COVID-19 era? WOLE SHADARE examines the development
Start-ups in difficult times
Many start-up airlines are emerging in Nigeria at a time COVID-19 has wreaked havoc on a sector that is seeking solutions to many of its troubles.
There is a general saying that if a billionaire wants to become a millionaire, he should go into airline business. Many airlines have seen their billions go up in smoke in what has been the worst year in aviation ever.
Two months ago, United Nigeria Airline began operations with its Lagos-Enugu route. Green Africa Airline is equally on the verge of starting operations as the carrier with deep pockets is expected to redefine airline business in Nigeria with its massive investment in aircraft and other equipment that have already started shaking the sector, even before it starts.
The airline is said to have placed orders for narrow-body jets to kick-start it operations. Sources in the aviation industry disclosed that the Federal Government was accelerating the speed of floating Nigeria Eagle Airline.
Others like Value Jet, Rahma Air Nigeria and Jet Airways are also waiting in the wings for their Air Operator Certificates (AOC) from the Nigerian Civil Aviation Authority (NCAA). Some 33 global airlines went bust. Another 15 are currently ‘on watch’ as IBA.aero consultancy said recently.
Still, some 30 new airlines are preparing to launch or have already commenced services.
Already, the existing airlines are not finding the situation funny because of the depleted domestic market, which seems not have shown significant growth simply because of the economic situation that has made air travel to be a luxury to many people.
Road transportation has become a succor to many who cannot afford flight tickets despite the attendan dangers on the roads.
High airline turnover
The air transport sub-sector in Nigeria, according to Phillips Consulting, accounts for the second highest share of modal contribution to transport output.
The road sub-sector accounts for as much as 84 per cent of transport GDP, while air transport’s share in the last couple of years has averaged about six to per cent.
The industry has witnessed a high turnover of domestic airlines since deregulation; generally, many of the local airlines experiences in the industry have been shortlived, with many often operating a few years and then folding up.
Before now, there were only about eight active scheduled domestic passenger carriers in the Nigerian airline industry, although the total number of active Nigerian registered carriers is put at 23.
Many of the existing carriers and those that have joined the fray, experts said, would need to be creative to sustain their operations with the huge number of seats that are expected not to be filled by passengers.
Propensity to travel
The basic concept of ownprice elasticity of air travel in different market segments suggests that if air fares are reduced on Nigeria’s domestic routes, demand for air travel is likely to increase, since these routes are short-haul.
Nigeria has the lowest propensity to fly among countries like Venezuela and Egypt with almost similar demography, specifically with population size.
This story is a paradox of sort, given that the geography as well as the demographic profile in Nigeria favours air travel.
The country has a working population of over 73 million, which, in addition to the fact that there are substantial intercity distances, should favour propensity to travel by air.
The low GDP per capita probably provides some explanations for low propensity to travel, but again, Pakistan has a lower GDP per capital and still manages to record a higher PTF than Nigeria.
The number of active domestic airlines is also lower in Nigeria than in other countries, again indicating the low demand for air travel.
The sector is heading into ‘northern winter,’ traditionally when demand is lower and yields weaker.
This year, there is greater economic uncertainty. Operating and financial environment could see more market exit. Amid the gloom, there are still start-ups.
The West African nation of Nigeria has had a number of start-up and failures, Nigerian Eagle, Green Africa, United Nigeria Airways and few others seem to have bold vision. It remains to be seen how these new airlines cope in a tough airline environment considering the low number of flying public.
Not a few had suggested and raised concern that with Nigeria’s relatively low numbers for the flying public, it may quickly descend into a dog fight with no winners.
With a glut on the route, this could engender competition and help to force down fares. Competition is a natural result of many players in an industry. However, as profit oriented actors, airlines will not venture into an industry where there is low propensity to fly.
The lack of airline competition and the absence of regional airport hubs are some of the constraints identified in Africa’s aviation. Hopefully, competitive prices and better quality will result and trigger increased demand for air travel.
Nigerian airlines are small, with fleet sizes as low as four aircraft for some airlines.
The actual market is equally small. Although market potential exists along several under-utilised air corridors, the smallness of airlines does not permit them to explore these potential routes. Airlines may not be able to break even given the low load factors that are likely on such routes.
Small size of carriers also constraint capacity to offer frequencies, compete on regional and international routes. Nigeria’s domestic airlines are therefore not strong players in the international and regional markets.
Air fares are said to be on the high side. The most trafficked route on the network, Lagos- Abuja has an average fare of N35,000 per passenger for an hour flight.
This translates to about $85 at the current rate per passenger. In other climes, many airlines have seen their billions go up in smoke in what has been the worst year in aviation ever. Some 33 went bust.
Another 15 are currently ‘on watch’ as IBA. aero consultancy said recently.
Still, some 30 new airlines are preparing to launch or have already commenced services. We have a look at some Aero K A start-up in South Korea commenced services on April 15 with a single Airbus A320ceo sourced from Carlyle Aviation Partners.
The airline launched with a domestic service from Cheongju to the popular island of Jeju, but plans to go international (China) later on when it grows its fleet to three aircraft. Aero K is in for a challenge, as competition on the Korean domestic low-cost market is fierce.
Itapemirin Transportes Aeros
Based in Brazil, ITA came a step closer to launch last week. On Monday and Thursday, it operated certification flights out of Belo Horizonte to demonstrate to ANAC regulatory agency that it can satisfy all demands before it is awarded an Airline Operator Certificate.
In Europe, Norway will see two start-ups this year. Norse Atlantic Airways intends to launch long-haul services between Europe and the U.S. in December. It has a contract with AerCap affiliates for nine Boeing 787s.
Another newcomer from Norway is Flyr, which confirmed last week that it will launch on June 30 with a domestic service from Oslo to Tromso in the far North of the country.
In the UK, Flypop is a familiar name that failed to launch in 2017.
It persevered and relaunched itself last year. Flypop is a low-cost long-haul carrier that will focus on routes between Europe and South Asia, in particular, India.
Flypop has submitted a request for an AOC with CAA and intends to start operations out of London Stansted in October to Amritsar, Ahmedabad, Calcutta, Pune, Goa or Cochin.
Low-cost airline | Fly Pop
Low-Cost airline flying nonstop from UK to Ahmedabad and Amritsar in India and other second city destinations.
Seeing good opportunities to prosper is another longhaul low-cost airline, World- 3Fly from Spain. Owned by leisure group, Iberostar Group, the new airline wants to launch this Spring with services from Spain to South and Central America, including Punta Cana, Cancun and La Habana.
Not a few believe that increased demand for air travel needs to be engineered.
While the demographics and geography are favourable to air travel, the prohibitive costs is traced to supply side costs of operations, maintenance, taxes and other regulatory charges.