Market News

BY  Ifeoma Okeke-Korieocha 

Airfares on the Lagos-London route are expected to reduce as local carriers prepare to commence operations from Nigeria to London.

The coast is clear for Nigerian airlines to fly to the United Kingdom and Europe following the Third Country Operator (TCO) certificate obtained by the Nigeria Civil Aviation Authority (NCAA) for airlines.

With the TCO, the airlines designated to the UK or some of the EU nations can apply to operate without much hassle.

Two weeks ago, Air Peace disclosed that if has secured a Foreign Carrier Operator Permit (FCOP), which allows airlines from other regions to fly to Europe and (TCO-UK) which enables airlines to operate to UK.

Onyema said that to obtain these permits, the airline went through stringent audits to ensure that it met the high safety status, capacity and standard conditions; so, it is now qualified to fly to the United Kingdom.

Omni Blu Airline, another Nigerian carrier also secured the TCO, even as United Nigeria Airlines (UNA) had also been designated to fly to the UK.

Stakeholders in the industry have said this move is expected to create fierce competition between local carriers and big players on routes such as British Airways (BA), Virgin Atlantic and others.

They assured that Air Peace and other local carriers which will sell tickets in naira, will help to reduce ‘dollarisation’ of the economy, minimize pressure on the naira and earn foreign exchange for the country.

In addition, seeing an indigenous airline fly to and fro Heathrow Airport, London will be a thing of national pride.

However, other stakeholders has raised concerns that just as Arik Air faced aero politics and lacked the know-how on how to sustain the Lagos-London route, if Air Peace and other local carriers do not deploy the right equipment and don’t get needed support on the route, they may not be able to sustain the route when they commence flight operations.

Sindy Foster, principal managing partner, Avaero Capital Partners, told BusinessDay that while the plan should be to offer a competitive fare for a new direct flight to London, the airlines will need to have tighter control of their costs.

According to Foster, increasing available seat capacity by itself won’t necessarily reduce fares immediately because the supply of seats has been limited for so long and pricing will need to reach its equilibrium, adding that it is likely over time, market forces will see competitor behaviour reducing prices on the Lagos-London route.

She said In the end, it will come down to how well Air Peace can control its costs and market its product at the best price.

“Predatory pricing will be viewed dimly by the NCAA, but there will no doubt be a competitor response. But we have also seen how some countries have used the visa system to protect their airlines and destabilise foreign airline passengers and/or operations.

“It would be very unfortunate if this tactic was used in this way on the route. The Nigerian backlash would be severe so that I would caution its use here,” she said.

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To sustain the Lagos-London route, she said If they do the right things – control their costs, maximise revenue, and operate a reliable on-time schedule, there is no reason they should not be able to maintain this popular high yield route.

“It’s a big ask, but with consistent application of the fundamentals, they will sustain the route. The London route is very popular, with more indirect traffic than direct traffic accessing this route it provides a good opportunity for Air Peace and other Nigerian airlines to make an impact. Saving time to get to London, at a lower fare, will be an attractive proposition for many,” she said.

An operator who would not want to be mentioned said the news that Air Peace will soon fly to London is good news for the general public but it’s not the first time a Nigerian carrier tries to be successful on that route.

“There are a few facts that must be remembered is Lagos to London by BA and Virgin are daily. This is very convenient and gives a wide choice to passengers, BA and Virgin flight to London does not carry passengers only to London, especially BA. BA will have probably more than 60 percent of the passengers on that flight connecting to another destinations.

“BA and Virgin are very reliable. If they cancel their flight they will put the passengers on other airlines, BA and Virgin have a huge customer base. If you rely only on London passengers to fill the flight, it will have to be attractive with either better frequencies, service or fares,” the operator explained.

He said for Air Peace to attract international passengers, it has to be the fares, adding that while their service isn’t bad but international passengers tend to prefer known brands.

He said while the fares to London might take a dip for a short time, he doubts that BA or Virgin are very concerned.

“The same happened to Jo’burg. Air Peace started with many flights. The fares went down, but eventually the service didn’t seem reliable and passengers moved to South African Airways (SAA). SAA is now back at almost daily and Air Peace once a week,” he added.

An economy flight booked for November 15 from Lagos to London lasting 6hrs, 35mins costs $2608, at $396/hr.

However, a flight from Accra, Ghana, with the same specification and time, costs $1158 at $176/hr.

But a flight from Abuja to London costs $961 at $147/hr.

A flight from London to Dubai, United Arab Emirates (UAE) lasting 7hrs,10mins, costs $1797 at $251/hr.

Airlines often explain that the fewer the available seats, the more expensive the fares.

Mbanuzuo, former Chief Commercial Officer, Green Airways explained that on Lagos-London route and Accra-London routes, BA could charge the same fare.

“Let’s say $700 both flights fill equally. If both are 100 percent full, they are leaving money on the table. So they then raise the fare in increments of $100. At about $1000, they will find that demand on the Accra-London route will taper off and load factor will start dropping. So they have found some kind of equilibrium.

“But I bet the Lagos-London flight will keep departing full long after $1000 is past. A tapering effect might only be felt around $1300 or $1500. With more seats and a generally stable market size, the equilibrium fare could be much lower.

“Some might say BA is ‘exploiting us’ but as a private enterprise and if I was a shareholder, I would prefer they maximise my value,” he said.

John Ojikutu, industry expert and the CEO of Centurion Aviation Security and Safety Consult, Nigeria said Nigeria needs one or two national flag carriers to compete with the foreign airlines on Nigeria’s Bilateral Air Service Agreements (BASA) routes since the country cannot agree with those in the administration of government and the management of the agencies to establish a national carrier.

“We don’t even need a national carrier but flag carriers which is more or less the global practices now. Once there are competitions on the BASA routes, sure there would be price competitions on the Routes. What Air Peace must do is to make the higher classes (Business/First Classes) not just affordable but comfortable.

“Abacha once banned the BA from Nigeria and the Airline had to be operating from Accra. Government Officials under Abacha and on Official Government Sponsored Trips would fly to Accra to board the BA even when there was the Nigeria Airways. This is one reason why we must ensure that there is no National Carrier to compete with the Flag Carriers and the foreign airlines are restricted to Lagos or Abuja and not to Lagos and Abuja.

“Our flag carriers can however operate from any of our international airports. Foreign Airlines can have complementary airports from the alternative geographical area to their choice between Lagos and Abuja and make multiple frequencies to their choices,” Ojikutu explained.

He said if these can be done and nobody in government is taking interest in a national carrier to compete with the flag carriers, the benefits of commercial aviation will sustain the BASA routes, a Commonwealth, and its market earnings for the Nigeria People.