Aviation - Expensive Flights, Always Delayed
Last week, one of my staff who travelled from Abuja to Lagos paid about N60, 000 naira (almost $400) for the round trip. The 100 minute flight both ways costs around $100 in other parts of the world and is usually efficient and on schedule. In this case, the flight was delayed for about 7 hours on the return leg with no explanation, apologies or compensation. This and similar unpleasant stories are what comes out from our airports daily. The Nigerian aviation industry is characterized by unaffordable, unavailable and mostly unsafe air transport services. If one were to describe the Nigerian aviation sector, the words would be poor standards of service and consumer rights; poor connectivity; reduced competitiveness and high costs.
Aviation started in Nigeria in 1920 as a military transportation service, when a British Royal Air force aircraft landed on a polo field in Maiduguri. Civil air transportation started in 1946 with the establishment of West Africa Airways Corporation, and KLM first flew into Kano on the first international flight shortly after. This was consolidated by the establishment of Nigeria Airways in 1958. The aviation sector grew steadily and by the early 1990s there were over 30 airlines in Nigeria. However today, there are only 16 airlines in Nigeria that operate scheduled domestic operations, and all of them are all swimming in troubled financial and operational waters.
Why has aviation in other countries flourished while ours has floundered?
Today, the global airline industry consists of more than 2,000 airlines operating more than 23,000 aircraft and providing flights to over 3,700 airports. The growth of air passengers globally has averaged over 5 per cent annually for the past 30 years. But the case of Nigeria seems atypical from the global trend - diminishing airlines, deteriorating airports with obsolete facilities and low or near-zero passenger growth.
An estimated N300 billion annually is currently remitted abroad by the aviation sector compared to the N15 billion reported revenue earned by our aeronautical authorities, domestic airlines and associated domestic service providers. This is principally because foreign airlines carry up to 98 per cent of our international passengers annually and that virtually everything needed for air transport operations including aviation fuel, are imported at very high costs.
More than one out of every forty human beings is Nigerian, but largely because of our immature aviation market, we remain relatively isolated from much of the rest of the world. There are only 74 services per week from all of Western Europe and about 5 per week from America to Nigeria. Even from Gulf region whose aggressive national airlines dominate markets in other parts of the world, there are only 21 weekly flights to Nigerian airports; roughly equal to the weekly offer by Emirate Airlines alone to Chennai in India!
Despite Nigeria's relative wealth, we are ranked very low in terms of propensity to travel and just barely ahead of war-torn Afghanistan. Nigeria's 24 airports are ranked 54th globally while Indonesia and South Africa that both have 230 and 147 airports are ranked 10th and 14th respectively. Last year, with our 11 airlines, 24 airports and over 10 international airlines flying into Nigeria, we recorded some few hundred of tons of cargo and about 9 million air transport passengers, just 0.4 percent of the 2.4 billion global air passengers in 2010.
With passenger to population ratio of about 6 percent compared to the USA's almost 98 percent and Japan's 89 percent, accessibility to air transport is still very low in Nigeria. About 95 percent of our cities remain unreachable by air, domestic fares are more than 200 per cent higher than those obtainable in other parts of the world and therefore unaffordable to the bulk of the population. In terms of airline and airport growth, as the largest country in Africa and the second biggest economy, we are lagging behind in virtually every measure of availability, affordability and access to air transportation.
Air transport can play a key role in the economic development of Nigeria and in supporting its plans for long-term economic growth if it is properly harnessed. It can help make Nigeria truly an integral part of the global economy (not just as a dependent part) by boosting the productivity and growth of the economy through better access to markets, enhancing links within businesses and providing greater access to our resources for foreign markets.
Aviation has improved the economies and international outlooks of some countries where the sector has been properly positioned. Examples are USA, UK, Germany, France, Dubai (UAE), Malaysia, Singapore and South Korea. Therefore, maintaining and improving our aviation system is essential for our economic growth, social cohesion and job creation. But it must be done in a prudent, planned and efficient manner in partnership with the private sector to yield the desired results.
The positive economic effects of airline industry start from its direct employment to the less direct but very significant impact on lowering the cost of logistics and doing business, which lead to more employment growth. In fact, it has been widely acknowledged that other players in the aviation chain are far more profitable than the airlines which collect and pass on fees and revenues to them from ticket sales. While airlines generally operate in thin-margin, high volume business as a whole, and earn just about 6 per cent return on capital employed, airports can earn up to 10 percent, catering companies 13 percent, handling companies 14 per cent, airplane lessors 15 per cent, airplane manufacturers 16 per cent and global distribution companies more than 30 per cent return.
Nigeria can gain enormous positive benefits by investment in aviation infrastructure and services, particularly in airport developments across the country to connect more of its cities to the global aviation network. By increasing a country's connections to the global air transport network, investment in aviation can boost its long-term productivity and economic growth through creating more direct and ancillary jobs. But, like other airlines in many developing countries, Nigeria airlines are faced with the problems of high capital costs, especially for acquiring new aircraft. Paucity of funds and high interest rates have grounded many promising airlines. Only the CBN's lower-interest, aviation refinancing funds has kept the airlines alive! A more permanent solution is needed.
Operating costs are also high with multiplicity of charges, levies and taxes. There is also the problem of aircraft insurance that gulps tens of millions of dollars of carriers' investment simply because only a few insurance companies underwrite aviation risks in Nigeria. That is not all. The airlines have their own internal operational issues, cash leakages, and poor quality of human resources to address for the industry to thrive.
Increased fuel costs arising from the fraudulent subsidy system for the JET fuel has also led to an artificial cost escalation - some 50 to 60 per cent higher than what obtains globally. Major refineries in the world no longer produce kerosine but Jet A1. Our fuel merchants import Jet A1 as DPK and sell to marketers at as subsidized kerosine at about N45 per liter, who in turn filter it and sell it to airlines as aviation fuel at about N190 per liter. This has escalated the cost of air travel in Nigeria, resulted in reduced passenger volumes, lower airline profitability, and overall aviation industry stagnation. The culprits are all well-known. And the authorities know what needs to be done. Government must do its part to improve policies, regulation and infrastructure.
The poor infrastructure capacity in terms of airports quality, technology and safety coupled with the growing costs of maintaining and expanding them are also part of the most critical problems of our aviation sector. The real bottlenecks of our air transportation system are lack of navigation facilities at existing airports and the cost of providing them for the new airports (if they are to be built). The resources and time to improve the infrastructural capacity of our airports are both scarce and both are on tight budget. And the prospects for substantial relief on this front are not good for now - at least for the next few years as the Federal Ministry of Aviation's capital budget of less than N50 billion for 2012 is unlikely to address much of these.
Government needs to take a number of measures to step up airport infrastructure in the country. It must devise a modernization plan with a view to modernize all the existing 24 airports. And it must work out a funding plan for building new airports to open up and liberalize the country's aviation system - by creating accessibility in order to increase the market share for more airlines to compete. There needs to be an effort towards optimum utilization of the existing airports by addressing their problems of outdated infrastructure, inefficient ground handling systems and lack of night landing facilities in some airports, and poor passenger amenities. Private sector participation in the modernization program of the major airports must be sought and encouraged so that like the MM2 terminal in Lagos, more airports construction is undertaken through better structured public-private partnerships.
Improving air connectivity across the country with, at least, three major cities in each state connected by efficient direct flights should be the long term target. This can be achieved through new airport development and improvement projects, increasing passenger traffic and development of downstream jobs. An increase passenger volume will mean better profitability and sustainability of the operation of the airlines. Enhanced connectivity will improve the nation's labour productivity and logistic efficiency.
Nothing here is new or unknown to the Federal Ministry of Aviation. The Obasanjo administration's Presidential Task Force on Aviation Industry headed by AVM Paul Dike identified all the issues in March 2006, making 122 recommendations whose implementation would have put or aviation on a safe, viable and sustainable path. Under the leadership of my friend and brother, Femi Fani-Kayode, vigorous implementation actions began which improved efficiency and safety in our skies. Femi has been persecuted since 2008 for stepping on certain powerful toes to implement the Dike Report. What a country!
The authorities in Nigeria need to revisit the implementation of the Dike Report to ensure the healthy growth of our airlines, airports, and related services. There is need to initiate the building of our the avionics and equipment production capabilities, and the human resources for the industry. The government and the statutory authorities have critical roles to play in achieving this vision. The alternative is to be left with airports and facilities that are old, obsolete and irrelevant, airlines on the brink, and a hapless nation searching for jobs for millions of hopeless and restive youths. The ball is in the court of the authorities. By Nasir Ahmad El-Rufai