How Nigerian Airlines Can Drive Profitability Through Reinvention
Updated: Aug 22
It is no doubt the airline business in Nigeria will never be the same again upon resumption after the COVID-19 pandemic, hence, the call by operators and the various stakeholders for a government palliative or bailout as we know it.
The Chairman Airline Operators of Nigeria AON has rightly sent out suggestions to the Federal Government and Financial institutions seeking an effective path to the recovery of Airline Operations in Nigeria post COVID-19, placing priority on a strategic approach to ease the financial burden on airline operations in the area of revisiting statutory charges, taxes in addition to the various monetary relief packages.
Away from what the Federal Government can do to help the sector, its surprising no one is talking about what the airlines should be doing. Here and there are speculations of increase in airfares to compensate for a recovery plan, airlines like Dana Air thinking social distancing by leaving their middle seats empty on their 3-3 configuration aircraft? How about a look at the airlines approach to operations? How will COVID-19 change the way we travel and what measures aside a recovery approach are operators looking at. It is clear everyone is talking about a recovery my question is “a recovery from what?”
The Nigerian Airline business has over the years being trailing negative figures so should our approach be for a recovery or a reinvention. In 2018, the Minister of State Aviation Sen Hadi Sirika bluntly stated the key problems of the Nigerian airline business weren’t necessarily a function of taxes and statutory charges but the business model adopted. The Nigerian airline business has been hanging on a thread and an International crises as COVID-19 undoubtedly will blow off balance every airline without a strategic approach on how to remain standing firmly balanced in the long term hence, the need for operators to revisit their business model and adjust as well as adopt a revised model that would not only sustain them post Covid-19 but will create a lasting and more profitable way of flying in Nigeria without necessarily hurting the flying public.
Learning from history just after the 911 attacks US major carriers fell prey to the crisis and were at the brink of bankruptcy James Godwin of UAL (parent company of United Airlines) October 2001 decried the rate at which airlines were bleeding and if these loses were not stopped United Airlines alongside most other carriers would shut down before the next financial year. The post 911 Era saw the airline industry reinventing itself to survive hence the sudden growth of the low cost idea. The sector found a way of shifting from the status quo and working with what they already had to create something they could work with efficiently. According to the Bereau of Transport Statistics, after the 911 attacks passenger traffic dipped drastically and took nearly 3 years late July 2004 to match up with its pre 911 levels. US airlines alone lost over $33bn and took a little over 3 years to recover.
To reinvent on a small scale would entail applying little but then effective adjustments to the business model already in place. As we know the Nigerian airline business has maintained a unique business model for decades now which has defined the way we fly with little or unimpactful improvements in terms of services offered which is a direct function of costs incurred in relation to the operating revenue or turnover.
Airline business in Nigeria has for so long played around the so called “low cost” and “hybrid” business modeling structure which offers low airfares below the $100 fare margin for economy class and then a hybrid approach to fleeting, two-class seating and the bundling up of flight tickets and on a fair note most of these airlines really make the most of this approach from their fewer business class passengers. No doubt this Business model is quite unique to the business environment we find in West Africa. The big question would be, what happens to the changes the COVID-19 crisis would enforce ranging from social distancing to in-flight services to boarding arrangements, online booking, seat assignments among other compelling realities. Just as 911 brought about stricter security measures of which airlines and airport operators shared the burden, COVID-19 has got so much up its sleeves thus the need for reinvention.
In October 2018, I carried out a study on Ancillary services and how they can enhance airline potential in Nigeria. My findings led to the realization that Nigerian flyers are willing to pay for value added services which led to my recommendations on the strategic approach that can be employed to maximize revenue generation in these areas thus the concept of Competitive Advantage with focus on Differentiation.
As the scourge of COVID-19 lingers airlines would need more than government bailouts and reduced taxes to thrive in the long term in response to the recommendations that would be dished out by the International Civil Aviation Organization and other airline governing bodies which will further give operators a tighter margin to work with in terms of profitability, so will operators put this burden on the flying public or look somewhere else?
The concept of Differentiation should be revisited on the larger scale, online bookings would be a hit post COVID-19 and so much money would be going to the travel agencies, thus a more innovative approach to technology is inevitable. The redesign of Airline products and services offered to compensate for this new Era is of high priority. As much as there are advantages in the concept of bundling flight tickets it is safe to say this concept will prove to be poisonous to profitability post COVID-19 hence the need to adjust our pricing approaches discriminatorily. We should look for profits outside flight tickets at this point. Every passenger will groan at higher fares but will be willing to spend so much on a healthy travel, comfort, business on transit as well as entertainment, Isn’t that perplexing?
Foreign carrier domination is still a plague yet without a vaccine so what model of routing and scheduling will not just prove profitable but counter this in the long term. How about the operators’ blind eyes to the problems of duplicated responsibilities in areas of outsourcing labor. Now is the time for reinvention if the airline industry has hopes of surviving in the long term.
According to Vasign, for profitability to increase either revenue goes up or costs comes down. It is clear post COVID-19 we may not have our full hands on costs as many new travel recommendations would be dished out for a COVID-19 free air travel. So we’re left with revenue to play around with. The same way post 911 Era was marred with stricter security procedures, post COVID-19 era will definitely usher in stricter hygiene measures. So are we ready for this new Era of travel where so much money would be pumped into the “basket” of hygiene? Will we go back to the drawing tables and apply strategic adjustments to the business of air travel or would we sit back crying wolf at how little government interventions would help oh yes the monies will come and may not fully ease the burden.
For one I can firmly state this isn’t the time to think recovery but reinvention. You do not recover from a culture. The Nigerian Airline business has lived a culture of losses decades of losses so why recover when you could just reinvent.
Jesse-Alex Oparachi Omenazu is a Flight Operations Officer, an Aviation Writer and a Pilot Trainee. He is also a member of the Chartered Institute of Logistics and Transport UK, He writes from Amman Jordan. He can be reached by email: firstname.lastname@example.org