Uko: Aviation Sector Needs Urgent Government Attention

Travel expert and organiser of Akwaaba African Travel Market, Ikechi Uko said urgent government attention is needed to save the air travel industry. He spoke to ChineduEze. Excerpts:

Let’s start with what the economy has done to domestic passenger traffic. What is your evaluation of the market?

From my experience in the past two weeks going to Abuja and Enugu, I was thinking that it was international traffic that has shrunk, but I can confirm now that both international and local traffic have shrunk. I found out that quite a lot of airlines are not flying to Enugu airport, so all the scheduled flights were missing. So whatever is happening is reflecting on both international and domestic travel. And I think it is a sign of bad things and a lot more bad things are expected to happen to the aviation industry.

Summer might pull up the international airlines because quite a lot of Nigerians have built the habit of traveling abroad, they will still travel, they have saved up money for it. And the economy hasn’t hit them that hard at that level to cancel their summer trip but the local economy is actually very, very bad.

Do you think it is wise for the domestic airlines to just pull their operations without any notification; they just stopped operating the routes?

I don’t know why it happened but it has happened and it is not that it is by choice; they are business people they want to make money. So if they now find out that they are not making money, they do the wise thing, which is to stop flying. You can’t force them to fly when there is no income coming from that particular route and considering the fact that they don’t get any form of support from the government. So they actually owe you nothing. The passenger is the biggest victim of whatever is going on.

Don’t you think the passenger that want to travel might be discouraged from travelling because he is not sure whether flight will be canceled or not?

From my own experience, I was supposed to have travelled to Enugu with some people, once they found out that there was no flight they stayed back and I had to go. And even when I went I couldn’t get a flight back until the next day. So some people might decide not to travel; others might decide to go by road; they might decide that the best thing is to go by road. So I expect that the land transporters will benefit but the roads are all so bad.

What is the impact of what is happening now on air travel and on the economy?

Actually the economy grows by the velocity of the distribution of money, goods, services and things like that. So a robust economy depends on these distributions. So when distribution is stopped it actually shrinks the economy. The biggest things the Romans did were actually to create trade routes. Every time you are conquered or occupied, the occupier or the conqueror is actually opening up a new market for his goods. He creates trade routes, so they opened sea routes. America was discovered because somebody wanted to open a sea route to India. After the fall of Constantinople and the Islamic Empires took over, the European traders of Venice and co needed to find a new route to India and in the process they discovered America.

So movement, transportation, travel have always been the means of growth for an economy. So for those of us in the travel business, this is bad because the less people travel a lot of businesses won’t grow. And there is also the safety implication; the safety implication is that an airline that has invested money in equipment needs return on investment to be able to service the equipment. If money is not coming and the banks are not giving loan, how will they service the equipment? So you start cutting corners, so there is also a safety implication to that.

Operators have condemned the ever-increasing prices of aviation fuel. They said that they are being tempted to increase fares. But if they increase fares it will further deplete the traffic. The marketers have a cartel so they determine the price artificially. How can government come in? And what do you think will be the future if things continue like this?

You know I talked about avia-exit; avia-exit is real. My flight ticket to Ghana tomorrow morning (Monday), economy class is N93, 000 on a Nigerian airline. That amount can take me to London and back before now, that is economy class one way. So avia-exit is real. The operators themselves are between a hard place and a rock. So what are they going to do? Passengers are not going to travel because the fares are too high. And without the passengers there is no flight but at the same time the airlines cannot fly and lose money, they can’t subsidise the passenger.

So what do you do in such a situation? You can’t abandon aviation to market forces. Aviation is a regulated environment; if you just abandon it to market forces like this you are going to have injurious results. So government cannot say the marketers and airline operators are on their own, no, the consequence of that is that the passenger pays the price. He can pay the price financially; he can pay the price with his life. The other day I was to travel to Ghana from Lagos and the airline pilot refused to take off, he said the quality of fuel provided for the aircraft was of poor quality, so he would not take the fuel. We had already boarded the aircraft, we have to be disembarked and the flight had to wait until they got the right fuel. This was noticed because the fuel was tested. So people are going to begin to cut corners when you just leave a market like that on its own. Nigeria had made so much progress, but where we are now we have gone back like 20 years in the past three, five months, it shouldn’t be so.

We had progressively made progress, we shouldn’t go back to the time before Dr Harold Demuren, the former Director General of the Nigerian Civil Aviation Authority (NCAA) came. We are now at the point before Demurenand that is bad for Nigeria and bad for everybody. So you cannot allow the fuel cartel to determine the life of the passengers, because what they are actually doing is determining the life of a passenger, it shouldn’t be so. But the question is whose job is it? Aviation is a strategic part of a nation’s economy; somebody said aviation security should be part of the national security infrastructure. Aviation should be treated as a very vital part of an economy, I will explain. I was at an event moderated by Richard Quest and he said every airline in the world is making money why is South African Airway losing money? And the South African man just gave him a simple answer.

He explained that they are at the bottom of the world and there is no way flying out of South Africa would be very profitable for all airlines. And if they are to depend on profitability for airlines to fly to South Africa they might get isolated. So the government knows that it is aviation that drives trade and tourism, so the government will prefer to lose money in the airline then get money by trade and by tourism. And that is how a national airline is supposed to operate. So our government should look at it this way; that there airlines are important to our country, that without these airlines our country can’t trade and can’t do tourism. So let’s put an airline there and lose but we get benefit.

South Africa makes about $11 billion every year from Nigeria, without South African Airway that will not be possible, so whatever loses they make on South African Airways is defrayed by the income a hundred and twenty seven or a hundred and seventy five companies are making in Nigeria. It is the same for Ghana, same for Kenya and all others. So aviation should not be treated like any other business because these are lives of people; it is not like the road transport that if the car parks up, you park it, drain the fuel and start again. If the plane develops engine problem while airborne, it is Hail Mary.

A Nigerian airline that operates to West Coast said some of Nigerian operators are pulling out of the Accra-Lagos route because the money they make on the route cannot even offset the charges, which are paid in dollars and that it will be difficult for them to get their revenue from the domestic market to pay for those charges, does it make sense?

Yes, 60per cent to 70percent of your ticket fare to Ghana is tax. So the amount they make on top might be extra N10, 000 and sometimes less. So when these things are charged they are charged in dollars, so no matter the amount you charge the passenger in naira by the time you take out the taxes the airline has lost money. But this would not have been like that if there was strategic understanding of the market before airlines moved in. Before the entrance of Dana there was no panic on that route, yes, they would have been stressed but they would have survived. But the entrance of Dana actually ruined the West Coast market because there was over supply. Dana flies with 80 passengers and come back with four, they can’t make money. But those 80 passengers they have taken were passengers that were shared between Arik, Aero and Medview. So today like I predicted only two airlines have survived, Ghana’s AWA and Arik, and Arik quickly shut up their fares. So this is the best time for Arik ever in the history of Nigeria, this was what they came out to do. If they don’t break even now, they probably won’t break even.

Let’s look at this route thing, you know Nigerian airlines always get enamored by popular routes, like Lagos to London and quickly join the fray without looking at the profitability. Do you think Nigerian airlines strategically study routes before deploying equipment to the route?

The Nigerian airlines act like Virgin Atlantic of old, Virgin waits to know how much BA makes on the route then they apply an aircraft there. So at the time Virgin was popular in Nigeria they were only flying to 11 routes. But everybody thought Virgin Atlantic was a big airline. So they would get into a market that has been developed by other airlines, brilliant strategy. But for the local market, everybody flies Lagos, Abuja, Port Harcourt but the most profitable airline in Nigeria before didn’t fly Lagos-Abuja. Sosoliso flew from Port Harcourt to Abuja, Enugu to Abuja, Owerri to Abuja, then Lagos to Owerri, Lagos to Enugu and Lagos to Port Harcourt. They never had an empty flight, they had full flight on each leg because they understood the market, they ignored the popular route and they kept themselves. And when people eventually found out that Sosoliso was making a killing everybody started flying Lagos-Enugu, Enugu-Abuja before then everybody ignored the market and Sosoliso moved in there, that is proper research, that is understanding of the market. So today Accra, Freetown are more profitable for the few airlines that operate there.

A Nigerian airline uses Accra as semi operational hub to other West Coast destinations. Don’t you think it is strategic?

I don’t think it is an effective hub as at now because Ghana has given fifth freedom right to Royal Air Maroc, Egypt Air, Kenyan Airways, Rwand Air and co. so that Accra end is an effective alternate hub for every Nigerian airline. Togo doesn’t have people coming to Togo but you could see how ASKY has turned Togo into an effective hub and even their airport has been rebuilt. And in the coming weeks once the New York flight starts from Lome, Lome airport is transformed.

If you were the Minister of Aviation how are you going to change the situation now?

First, because there are levers of enforcements that are not in your hand, you don’t control fuel supply; you don’t control airport tax in other stations. For me, every effort should be made to help the Nigerian airlines flying international routes to survive. Medview flies to London, summer is coming, Medview could make enough money to London to survive because London market is point to point. New York might not be point to point because there are extensions out of New York. But there is enough market out of New York to sustain Nigerian carriers. Now in this season that there is less competition, this is not the time for those two airlines to be antagonized by the Federal Airports Authority of Nigeria (FAAN), labour, and the Nigerian Airspace Management Agency (NAMA); this is the time they should be given every kind of support so that they can earn enough money to now pay their bills. So this is the time to encourage the ones that are surviving to actually make money out of the system so that they can survive. This is because if they can’t make money now it will be difficult. You know there is this cyclical thing that happens in aviation in Nigeria, there is a boom, then there is a bust, and a boom and a burst. So we are in the burst phase now.

So the ones that are there should be allowed to make money with high fares, the way Eko Hotel made money and built a convention centre. By the time competition came, Eko Hotel was already made. Nigeria never went back to charge $700 a night for a hotel room but Eko made enough money from the high rates then to refurbish and rebuilt new things. So now Arik may never have the opportunity to charge N93, 000 to Accra in a long time but now they are. So this is not the time to antagonise them, this is the time to assist them in any way possible so we can establish them solidly.

Then the aviation fuel issue should be looked into. Lagos can never be a hub if the supply of aviation fuel is problematic. First, it is scare, second it is expensive, some airlines tanker and fly into the country and just top up to go when they come to Nigeria, it shouldn’t be so. For you to have a hub supply of aviation fuel should be taken for granted. The one about airport tax, we charge airport tax in dollars but the airline is asked to charge in naira. So you have a problem that the airlines can’t really make that much money. I am not surprised they are all pulling out of Accra because Arik can afford to charge N93, 000, Aero cannot, Medview cannot. This is because Arik has brand equity and a network that can fit that but other airlines, which don’t have any extension out of Accra, will be difficult to sustain it.

How do you think British exit from EU will affect the Nigerian aviation industry in terms of technical partnership?

To me, like Prof. Bolaji Akinyemi said recently, it is a situation where nobody knows what will happen. So personally I think Britain committed suicide. This is similar to the Greek people voting for Syriza and they have suffered it and they keep suffering it. So you had an option but you had an emotional pull and decided to vote for your heart. That is how I see it personally. The British have already given themselves independence in EU, they don’t accept Shengen visa, they don’t accept Euro, they have their own Pounds. The only problem British have with EU is immigration and the immigration crisis was created by Britain. Britain joined George Bush in invading Iraq that destabilized the Middle East. Britain along with Sarkozy led war against Libya that destabilized North Africa. So these are the benefits of their own actions but they don’t want to accept it. So you have gone to do something, the repercussion comes and you reject it. How it is going to affect aviation, I actually have no clue but from the falling Pound it means that Nigerians will now shop and die in London. Even when the Pound was expensive, Nigerians were the third largest shoppers in England because clothing in England were cheaper than clothing in Nigeria so it was easier to shop in London and you are sure of the quality. So now that the Pound is like 20, 30 percent cheaper, probably Nigerians will shop more and I am going to see a lot of Nigerians investing in England. So, a lot more people are going to take out money to invest because it is easier to buy. That is actually one of the advantages of devaluation but devaluation doesn’t really work for us in Nigeria because we are import oriented, it works for other people, but Britain might get a lot of investment coming in from all over the world.

We have talked about South Africa Airways and how it is subsidised by government to propel tourism and trade, you know that a privately owned airline may not dovetail to this philosophy of using it to empower other companies through tourism and trade. How do we get into the national carrier issue without government bringing money and also upholding the investment of the private airlines?

You see you can’t eat your cake and have it. You can’t make an omelet without breaking an egg. So we have to decide what is strategically important for us. If it is about money, a private airline will take a decision that suits it best not basically what is good for the passenger, the passenger is not its issue. For example, why is United pulling out of Nigeria? Why is Emirates pulling out one flight? Simple logic, the Nigerian government “stole” money from them, I am putting the stole in quote. You trapped their money, $600m for six months; at the end of the six months you devalue the money by 40 percent and give it back to them, so they have actually lost $240 million worth of money. So what did they do? They have to get the money back because it is money they legitimately earned. So you have actually robbed them of 40 percent of their income. So what did the banks do? The banks will sack staff and cut cost, airline will not sack staff, what the airline will do is reducing its cost and it increases its income. So what did Emirates do, remove one flight and increase the price of ticket on the other one to pay for the $240 million they have lost. So who pays it? The Nigerian government actually took the money from the Nigerian public because the Nigerian public is going to refund that money to the foreign airlines. So now the government is rich, they have $240m worth of naira they have taken from the airlines. The airlines are going to get the money back from the public. So in such a situation how do you now want private Nigerian carriers to make money even when foreign airlines that are big are taking such economic decisions?

The private Nigerian carriers will only pull out their aircraft, keep it somewhere, they can’t afford to play the same games. So if the government is interested in helping its people do trade and do tourism, the government has to intervene one way or another. But now we don’t have a national carrier so what are you going to do? If Arik pulls out of Accra, Aero stops flying, Medview stops flying only AWA will fly. Is it in the interest of Nigeria that only foreign airlines serve us? So government cannot say it will not show interest in aviation.

Do you nurture any fear that some of these airlines may go under eventually?

First of all, they made money, you didn’t allow them take their money, you kept their money for six months then you devalue the money and asked them to take it back. So they have suffered loses that has nothing to do with their own competence. If you knew you are going to devalue money you should have devalued it last year. But not while they are making money, you are storing their money in the bank at the end of the day you devalued it, took their money, gave it as bailout to states. So they are left carrying the can, it is unfair because it is not good business. What is happening now is as a reduction in supply, so the prices are going to go up and there will be greater yield for everybody.

Don’t you think they will kill competition among themselves?

All of them lost money. There is no airline that did not lose with what the government did. What will happen is that small players like Rwand Air will probably have higher yield. All the big players lost. So what they are doing is cutting their loss.

Delta said they are not thinking of leaving Nigeria?

They can’t leave because now the market favours them. We are going to pay N1 million economy class ticket to New York by December this year. In January this year, my children were going to school, the cheapest ticket was N500, 000 that was when United was flying. United supplies 3,000 seats a week and 3,000 seats a week has been pulled out of the market. How would naira grow in value to defer those 3,000 seats? Does it mean the number of Nigerians going to America is going to get less, no, the number is likely to rise. So there will be more people looking for less number of seats. Now Ethiopian Airlines will supply like 1,600 seats a week from Lome to New York. But the big Nigerians won’t fly to Lome they will still fly straight or through London, so a first class ticket by December from Nigeria can build you a house in Lagos. With the value of a first class ticket you can buy a house in Lagos by December this year. Between December 15 and January 15 the value of a first class ticket between Lagos and a destination in America can build you a house, just check the value.

Finally I want you to look at the whole thing and look at what government is doing, and look at airport concession and then look at how do we bring in money from outside, both for airport development and for enhancement of air travel?

What has happened, what the government has done to these airlines is a disincentive for investment in aviation. You should be fair to people, yes you are having problems but the airlines didn’t cause the problem. There are mechanisms that could have been employed to sort out these things before and it wasn’t done. Now, they are left with pie in their face, so United has done what it thinks is the best, it pulled out. Emirate has re-strategised; it took out one flight and left one flight. Others will look for a way, I am sure you have seen that the airfares have all doubled, so these are consequences of that. This will also eventually bring investments, if the likes of Arik and Medview become very profitable because of the avia-exit, because they now don’t have competitors, if they become very profitable it will make other people want to come into the industry.

It will attract a lot more people. The passenger level in Nigeria should grow not decrease but what we have suffered in the last three months is a decrease in passenger travel. So the whole environment is in crisis, an emergency should be declared because this thing borders on safety. When your people can’t travel your economy can’t grow. Our roads are bad, so everybody now moving to road is also in danger. If our roads are okay there will be no problem but we are not at that position. Aviation is not a luxury in Nigeria it is a necessity. So there is a need for government to actually take a closer look at it. First of all, we need to support the airlines that are flying, the people who do business in Nigeria, the foreign airlines are not doing us a favour, we have licensed them to trade. Nigerian did not become the largest economy in Africa by staying in Nigeria; Nigeria became the largest economy because we are a very mobile population.

We trade all over the world, industrialisation is actually imported, our education is imported, our health is imported, our food is imported, if you say everybody should stay at home and eat Nigeria, drink Nigeria, read Nigeria, okay it makes us happy but that is not the right way. The biggest nations in the world send people to go and learn what others are doing. Chinese sent their children to Harvard, so the only way we can become a greater nation is to send our children to go and learn then they can come back with the knowledge and apply it here. We can’t say the children must all school in Nigeria, there are disciplines that are not taught in Nigeria. And by the way the most enlightened Nigerian professors are abroad. So aviation is a national emergency, it should be treated as such.

We are looking at it that Aero, Dana, Medview are private businesses, yes they are private businesses but they are national assets. They are a vital part of the architecture of our economy, so we should do everything to help them survive. For me at this point in time I wonder why aviation fuel is more expensive in Nigeria than some other places. I wonder why there is a cartel that determines when an airline flies and when an airline doesn’t fly. This is because 40percent of the cancellations by these airlines are aviation fuel related. We shouldn’t be at that level today.