ABSTRACT
This study carried an assessment of the relationship between
airfares and aircraft movements in Nigeria with focus on Murtala Mohammed
International Airport (MMIA). The study adopted empirical research method. Data
on the relationship between airfares and aircraft movement, airfares and air
passenger movement, airfares and air cargo movement and airfares and aviation
fuel were sourced from Nigerian Airspace Management Agency (NAMA), Federal Aviation Authority of Nigeria
(FAAN) and Nigerian Civil Aviation Authority (NCAA) for this study. The
data collected and analyzed are presented in tables, figures, histogram and bar
charts. The study revealed that airfares increase has insignificant influence
on air passenger movement volume in Murtala Mohammed International Airport,
that airfares increase has insignificant influence on air craft movement volume
in Murtala Mohammed International Airport, that airfares increase has
insignificant influence on air cargo movement volume in Murtala Mohammed
International Airport and that there have been significant increase in airfares
as a result of increasing cost of aviation fuel in Murtala Mohammed
International Airport. Recommendation was made that airline
companies protect
themselves from volatile oil costs, and sometimes to even take advantage of the
situation, airlines commonly practice fuel hedging.
They do this by buying or selling the expected future price of oil through a
range of investment products, protecting the
airline companies against rising prices.
TABLE OF CONTENTS
Page
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstracts v
Table of Contents vi
CHAPTER ONE
1.0 INTRODUCTION 1
1.1 Background of the Study 1
1.2 Statement of the Problems 2
1.3 Aim & Objectives of the Study 4
1.4 Research Questions 5
1.5 Justification of the Study 5
1.6 Scope of the Study 6
1.7 Study Area 6
1.8 Operational Definition of Terms 10
CHAPTER TWO
2.0 LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK
2.1 Literature Framework 12
2.2
Theoretical Framework 14
2.3
Conceptual Framework 23
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 Research Design 27
3.2 Study Population 27
3.3 Sources of Data 27
3.4 Data Source and Presentation 28
3.5 Data Analysis 28
3.6 Ethical considerations 28
CHAPTER FOUR
4.0 DATA ANALYSIS AND PRESENTATION
4.1
Introduction 30
4.2
Empirical Analysis of Data 30
4.3 Problems and Solutions of the Research 42
CHAPTER FIVE
5.0 SUMMARY,
CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary 45
5.2 Conclusion 46
5.3
Recommendations 47
References 49
Appendix 51
List of Tables
Table 4.1: Correlation
of Airfares and Air Passenger Movement in 41
Murtala Mohammed International
Airport (MMIA)
Table
4.2: Airfares and Air passenger movement 33
Table 4.3: Correlation
of Airfares and Air Craft Movement in Murtala 34
Mohammed International Airport (MMIA)
Table
4.4: Air Fares and Air Craft Movement 36
Table 4.5:
Correlation of Airfares and Air Cargo
Movement in Murtala 37
Mohammed International Airport (MMIA)
Table 4.6: Correlation
of Airfares and Cost of Aviation Fuel Movement 40
in Murtala Mohammed
International Airport (MMIA)
Table 4.7: Airfares
and Cost of Aviation Fuel 42
List of Figures
Figure 1: Lagos showing Ikeja 7
Figure 2: Lagos,
Showing Road Map and Street View at Ikeja 8
Figure 3: Plate 1 Ikeja Showing Murtala Muhammed
Airport 9
Figure 4.1: Correlation
of Airfares and Air Passenger Movement in 32
Murtala Mohammed International Airport
(MMIA)
Figure 4.2: Correlation
of Airfares and Air Craft Movement in Murtala 35
Mohammed International Airport (MMIA)
Figure 4.3: Correlation
of Airfares and Air Cargo Movement in Murtala 39
Mohammed International
Airport (MMIA)
Figure 4.4: Correlation
of Airfares and Cost of Aviation Fuel Movement 41
in Murtala Mohammed International Airport (MMIA)
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The Aviation industry can
be defined as those activities that are directly related to the transporting of
people and goods by air from one location to another (Onyeanu, 2009). Airline industry
plays a major role in every countries economic activity and it aids in opening
up of the countries market to both local and foreign investors (Samuel, 2006).
Globalization has made it even more necessary for everyone to be every-where at
anytime. Over 2.1 billion passengers departed on scheduled journey in 2006
(IATA 2007). Strong economists saw international passenger demand grow by 5.9%.
Driving these development are further market liberalization and the
availability of more fuel efficient and longer range aircraft that are better
able to serve thinner routes.
Making a trip by air
involves a set of complex experiences over a period of hours with many
opportunities for the air passengers to be pleased and comfortable, or
disappointed, frustrated and infuriated (Berry and Lampo, 2004). Air passengers
make decisions on a particular flight to board based, largely on their
perceived safety and past experiences with the airline, which in turn depend on
the quality of service product provided by the airline. Airline operators
increasingly strive to attract, build, and retain customers through the quality
of their service product offerings. In this regard, many airline operators
invest heavily on innovative, streamlined, and efficient service systems to
improve performance and remain in the competition (Olsen, 2005), however,
Churchill and Peter (1998) observe that not many of these investors have
developed competitive edge over others. In Nigeria, for instance, some airlines
have even suffered entropy (e.g., oriented, Barnax, Concorde, ADC, Sossoliso
airlines). Perhaps, unable to provide the required service quality, some of
these airlines experienced low patronage and abysmal profit margin; and
eventually collapsed.
Air Fares are the price
charged by airline operators for transporting a passenger from one destination
to another destination and goods from one point to another point. The airline
industry is unique in that there are various airline fare types. Imagine this:
2 customers walk into a local consumer electronics store to a purchase a
television. They both walk out with the exact same TV—same size, same features,
same model number but one customer is charged $350 more than the other. It
sounds outrageous when making the comparison to any other industry, but this is
completely accepted in the airline industry. Two economy passengers on a flight
from San Francisco to New York compare their ticket prices only to find that
one passenger paid hundreds of dollars more for the exact same flight (and they
both still have to pay for $7 extra for a pillow and a blanket). Believe it or
not, there is a method to the madness, and understanding this method can help
you find the lowest fares for your clients. Or if that’s not possible, you can
educate your clients on why you don’t have access to those airline fare types.
Air passengers are most
likely to value low cost airfares and hitch-free and stress-free air travel
experience. Air fares are critical in air passenger choice of flight booking. Customers
are averse to airlines that are associated with incessant unexplained delays
(Asiegbu, 2011), flight cancellations and track record of avoidable air
mishaps. Air travelers consider ticketing systems, flight connections,
processing time, security checks, booking systems, Routine and periodic
servicing and maintenance systems of aircraft, refunds that accompany flight
cancellations and passenger experience management systems of airlines in making
decision to board any airline.
The aviation industry as we know it in the current form went
through a long development. The process of internationalization, globalization,
and many other factors greatly increased the amount of travelling people. Trade
agreements, expansion of cargo transportation caused greater mobility of
business travelers. The behavior of leisure passengers also changed. All these
factors have had a notable impact on creating of the airline airfare
strategies.
Traditional carriers can offer two different vertical quality
products (economy cabin vs. business cabin, refundable ticket vs. nonrefundable
ticket, VIP lounge access vs. no VIP lounge access), while low-cost carriers
offer only one type of product (economy cabin, nonrefundable ticket and no VIP
lounge access). Customers for this product could be divided into two types of
travelers, business travelers and leisure travelers. Both of these categories
have different preferences and look at the quality product. It is important to
remember that these differences have significant impact on airfares of airline.
Therefore, this study is aimed at investigating the relationship between
airfares and aircraft movements in Nigeria.
1.2 Statement of the Problem
There are four key
factors threatening Nigeria’s airline industry. One is that everything about
aircraft maintenance, including repairs and most often technical personnel is
imported and C-check is done overseas. So in a recession whereby over N400 is
exchanging for $1, it is difficult for Nigerian airlines that sell tickets in
naira to raise enough funds to maintain their aircraft.
Two, over 40 per cent of
operational cost is spent on aviation fuel. Today that product sells at N230
per litre because it is imported. Nigeria has refineries that are not working.
They were not privatised and under the Nigeria National Petroleum Corporation
(NNPC) they have not been put to good use for years, so Nigeria imports its
fuel products.
Three, airfares do not
reflect the actual cost of operation because of the low disposable income of
Nigerian citizens. At the current cost of aviation fuel and maintenance, for a
Nigerian airline to make profit it should charge about N45, 000 for one-hour
flight, according to aviation analysts. This amount will seem outrageous but
that is the actual pricing that could generate profitable revenue for airlines.
But airlines cannot charge N45, 000 for one-hour flight. If they do they would lose
customers.
The fourth factor is that
Nigerian airlines have lost over 40 per cent of their passenger traffic since
February this year due to the downturn of Nigeria’s economy. The passenger
traffic continues to deplete as recession sets in and the industry continues to
degenerate.
It is all these
challenges that are threatening the operations of Nigeria’s domestic airlines.
Aero and First Nation Airways have suspended their scheduled services and there
is fear that other airlines may join as the economy bites harder and as they
find it difficult to continue to maintain their aircraft and purchase aviation
fuel at a very exorbitant rate. Aero Contractors on Wednesday announced
suspension of scheduled services from Thursday September 1, 2016. A statement from
the Chief Executive Officer, Capt. Fola Akinkuotu, said the development was
part of the strategic business realignment to reposition the airline and return
it to the part of profitability. The airline said this business decision, which
is a result of the current economic situation in the country, has forced some
other airlines to suspend operation or outrightly pull out of Nigeria. In the
case of Aero, Akinkuotu said the airline had faced grave challenges in the past
six months, which impacted its business and by extension the scheduled services
operations. “These factors, according to him are both internal and external
environmental factors that have made it difficult for the foremost airline to
continue its scheduled services,” the airline said.
The growth and
performance of domestic airlines and their ultimate survival is threatened by
the burden of managing these challenges. The possible solution to the
aforementioned challenges is interconnected with airfare price of airline
operators. Airfare price of airline operators is connected with aircraft
movement, air cargo movement and air passenger movement. Therefore, this study
is aimed at investigating the relationship between airfares and aircraft
movements in Nigeria.
1.3 Aims and Objectives of the Study
The aim of this study is to carry out an assessment of the
relationship between airfares and aircraft movements in Nigeria. Other
objectives are;
1. To determine the relationship between airfares and air passenger
movement in aviation industry in Nigeria.
2. To discover the relationship between airfares and aircraft
movement in aviation industry in Nigeria.
3. To examine the relationship between airfares and air cargo
movement in aviation industry in Nigeria.
4.
To access the relationship between airfares and aviation fuel in aviation
industry in Nigeria.
1.4 Research Questions
The following research question were
sought so as to provide solutions to the problems of the study.
1. Will airfares affect air passenger movement in
aviation industry in Nigeria?
2. Is there a relationship
between airfares and aircraft movement in aviation industry in Nigeria?
3. Can airline airfares determine air cargo movement in aviation
industry in Nigeria?
4. What is the implication of high aviation
fuel on airfares in aviation industry in Nigeria?
1.5 Justification of the Study
Transportation is an
essential part of economic development. It is one of the indices for measuring
the development of a country. Nigeria’s Airport transport infrastructure has
been identified as a crucial component for the economic development of the
country FGN (2007). A good transportation network expands economic activities
by improving accessibility and facilitates movement of passengers, mails and
cargo goods to all the nooks and cronies of the country. According to Oni and
Okanlawon, transport is the cornerstone of civilization. As the society and
economic organizations become complex, the relevance of transport grows. Also,
the demand for transport is a derived one, because it depends on the demand for
the commodities carried or the benefit of personal travel and each travel is
unique in time and space. Hence, the demand for transport services increases
with the extension of the input-output relationships of an economy. Transport
infrastructural development remains a major tool for achieving meaningful
development.
1.6 Scope of the Study
This study is an investigation of the relationship between airfares and
aircraft movements in Nigeria. This study will not involve all airline operators
in Nigeria aviation sector. It would be limited to information obtained from Federal Aviation Authority of Nigeria (FAAN)
and Nigerian Civil Aviation Authority Office only. This study limitation
is further constraint by time, finance and difficulty in information
dissemination in Nigeria Aviation industry.
1.7 Study Area
Geographically, the city
of Lagos lies in south-western Nigeria and lies approximately on longitude 3°
24' E and latitude 6° 27' N. It covers an area of 3,577sq.km. The Metropolitan
Lagos extends over sixteen (16) of the twenty (20) Local Government Areas of
Lagos State, and contains 88% of the population of Lagos State. Lagos is the
smallest and most important city in the Federation of Nigeria. The country,
which is located in the coast of West Africa, consists of 36 states and a
capital territory. Nigeria shares borders with Benin, Cameroon and Niger. Lagos
is one of the important cities in Nigeria, which is situated in the
south-western coast of Nigeria. The Metropolitan area of Lagos takes up to 37
per cent of the land area of Lagos State and houses about 90 per cents of its
population (Unicef 1995, Aina 1994a). Lagos is a huge metropolis which
originated on islands separated by creeks such as Lagos Island that fringe the
southwest mouth of Lagos Lagoon protected from the Atlantic Ocean by long sand
spits such as Bar Beach which stretch up to 100 km east and west of the mouth.
From the beginning Lagos has spread on the mainland west of the lagoon and the
conurbation, including Ikeja (Figs 1&2) and Agege, now reaches more than 40
km north-west of Lagos Island. There are suburbs like Ikorodu, Epe and Badagry
and recently more local councils have been created to bring the total number of
local governments in Lagos to 57. (http://www.lagosstate.gov.ng/).
Fig1: Lagos showing Ikeja
Source: Authors’s extract from Arc map 10.2.1
Fig 2: Lagos, Showing Road Map and Street view at Ikeja.
Source: www.google.com/map
The area of Lagos constitutes of two major regions: the Island,
which is the original city and the Mainland, which is made up by rapidly
growing settlements. The climate in Lagos is tropical, hot and wet. The
environment is characterised as coastal with wetlands, sandy barrier islands,
beaches, low-lying tidal flats and estuaries. The average temperature in Lagos
is 27 °C and the annual average rainfall 1532 mm (Aina 1994, Peil 1991). As a
result of its rapidly growing importance and an increasing rate of competition
within the aviation industry, it becomes necessary to address survival
strategies as codified in organizational strategies. Murtala Mohammed Airport
is the main gateway to Nigeria. It is located in the country’s leading
commercial city of Lagos, which is also known for its vibrancy, rich cultural
diversity and aquatic splendor. The airport is a destination to some 30
airlines, which operate over 150 flights weekly. It boasts of an array of duty
free shops, restaurants and executive lounges. Recently, customer service
centers were set up to cater for the individual needs of airport users. Murtala
Mohammed Airport, Lagos (Plate 1) is also the nation’s busiest airport-with two
terminals-International and Cargo terminals open 24 hours daily while the
domestic terminal, Murtala Mohammed Airport (MMA2) opens 16 hours daily.
Plate
1: Ikeja Showing Murtala Muhammed Airport
MMA2, the busiest air termin55``al in
West Africa located in Ikeja, Lagos state of Nigeria. Three terminals
constitute the Lagos domestic traffic of about 36% of national domestic
passenger traffic and 32% of domestic air movements (Babalakin, 2008). The new
terminal (MMA2) was built in few years under the public private partnership.
The Bi-courtney aviation services limited were awarded the concession in 2003
by the Federal Government of Nigeria to design, build and operate the MMA2 and
ancillary facilities on a land area of 20,000 m2. In addition, the
MMA2 is complemented by a 250 rooms four star hotel and a conference center
comprising a 1,500 seat auditorium and meeting rooms (both are under
construction and are linked to the terminal building by a sky walk) They will
be managed by intercontinental hotels under the crown plaza brand. The MMA2
therefore has been planned to be a conference and events destination.
1.8 Definition of Terms
1.8.1 Aircraft Hours
Aircraft hours are based
on “block-to-block” time (i.e. from the moment the aircraft is pushed back from
the gate or starts taxiing from its parking stand for take-off to the moment it
comes to a final stop at a gate or parking stand after landing); also known as
block time.
1.8.2 Airline Ticket
An airline ticket is a
document, issued by an airline or a travel agency, to confirm that an individual has purchased a seat
on a flight on an aircraft. This document is then used to obtain a boarding
pass, at the airport. Then with the boarding pass and the
attached ticket, the passenger is allowed to board the aircraft. There are
two sorts of airline tickets - the older style with coupons now referred to as
a paper ticket, and the now more common electronic
ticket
usually referred to as an e-ticket.
1.8.3 Airfare
The cash or fee paid by a
passenger for boarding a flight from one point to another point. The fee covers
all expenses for boarding a flight only. It also includes the fee paid to an airline to move a
cargo from one point to another point.
1.8.4 Commercial air transport operator
An operator that, for
remuneration, provides scheduled or non-scheduled air transport services to the
public for the carriage of passengers, freight or mail. This category also
includes small-scale operators, such as air taxis and commercial business
operators, that provide commercial air transport services.
1.8.5 Domestic flight
A flight operating within
a country. A flight having exclusively domestic stages. A flight stage not
classifiable as international. Domestic flight stages include all flight stages
flown between points within the domestic boundaries of a State by an air
carrier whose principal place of business is in that State. Flight stages
between a State and territories belonging to it, as well as any flight stages
between two such territories, should be classified as domestic. This applies
even though a stage may cross international waters or over the territory of
another State.
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