DOMESTIC AIRLINE OPERATIONS AND MANAGEMENT IN NIGERIA (PROBLEMS AND PROSPECTS)

CHAPTER ONE

1.1       INTRODUCTION

The history of air transport development in Nigeria is synonymous with that of Nigeria Airways (Filani 1986). Commercial Aviation began in Nigeria on May 15, 1946, with the West African Airways Corporation (WAAC). The WAAC disbanded in 1958, yielding its place to Nigeria Airways. The latter’s share capital of £5 million (N12 million) is divided into 60,000 shares of N200 each. Though the airline is a limited liability company, the federal government owns all of the shares. The shareholders are, therefore, nominees of the government; the erstwhile Ministry of Aviation was government appointed and had a representative on the airlines board of directors.

However, the wave of deregulation in the airline industry in 1978/79 has had serious impact on the operation of Nigeria Airways. The Nigeria Government deregulated the Aviation Industry in 1980, and this paved way for many airlines to be established. This system ended the dominating power of Nigeria Airways. Private Airlines such as Okada, Gas, Aero-contractors, etc. started their operations for airline carriers. Deregulation created both opportunities and dangers because it forced them to operate without a financial safely net, which had set a lower limit for fares, provided by the government. During the 1980s many operators and businessmen launched dozens of new airlines, most of which failed (eg. Harka and Hacco Airlines), and existing carriers intensified competition by expanding into markets they had not served previously. Numerous mergers occurred later as carriers attempted to gain a greater share of the market and expand quickly. Many of the airline bankruptcies were again working in the industry, this time for some of the new so-called niche airlines, which have very few aircraft and limited routes.

1.2       BACKGROUND TO THE STUDY

Assessment of future trends in aircraft movements and of passengers and freight traffic flows underpin the planning of aviation policies. Generally, the scale of air transport operations has changed out of all recognition since the signature of the Chicago convention at the end of 1944. Scheduled domestic and international air services carried 9 million passengers in 1945; in 1999 the number of passengers passed 1.5billion for the first time. In fact, growth in passengers traffic has averaged about 10% annually, though the rate has slowed as the air transport market has become more mature, from the 20%plus recorded in the first ten postwar years to less than 5% in recent decades. The output of air transport has increased by a factor of thirty since 1960.

Although world gross domestic product (GDP), which is the broadest available measure of output, increased by a factor of only 3.8 over the same period, there is a strong correlation between the two measures. Statistical analyses have shown that growth in GDP, reflected in increasing commercial and business activity and increasing personal income and propensity to travel, accounts for about two thirds of air travel growth. Demand for airfreight service is also primarily a function of economic growth and international trade. Other economic and structural factors, which influence the rate of growth, include improved services, reductions in airline fares, business globalization and changes in population and income distribution.

Airlines can respond to growth in the demand for passenger travel by scheduling their flights, using larger aircraft or achieving higher load factors. During the 1970s they accommodated most of the rapid growth in demand by introducing larger aircraft, which helped keep the growth in aircraft movements quite small. Since the early 1980s, the trend in average aircraft size has leveled out and the rate of growth of aircraft movements has approached the growth rate for passenger traffic. Average load factors have improved gradually as a result of marketing initiatives and yield management programmes, though there is evidence that the rate of increase is slowing. The average stage length is also growing, by an average of 1-2% over the last twenty years, because of faster growth in passenger and freight traffic on long haul than on short-haul routes.

Airline yields have declined on average in real terms almost every year since the introduction of jet aircraft. Airline fares and rates reflect changes in operating costs and competitive conditions. Between 1960 and 1998 real passenger revenue yield per passenger kilometer fell by 2.8% per annum on average while freight yield per freight tone-kilometer fell by 3.6% per annum on average. World scheduled airline operating cost per available tone-kilometer, or unit costs, declined by an average of 2.4% per annum in the same period. Invariably, the global trend and operational challenges are reflections of the situation in Nigeria. Airline operations and management since the time of deregulation had gone through turbulent time and is now stabilizing the through government policies and increased in passenger movement.

1.3       STATEMENT OF THE PROBLEM

The development of any nation be it developing or developed without mincing words is very great. Transportation plays an important role in the economic, social and political life of every individual, group, society or a nation. Therefore, its importance cannot be quantified. It contributes positively to the economic transformation in various forms ranging from employment opportunities to revenue generation, urbanization, trade and commerce functions.

Because of these fundamental roles performed by transport, there is need to ensure that the sector continued to be sustained so as to enable its positive contribution remain in addition to expose or relate such contribution to the societal needs from time to time. It is this need to support economic growth and transformations that have led to the continuous development of air transport in general.

In Nigeria, transportation of goods and services by air has grown in recent years at a faster rate than other modes of transport. Today, almost 17% of passenger movements are carried by air. This contributes to the economic development of Nigeria in the provision of employment and improvement in communication. All these services and benefits occur because of the complexities in the socio-economic environment in which the air transport system operates. The more developed a society becomes, the more diversified is the economy and the more the demand for air transport.

However, to consistently remain in business is challenge on its own. It is painful that most local airlines do not operate on the same level playing field with foreign airlines. Foreign airlines are increasing their frequencies everyday, but domestic airlines are incapacitated because they were not given the opportunity. It is reasonable to trade ones frequency for jobs and infrastructure so as to retain one’s capital and strengthening the country’s royalty.

The domestic airlines in Nigeria need to be strengthened; and this was the reason for airline re-capitalization policy in 2006. The policy was to correct some defects such as poor services, poor corporate governance and inherent insolvencies. It was noted that the air transport sector in Nigeria has refused to grow because most airlines are not suitable or big enough to fly. Most of them have less than five aeroplane in their fleet.

1.4       AIM AND OBJECTIVES OF THE STUDY

The study aim at examining the characteristics and challenges of domestic airlines in Nigeria. In achieving this broad aim, the following objectives would be pursued:

(i)           To examine the structure and management of domestic airlines in Nigeria

(ii)          To appraise the challenges and prospects of domestic airlines in Nigeria

(iii)        To access the impact of government policy and regulation on airline operations in Nigeria

(iv)        To highlight the strategies that can enhance airline profitable operations in Nigeria.

(v)         To establish the importance of airlines to economic development of nations.

1.5       HYPOTHESES TO BE TESTED

(i)           That domestic airlines operation in Nigeria is profitable.

(ii)          That poor management of domestic airlines in Nigeria is responsible for its failure.

1.6       JUSTIFICATION OF THE STUDY

Nigeria aviation industry in the last few years has been in state of depression with significant reduction in the airlines operating fleet. Though poor management played obvious role in the present state of the industry, finance remains the bone of that sector. The capital-intensive nature of the industry, in effect, has brought about the operation of aged aircraft whose running cost is a major concern to the domestic carriers. This perhaps informed the adoption of wet lease option by most operators in the country, as they cannot afford new ones due to prohibitive costs.

The prohibitive cost of maintenance, has also lead to the grounding of more than sixty aircraft in the country, with most of them cannibalized to service the serviceable ones. In all about $200 million is being conservatively estimated to bring those aircraft back to operations.

Moreover, airline operating cost is an important factor that affect their profitability and sustainability. These costs are heavily influenced by jet fuel prices. Large increase in oil prices in 1979 and since 2005 to date saw unit costs rise sharply in 1980 and for the past three years; with scheduled airlines total cost compared with only 9.5% of total operating costs in 1998.

Aircraft utilization, seating capacity and density also have an important impact on unit costs. Productivity, too, has grown, by an average of about 3.5% since 1987 as airline fleets have added more fuel – and labour – efficient aircraft and improved their utilization. The long term trend of scheduled airlines financial performance has not changed but there have been relatively large medium-term changes in their operating results.

Recognizing the increasing complexity of air travel and the need to retain and sustain operational activities, this study will examine the various strategies available and in use by business organizations including airlines. To be successful, a Nigeria domestic airline must do a better job than it competitors in satisfying target clients or consumers. Based on its size and industry positions, the airline must decide how it will position itself relative to competitors in order to gain the strongest possible competitive advantage. Normally, an airline wants to design and put into action, the management system that will best achieve its objectives in its target market. This involves the management functions of analyzing, planning, implementation and control. The control and evaluation of these management functions and activities are carried out and necessary corrective measures are taking to make sure that the organizational objectives are achieved.

1.7    SCOPE OF THE STUDY

Air transport in Nigeria is relatively new; starting with the defunct West African Airways Corporation in 1946. The Nigerian Airways Limited took over the organization of air transport services in 1958 enjoying absolute monopoly until when licensed private operators got approval to complement in some domestic and international routes.

The level of air transportation gradually increased especially after deregulation involving airlines such as Okada, Belview, ADC, Kabo to mention but a few. Also when Nigeria became independent in 1960, Kano and Lagos became major international air terminals and the need for a national organization for the purpose of control and administration of civil aviation became eminent. A few of the British staff including the Director of Civil Aviation withdrew their services and Nigeria was faced with the problem of manpower to maintain the level of control and the administration of its aviation.

Today, aviation activities have undergone tremendous expansion in Nigeria to the extent that over two million fare-paying passengers are flown within Nigeria annually. These include passengers flown into and out of Nigeria. More than 400 aircraft have been registered in Nigeria, sixty-percent of which are used for commercial operations. In addition, there is several government owned aircraft some of which are operated by the air force.

As much as one hundred aircraft movement are registered daily in and out of Murtala Muhammed Airport; and about same also operate in and out of Kano as well. Thus, the need for efficient airlines to enhance social, economic and political development of Nigeria cannot be ignored.

1.8    DEFINITION OF TERMS

When the following terms are used in the standards and recommended practice on Aviation/Airline operations, they have the following meaning:-.

(1)     Airline:- As provided in Article 96 of the convention, any air transport enterprise offering or operating as schedule internal air service.

(2)     Aeroplane: A power driven, heavier than air craft, deriving its lift in flight chiefly from aerodynamic reactions on surfaces which remain fixed under given conditions of flight.

(3)     Aircraft: Any machine that can derive support in the atmosphere from the reactions of the air other than the reactions of the air against the earth’s surface.

(4)     Aircraft Equipment: Articles, other than stores and spare parts of a removable nature for use on board an aircraft during flight, including first aid and survival equipment.

(5)     Authorized Agent: A responsible person who represents an operator and who is authorized by or on behalf of such operator to act on all formalities connected with the entry and clearance of the operator’s aircraft, crew, passengers, cargo, mail, baggage or stores.

(6)     Baggage: Personal property of passengers or crew carried on an aircraft by agreement with the operator.

(7)     Cargo: Any property carried on an aircraft other than mail, stores and baggage.

(8)     Crew Member: A person assigned by an operator to duty on an aircraft during flight time.

(9)     Disembarkation: The leaving of an aircraft after a landing, except by crew or passengers continuing on the next stage of the same through flight.

(10)   Embarkation: The boarding of an aircraft for the purpose of commencing a flight, except by such crew or passengers as have embarked on a previous stage of the same through flight.

(11)   Flight Crew Member: A licensed crew member charged with duties essential to the operation of an aircraft during flight time.

(12)   Free Airport: An international airport at which provided they remain within a designated area until removal by air to a point outside the territories of the state, crew, passengers, baggage, cargo, mail and stores may be disembarked on unlading, may remain and may be trans-shipped, without being subjected to any customs charges or duties and, excepts in special circumstances, to any examination.

(13)   International Airport:    Any airport designated by the contracting state in whose territory it is situated as an airport of entry and departure for international air traffic; where the formalities incident to customs immigration, public health, animal and plant quarantine and similar procedures are carried out.

(14)   General Aviation: All civil aviation operations other than scheduled air services and non-scheduled air transport operations for remuneration or hire.

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