Air fares driven by competition -Olawuyi, United Airlines

“As new airlines come in, fares are being driven down by competition. What everyone is trying to do is apply revenue management”. Those are the words of Chief Commercial Officer of United Nigeria Airlines, Adedayo Olawuyi. At a media parley with Aviation Journalists in Lagos, he speaks on the future of the airline, partnerships with both foreign and domestic carriers for survival, effects of aviation fuel on its operations and the menace of bird strike. CHUKWUEMEKE IWELUNMO, was at the briefing.

Enjoy the excerpts:

Can you walk us through your long term, medium term, and short term of the trajectory of growth in terms of route development and fleet acquisition?

As you know, United Nigeria Airlines has predominantly been a domestic operator, and we presently have only one regional service. We currently fly to 15 destinations across Nigeria, as well as to Accra in Ghana. On the Accra service, we operate a daily flight from both Lagos and Abuja. In total, we are currently operating 26 routes, including the domestic network and Accra.

As you know, we have just acquired some aircraft, and we still have more on the way. Our plan is to grow within the region and also internationally. In the short term, we are looking to increase our presence in West Africa, starting with routes such as Monrovia, Banjul, Dakar, Abidjan, and Conakry.

I’m sure you also read about the partnership with Guinea-Bissau, so there are plans for us to set up an airline there, which will help us increase our fleet presence in West Africa. In Central Africa, we are looking at Douala and Libreville, and further down, at Johannesburg, South Africa. Despite the attacks, we will continue to look at South Africa, because it’s about more than the issues happening today, it’s about trade between the two countries. So those are our plans on the regional and African front.

We are also looking at the UK, the US, Canada, Turkey, Dubai, and Saudi Arabia. So those are the things we have planned for the next 6 to 24 months in terms of expansion. All of this is subject to aircraft delivery, regulatory approvals, and obtaining foreign operator or foreign carrier permits, depending on the country. But for all of those destinations, we have already started the process, and for some of them, we are already very far along.

Achieving this is driven by partnerships. Are you considering forming any kind of pact with players across the value chain to help you achieve the timeline you’ve set, short term, medium term, and long term, whether through code-share agreements or other partnerships you think will help?

You can’t do anything by yourself. As the African proverb says: if you want to go fast, go alone; if you want to go far, go together. So that’s exactly what we are trying to push. As we speak, we have already begun some interline partnerships with local and international carriers, which I’d rather not name now but as we finalize them, we’ll announce them, all aimed at finding the best ways into this market. There are some markets we can’t enter on our own, maybe because of high competition, or because traffic numbers aren’t enough to justify our own direct flight.

So we are looking at partnering with a few airlines within the country and across West Africa and the rest of the continent to help fast-track this, as well as for the international destinations. Even on routes like Canada and the US, we might start with a code-share before launching our own service. As for other companies in the value chain, if we’re unable to acquire our own aircraft, we can opt for a lease instead, which will also help us achieve our goals faster. So cooperation is definitely one way that will help us achieve our goals.

You’re adding more flights, you may end up diluting the number of passengers per flight, and ultimately operate unprofitably. And then there’s the tendency of some other countries not honouring their air service agreements, among other challenges. Do you think more airlines flying to Western destinations will benefit Nigerian airlines?

I’ll answer in a couple of ways. I won’t answer based on West Africa alone, let me paint a picture. The challenge we have in the Nigerian aviation space today, where we are dominated by foreign carriers, is the lack of strength among our domestic carriers. What do I mean? Take Emirates, for example, a lot of people aren’t actually going to Dubai. They’re connecting to other destinations. With Qatar, how many people actually go to Doha? Ethiopian Airlines runs 35 to 40 flights a week into the country. So the point I’m making is that we’ve seen a dominance of foreign carriers because we don’t have strong domestic and regional operators. And the only way to stop that dominance is to start taking the battle to their markets.

We need flights. That’s the truth. A passenger traveling to Dakar today via ASKY will first go to Lomé. From Lomé, they’ll probably connect to Abidjan, and from Abidjan, maybe to Banjul, before eventually getting to Dakar. Why can’t a Nigerian carrier offer them a direct service from Lagos?

Now, the challenge you’ve seen with carriers is this: when you bring in a 737 a 150- to 160-seater aircraft on a route with fewer than 40 passengers per day each way, it becomes unsustainable. That’s why a lot of the carriers that have succeeded in West Africa have had to adjust their operations. So one of the things we’re trying to do is right-size for the market instead of just deploying big aircraft, we make sure capacity matches demand in that market. So that’s one consideration.

Number two, we see a lot of market stimulation. You might look at market data today and say there’s no traffic between Nigeria and Ivory Coast, for example but if you start a flight tomorrow, you can double those numbers within 12 months. So even though the market might seem saturated today, we expect a degree of market stimulation simply from being able to offer a direct flight. Yes, there’s a lot of competition along the West African coast, but at the same time, the fares being charged are not cheap. So the yields are good. The fares may be expensive, but the yields are good too. So what usually happens is that when you start a flight and there’s a lot of competition, prices drop, which stimulates growth and gets more people flying.

So those are the things we’re basing our decisions on. First of all, our tagline is “Flying to Unite.” That’s the intention behind United Nigeria. We want to provide air transport services that unite markets, unite people, unite passions, and unite countries across the world. So we will definitely have to start those flights.

You mentioned ASKY. There’s also talk about Ethiopian Airlines. Some airlines and countries see this as the target. ASKY was built for international passengers, but it doesn’t have a domestic network — that’s number one. Number two, Ethiopian Airlines is well run, helped by other sectors of their economy too. So the limitations we have are, one, not having transit facilities in Nigeria. Because even if we had them, if our systems don’t align if immigration undermines what we’re trying to do it can deflate all the effort that’s been made. So we are working to adapt ourselves and take a holistic, motivated approach to it.

It can take you two hours just to connect getting from here to there depending on traffic. Or if you bring in a passenger from Douala, for example, connecting to Johannesburg, they’ll be told they need a visa to enter the country. So we are trying to address this through advocacy, and I’d like to appeal to all of you to help us in any way you can with the publications we’re putting out. I’m here to see the master plan for the new terminal that’s coming up, and I believe they’re trying to address transit in that new facility as well. That will help with regional-to-regional connectivity. But domestic-to-regional and domestic-to-international connectivity remains a problem.

And on this infrastructure issue, I once asked someone, “What solution can you provide?” I said there’s no cheap solution, it’s going to be very expensive, but it’s something that needs to be done. If you look at what’s happening in other hubs around the world, Dubai, Doha, you’ll see the multiplier effect a proper connecting airport can have for a country. So that’s one aspect. Abuja has better options on offer, so we’re also discussing with them to see what we can do through the Abuja airport. And you’ve seen Uyo now positioning itself, saying you can fly to Uyo to connect anywhere in the world that’s part of the ingenuity. So we might also consider setting up a hub say, using Asaba, for example to take people farther afield. We will always have challenges; it’s about coming up with the right solutions to support our business model.

I’m aware that United Nigeria Airlines just received two aircraft recently. You’re expecting more before December, and recently you were also admitted into the IATA registry, along with several other expansion programs and certifications. Such a massive expansion needs a system to sustain it. I want to know is there a structure in place?

We are not “closing in.” We are the second-largest airline by capacity and traffic in the country. Only one is bigger than us for now. There’s no doubt about it.

We’re trying to see how we can put proper structures in place as we start building for the next level. I’ll use an analogy he used with me during my interview process. He said: if you see a two-story building today, and they decide to add five more floors, what’s the first thing you do? You need to strengthen the foundation. He said that’s what we’re doing now. So if you follow our trajectory, our progress, and our reporting, you’ll see we’ve been investing heavily in equipment and bringing in people with the experience and know-how to help strengthen our base as we build because your core is very important.

Your core is very, very important. And even as we look at these regional expansions, I must also mention that domestic expansion is far more important to us than regional expansion. You understand? Because you need that core domestic base first. You all know how expensive it is to operate in this industry. One flight to London is going to cost you almost $200,000. Whether you carry 5 passengers or 200, you still have to fly. So you need a strong backbone, or a “cash cow,” to help sustain that and the lack of one is part of what we’ve seen cause other airlines to crash out in the past. So we’re very well aware of the scope of our expansion, and we’re putting everything in place to ensure we’ve dotted every “I” and crossed every “T.”

In terms of the total number of passengers we’ve carried, what I can tell you is what we’re doing now: we’re averaging 120,000 to 130,000 passengers every month.

Infrastructure, especially at the airport. About a year ago, airline operators were complaining about infrastructure, like conveyor belts and so on, but that seems to have died down. So can you tell us whether there’s been improvement in the infrastructure at the domestic wing of the airport?

On bird strikes, it’s been very bad and alarming. I remember a week in May when, for four consecutive days, we had a bird strike on an aircraft. The impact varies. Sometimes the aircraft can still fly. Sometimes it’s grounded and needs repairs. Sometimes it’s grounded and we need to order parts to fix it. So the impact can be big or small, depending on the size of the aircraft and where it’s hit. One time it hit the radome, which is the nose of the plane; another time it went into the engine. We’ve seen it in different shapes and sizes.

The impact is immediate, flight cancellations, delays, compensation. We have to provide refreshments, bring in engineers, and pay them. Sometimes, if it requires bodywork, you need an engineer who can sign that off. So I might not be able to give you an exact figure right now, but that’s something we can compute internally so people can appreciate the impact. The biggest impact for us, though, is the loss of traffic. Because, as in the example I gave, if I lose four different aircraft out of a fleet of nine over four days in a row, it means I’ve had to cancel flights, issue refunds, and put passengers on other airlines.

And yes, we’re all in this industry together all the other airlines are there, we’re friends but I don’t want to be handing my passengers to other airlines every day. At that point, I’ve become a travel agent, not an airline. You understand? So that’s the biggest issue. It gives your passengers the chance to fly with someone else, and the next time, they might not come back. So the impact can’t really be quantified that simply. But we continue to work with the Federal Airports Authority of Nigeria to put better infrastructure in place for the bird migration seasons, so we can be sure of safer skies. We’re grateful that, so far, it’s just been a strike and the aircraft has still been able to land. I hope we never face a major calamity because of this. That’s why it must be taken very seriously.

On communication with our passengers during disruptions, we actually communicate; in fact, we’ve been accused of over-communicating. Someone will say, “You’ve sent me five messages now about this flight.” And what we try to do if you’ve met or spoken with my chairman, you’ll know this is prioritize transparency. He’ll tell you: send them a picture of the plane, let them know. For instance, just this past weekend, I had three aircraft down with different issues. While I was trying to save one aircraft, another was stuck in Kano. He’ll tell you to send passengers every piece of information let them be aware. We try to communicate as much as possible, and we provide compensation in line with consumer protection rules. We follow everything to the letter. After two hours of delay, we provide refreshments, and we make announcements every 30 minutes. We try to carry passengers along but sometimes passengers are just very, very Nigerian. They get agitated and irritated; for example, we had an issue recently. So we try our best to follow the rules and regulations, based on our own conditions of carriage, and we make sure that, even afterward, we still reach out to customers to keep them informed of what happened.

There was a time when we had a lot of challenges with baggage and equipment breakdowns. But we’ve been in constant engagement with MM2, and there’s been a lot of improvement. For a while now, we haven’t had any issues with baggage. There’s constant improvement. However, there are still challenges congestion, for one. Every airport experiences congestion at some point during the day. You understand? So when you go there early in the morning, some days it can take 15 minutes just to taxi out, because there are five or six aircraft ahead of you. The apron is too small it needs to be expanded. There are also times when you go to the boarding gate upstairs and the queue is so long. So these are small things, but they add up. We all know there are peak travel times — everyone is trying to get out early in the morning for business in Benin, Port Harcourt, and Abuja, so flights between 6 and 8 a.m. will always have congestion issues. There are times when the queue is so long it almost reaches outside. You understand? Because for these early-morning flights you know how it is. I have a 7 a.m. flight; check-in counters close by 6:00 or 6:15; I live two hours away. Almost everybody ends up arriving around the same time, about 10 minutes before closing. Everyone is queued up, and then you start asking, “What do we do?” You have limited resources how many counters can you be given? And now it seems every state has its own airline. So there are new airlines coming up every day, and everyone is still competing for the same infrastructure. We hope to see improvement on that front, both from the federal government and from our company as well.

Over the last year and this year, have you noticed any increase in passenger traffic. I’ve heard that there’s been a general reduction in passenger traffic because fares are high, so I’d like to know, on your end or is it that, as I’ve also heard, fleet sizes have generally reduced but you’re getting more aircraft are you essentially taking market share from other airlines?

Overall traffic has contracted however, that doesn’t mean our own traffic as an airline has contracted. What we’ve seen as a trend is that traffic always follows capacity: when capacity increases, seats increase, and passengers buy them, it’s a market dynamic. So what usually happens is that as demand increases, it tends to drive prices down, and as prices fall, more people get to fly. So for us at United Nigeria, we haven’t really seen a contraction, because, as you mentioned, we’ve been adding…

Overall traffic has contracted however, that doesn’t mean our own traffic as an airline has contracted. What we’ve seen as a trend is that traffic always follows capacity: when capacity increases, seats increase, and passengers buy them, it’s a market dynamic. So what usually happens is that as demand increases, it tends to drive prices down, and as prices fall, more people get to fly. So for us at United Nigeria, we haven’t really seen a contraction, because, as you mentioned, we’ve been adding capacity. On that front, across the market generally, there does seem to have been a contraction we don’t have the same number of seats in deployment today as we used to have.

So that’s one point. Number two, regarding our fleet ownership, the 737s are owned. Our expansion going forward will be a mix, based on what’s available. In fact, if you look at the airline industry today, about 50% of aircraft worldwide are leased and 50% are owned. So we’re going to stay flexible, some aircraft will be leased, some owned, depending on availability, our financial capacity, and what suits us best for that particular aircraft type. For example, if you’re going to start long-haul service, you want to prove the concept first you’re not just going to spend N200 million buying an A330 before knowing if the route will work. So you might decide to lease first. I’m just giving that as an example.

Your last question was on fuel prices. I’m not sure if you’ve been following the broader global picture, but we haven’t seen any major decline in the cost of aviation fuel you can verify that, it’s stayed about the same. As of December, we were buying it at about N900. Now, as I speak, it’s about N1,600 to N1,700 so there’s still a huge difference. And have ticket prices doubled? No.

You mentioned that those three airlines increased base fares we did, at some point. But market forces aren’t fully reflected in that. As new airlines come in, fares are being driven down by competition. What everyone is trying to do is apply revenue management principles to get the best possible outcome. But the truth is, it’s not sustainable, it’s not sustainable for us. We’ve been buying fuel at these prices, and that’s where that 10-billion-naira figure came from. At one point, we paid as much as N3,300, and ticket prices still didn’t go up by 300%, or even 100%, in that case. We’re still selling tickets at around N110 to N120. So our prices went up, but they’ve been balanced out based on demand and supply.