The exploitative airfares charged by foreign airlines on Nigerian routes raise cardinal questions over price deregulation in the aviation sector, with Nigerians wondering if the policy is a licence for arbitrary airfares
“Our doors are open to foreign airlines to explore Nigeria and the business opportunities the country has to offer, but our doors are closed to exploitation of Nigerians. We will defend our people against exploitation.” That was the stern warning issued by Harold Demuren, director-general, Nigerian Civil Aviation Authority, NCAA, while welcoming yet another foreign airline, United Airline, a United States, US-based airline, recently, into the Nigerian market.
That warning became necessary in view of exorbitant fares charged by British Airways, BA, and Virgin Atlantic Airways, VAA, on the Lagos-London route, compared to other African countries. BA and VAA account for about 65 per cent of the passenger traffic on the Lagos-London and Abuja-London routes while the other airlines are left with 35 per cent.
The House of Representatives and Senate committees on aviation recently held public hearings to stem the perceived exploitation of Nigerians travelling on international routes. With the look of things, except a reduction in fares charged by the foreign airlines is effected, the axe may fall on them. Nkiruka Onyejiocha, chairman, House Committee on Aviation, did not mince words when she disclosed recently that an imminent ban awaited the airlines if they failed to reduce their fares.
For the government and aviation agencies, the imbalance in the cost of foreign air tickets for Nigerian travellers and those of neighbouring countries is incomprehensible, especially considering the huge Nigerian market, which is supposed to be a major incentive for a lower fare regime. For instance, BA charges $9,325.16 (N1,492,025.16) on a first class ticket from Lagos to London, while the same flight costs as low as $5,085.89 (N813,742.40) between Accra and London. This same airline charges $10,070 for a first class flight ticket from Abuja to London, while the same ticket from Accra to London costs $4,943. Its Abuja-London premium economy ticket costs $3,208, while Accra-London ticket for the same category costs $2,420. The economy ticket on the same flight costs $2,840 from Abuja but $2,156 from Accra.
VAA charges $4,173 and $2,956 on its Lagos-London premium economy and economy tickets respectively, while on Accra-London, it charges $1,826 and $1,563 for the same categories of tickets. Flying first class on Royal Dutch KLM from Lagos to London costs $4,236 and $3,787 on the same flight from Accra-London. On BA’s business class, a one-way ticket from Lagos to London cost $3,685, while from Accra to London it costs $2,049. Lufthansa charges $3,981 on the Lagos-Frankfurt route and $2,105 on Accra-Frankfurt route.
Interestingly, it is mainly only on the premium classes that Nigerians are charged higher fares. For instance, while Lufthansa charges $749 and $711 from Lagos to Frankfurt and Abuja to Frankfurt respectively on its economy class, it costs $1,175 from Accra to Frankfurt in the same class. Royal Dutch KLM on economy flies the Lagos-London route at $1,332, and $1,284 from Accra to London. On economy, the Lagos-Frankfurt route on KLM costs $1,332 and $1,333 from Accra to Frankfurt.
These disparities between fares charged on Nigerian routes and similar distances from other countries, particularly Ghana, raise many unanswered questions. The NCAA, according to Demuren, collated and received significant information and data that supported its findings in this regard. While the airlines claim that there are several classes of fares, NCAA noted recently that the airlines have not been transparent in their treatment of Nigerian passengers.
Although the aviation sector has been deregulated, experts contend that there is no basis for disparity in fares, especially when the Accra-London route has a longer distance, while Nigeria is a bigger market in terms of turnover of passengers. Chris Aligbe, chief consultant/chief executive officer, Belujane Konzult, an aviation consulting firm, said the two British airlines are only behaving like monopolies because they know that it is only UK airlines that fly direct to UK from Nigeria. He explained that while the oligopoly that exists on the Lagos-London route should be a competitive one, it has sadly become a “cooperative” oligopoly.
Demuren was emphatic that both BA and VAA were involved in price fixing. He told the House committee hearing how the act was perpetrated. “Specifically, both airlines, BA and VAA, colluded to fix the passenger fuel surcharge in a manner that eliminated or suppressed choice and competition, and the Nigerians were the victims of this conduct while both airlines reaped huge profits from their misconduct,” he said. Though the NCAA is determined to redress the situation and get compensation for the affected Nigerian passengers, the basis of its action is believed to be questionable, given that the act of illegality was perpetrated at a time when there was no existing law to mete out punishment to offenders. George Oguntade, a retired justice of the Supreme Court of Nigeria and chairman of the judicial panel set up by NCAA to look into the allegations of “unhealthy practices” against BA and VAA, returned a “no guilty” verdict and consequently threw out the $235 million fine slammed on the two carriers by the regulator last year. In a 20-page judgment setting aside the fine, the panel held that the NCAA Act of 2006 could not take action on a matter that was alleged to have been committed in 2004. Though the panel upheld the allegations against the airlines by the NCAA, “unfortunately, the panel could not uphold the fines and other sanctions because the violation occurred between August 2004 and March 2006, whilst the provision of the law at that time prescribes a penalty of cease and deceased order,” the panel submitted. However, the NCAA disagreed with this position and has subsequently referred the matter to the ministry of justice for further clarification and necessary action.
Aligbe argues that the country shot itself in the foot when it deregulated the aviation sector without having the appropriate laws in place. This, he explained, informed the position of both BA and VAA that they did not violate any Nigerian law. “When we deregulated in 2005, it became a free-for-all even though deregulation was becoming a general trend in most places. We did not put in place institutional controls which include anti-trust laws and other policies to enable us monitor when there is a foul play,” he told the magazine. In view of this, he reckons that NCAA should be strengthened in the areas of regulation because there is a need to put in place good institutional controls.
The liquidation of Nigerian Airways and the absence of a strong national flag carrier to compete on international routes are also said to be responsible for the exploitation of Nigerians on international routes. Before the deregulation of the aviation sector in Nigeria, the International Air Transport Association, IATA, gave a base and ceiling for airfares for every country within which airlines fixed their fares. “Before we deregulated, you file your schedule. Under a fairly regulated system, you take it from IATA base, you calculate it between the base and the upper limit. And you file it to the government. Then we had a national airline that had all the knowledge about tariffs and fare calculation, and they will now look at it, make their own analysis, pass it to government and then make their own recommendations on what government should approve,” he said.
Olumide Ohunayo, head, research, Zenith Travels, believes that the way round the problem of price fixing by foreign airlines is to reduce public travel expenses on capacity building, oversight, retreat and other frivolous trips by officials of the federal, state and local governments. According to him, there should be a ceiling on travel expenses for public officials as they are the main victims of high airfares charged by foreign airlines. Aligbe agrees that government officials are the biggest patrons of the premium tickets of foreign airlines. “Many people in this country fly business class and first class. You heard the British deputy high commissioner who said he flies economy class but that Nigerians fly business class and first class. So why is anybody complaining. General managers and deputy general managers of banks go on business class, while their directors fly in first class. All heads of goverment parastatals fly first class. Virtually all the legislatures, federal and state, fly a minimum business class. Even staff of government corporations, government agencies, banks and other private sector companies fly business class,” lamented Aligbe.
Ohunayo advocates consolidation of domestic carriers by regulations and formulation of policies such as the anti-trust law to protect consumers. Above all, he wants government to deliberately create a market for Nigerian carriers. A Central Bank of Nigeria, CBN, report shows that foreign airlines operate more than 200 weekly flights into Nigeria, with Arik Air, the only vibrant Nigerian airline operating international routes, playing a nominal role. These airlines repatriate as much as over N200 billion yearly.
In this regard, Olisa Agbakoba, a Senior Advocate of Nigeria, SAN, is challenging the federal government to take swift steps towards introducing a policy that will dissuade Nigerians from flying international airlines through the passage of “The Fly Nigeria Bill.” The bill, he argued, will ensure that all federal employees and their dependents, consultants, contractors, grantees, and others performing government-financed foreign air travel must be by Nigerian air carriers. According to him, a lot of the passengers who currently fly these international airlines fall into this category. He hopes that a speedy passage of the Fly Nigeria Bill will trap and keep these capital flights within Nigeria, without necessarily hampering Nigeria’s international aviation obligations in the long run.
The Fly Nigeria Bill seeks, among other things, to make it mandatory for federal government employees, consultants, contractors and other public officers embarking on a government-sponsored trip to use a Nigerian registered airline when one is available on that route; to expand airline operations; to support local content in aviation, which will increase airlines’ revenues, encourage code sharing and interlining operations between Nigerian and foreign airlines; increase contribution to the gross domestic product, GDP, of Nigeria amongst others. Much as this idea is good, Aligbe is worried that due to the poor capacity of Nigerian carriers, such laws cannot be enforced. “For instance, if I have to go to Canada, which Nigerian carrier will take me there?” he queried. He is convinced that if the country had a strong national flag carrier, this situation would not have arisen because the other airlines will tread cautiously because they know there is a competitor and that the people have an alternative.
Stella Oduah, minister of aviation, has since issued a 30-day ultimatum effective March 26 for the affected airlines to comply with or face outright ban from flying into the country. But Ohunayo and Aligbe both reason that the issue of ultimatum should not have arisen now. “We cannot force them to change their prices but the pressure on them will make them stop and think because all these businesses are sensitive, they have souls. They are run by individuals but when they do a long time analysis, perception and evaluation of what they are doing, they will change,” Aligbe argued.
However, many believe there are lessons to be learnt from the imbroglio. “I tell you, for example, what they have brought to the fore is the fact that we need to put competition on these routes. We cannot control the price of a product we do not have. They have the product and we are telling them that the price is not right,” said a source in the ministry of aviation. The situation, according to Ohunayo, has also necessitated the review and renegotiation of the Bilateral Air Services Agreement, BASA, and all other commercial agreements between the country and the international communities.
Mayowa Sodipo, a social commentator, is of the opinion that BA and VAA are privately owned and are not charity organisations, so they should be free to charge a price that is determined by the forces of demand and supply. “Nigerians should go for alternative airlines if they are aggrieved. Besides, what is the percentage of people flying premium class on BA and VAA?” Sodipo asked.
BA and VAA are not new to allegations of price fixing. Between 2004 and 2006, the airlines reportedly conspired to fix, periodically increase and maintain passenger fuel surcharges, PFS, as a component of the fare passengers pay to travel. This conspiracy was ultimately discovered and became a subject of investigation in the US and the UK. BA pleaded guilty to the misconduct and paid a criminal penalty of $300 million and a fine of £121 million based on investigations by the US Department of Justice, DOJ, and UK Office of Fair Trading, OFT. In addition, both airlines were said to have paid consumers in the US and UK approximately $204 million in compensation for the anti-competitive method of setting and conspiring to increase the PFS.
Kola Olayinka, BA’s commercial manager for Nigeria, maintained a code of silence at the House hearing, explaining that he would be breaching the European Anti-Trust Regulation if he responded. “I’m sorry that I have to repeat myself, not until June when the discussions must have been resolved, I am not in a position to say anything,” Olayinka submitted.
For now, BA, VAA and other foreign carriers are being closely watched by Nigerians. Will they yield to the will of the government and Nigerians? Time will tell.