Airlines business not profitable with low cost fare-United Nigeria Airlines boss
The Chief Operating Officer for United Nigeria Airlines, Osita Okonkwo, shares his experience on the operations of the airline especially on low cost fares, spare parts acquisition, fuelling among others. In this interview, CHIKWUEMEKE IWELUNMO brings you excerpts…
Can you give us an overview of the United Nigeria Airlines?
On the 12th of February 2021 we did our inaugural flight and it was a flight that took us from Lagos to Enugu. That happened just a few days after we obtained our AOC. That period was towards the COVID-19 period.
The aviation industry had just been opened for business. It was like, will it happen or will it not happen but we did that on that day.
Looking back two years after is like what a journey. Before the inaugural flight, we had actually started our process almost two years earlier.
We got our aircraft in 2019, took them to Mexico for C-check, had our people sent to South Africa for training but they were caught up there by COVID-19.
We had our crew there in South Africa for almost 8 months, AOG for almost one year. This was because instead of coming back in November 2019, they came back November 2020. Almost one year in Mexico, we had two engineers there; we had four aircraft out there. We had our pilot in South Africa.
It was like will this ever happen. We had actually started with a lot of difficulties and costs that we incurred without any plans for them. Checks were supposed to be just three months and all the aircraft would have been back.
When we came and what we did was also blessing in disguise because it gave us time to plan, to know ourselves and to review one or two things. At the end of the day, we were able to start, just a few days after we got our AOC.
Since then, we have been flying. Every day of the year, we have flown. We started with four or five, six destinations and now we are going to nine destinations. It has been a journey and what happened was that, the past two years have helped us to prepare ourselves. For the journey ahead.
For us it is the beginning. Lessons have been learnt and what we have done is to build in some of these lessons into our plans for the future. The space we are in is one that is very difficult, second very competitive, and third very uncertain. And whether you are talking of ground operations and facilities, aviation fuel, access to foreign exchange, ability of lessors and manufacturers and sellers to do business with Nigeria. All these things come together to make the industry challenging. So that is one.
“Secondly, we were pleasantly surprised by the reaction of the travelling public when we came on board. We were warmly received not just like an addition but like a partner that has come to make things different or to add to the service delivery. This industry is a service delivery industry and it is about making customers happy irrespective of what happens in the back office. The office like the checking in counter is what people see. What we have seen is that we try to see it from the passengers’ perspective.”
We know that there are rooms for improvement. In United Nigeria Airlines, we claim to be a learner organization. The other point I want to make is our relationship with the agencies. We have good relationships with them and they have been very supportive and we use this opportunity to express our gratitude to them.
When we came in, we went out of our way to learn from those who have been there before us. We were among the first to advocate for the Spring Alliance. Which was not necessarily a code share but a collaborative framework to help passengers have a seamless travellers experience when there are disruptions. It has been very helpful but there are rooms for improvement. We are here for the long haul irrespective of what anybody tries to say.
How did you navigate the costs because you came when aviation fuel was not as high as it is today? Also there is high cost of bringing in aircraft and other factors?
If you look at the cost structure of every operation, first of all, you have the aircraft come which is in most cases measured in hourly bases or circle bases for engine, mainframe, and any other things you have in the aircraft. You have to know that every component has a diminishing value.
You have an engine 20, 000, 30,000 circles or whatever. It reaches a certain point and you have to go for some checks whether its nozzle, carbon seal are in order, and so many other things.
The first thing you do when you start this operation is to know that you have engine reserves, maintenance reserves, landing gears and others. They all have life. Everything is like a clock. You can’t escape maintenance.
If you acquire that discipline of providing so that when it comes to your C-check, you don’t have issues with sending it. You just wait until that time. Aircraft cost is one big chunk of it which you have to manage.
The second component is the operating cost which is basically fuel. Consumables, spare parts handling charges, all related to particular operations. When we started, fuel was N200 plus to N300. As at December 2021, we were buying fuel at N350. Suddenly, it rose to N500 that was when AON started shouting. Then, it is around N790 and N800 now.
The same with forex, you know that 99 per cent of input into an aircraft is forex. There is nothing we produce in this country as far aircraft is concerned.
So you need to get your forex. We suffered double jeopardy; one of access to forex, second is availability and cost. It moved from about N400 plus till a time we bought at N900 if you are not lucky to get from CBN. Currently CBN meets about 20 to 30 percent of the needs and that takes time.
You have to queue. Meanwhile, you have an AOG that you have to get the spare parts. It has really been difficult. What we have seen is escalating cost of operation. It is escalating at a very rapid rate.
There was a reaction on the fare side on the fare side from N23, 000, N30, 000 it moved to N50,000, N70,,000. Now what we are seeing is that because of the economic situation in the country nobody is flying at N70, 000. So airlines have reacted irrespective of what people say that they were colluding to fix prices.
This is market force driven and survival driv. The Chief Operating Officer (COO) Osita Okonkwo has expressed worries over the low cost of air tickets, stressing that there was no way airlines can be profitable by charging fees that can rarely make them survive in the face of excruciating access to Foreign Exchange, the skyrocketing price of jet fuel otherwise known as aviation fuel.
Can you give us an overview of the United Nigeria Airlines?
On the 12th of February 2021 we did our inaugural flight and it was a flight that took us from Lagos to Enugu. That happened just a few days after we obtained our AOC. That period was towards the COVID-19 period.
The aviation industry had just been opened for business. It was like, will it happen or will it not happen but we did that on that day.
Looking back two years after is like what a journey. Before the inaugural flight, we had actually started our process almost two years earlier. We got our aircraft in 2019, took them to Mexico for C-check, had our people sent to South Africa for training but they were caught up there by COVID-19.
We had our crew there in South Africa for almost 8 months, AOG for almost one year. This was because instead of coming back in November 2019, they came back November 2020. Almost one year in Mexico, we had two engineers there; we had four aircraft out there. We had our pilot in South Africa.
It was like will this ever happen. We had actually started with a lot of difficulties and costs that we incurred without any plans for them. Checks were supposed to be just three months and all the aircraft would have been back.
When we came and what we did was also blessing in disguise because it gave us time to plan, to know ourselves and to review one or two things. At the end of the day, we were able to start, just a few days after we got our AOC. Since then, we have been flying. Everyday of the year, we have flown.
We started with four or five, six destinations and now we are going to nine destinations. It has been a journey and what happened was that, the past two years have helped us to prepare ourselves. For the journey ahead, for us it is the beginning. Lessons have been learnt and what we have done is to build in some of these lessons into our plans for the future.
The space we are in is one that is very difficult, second very competitive, third very uncertain. And whether you are talking of ground operations and facilities, aviation fuel, access to foreign exchange, ability of lessors and manufacturers and sellers to do business with Nigeria.
All these things come together to make the industry challenging. So that is one. Secondly, we were pleasantly surprised by the reaction of the travelling public when we came on board. We were warmly received not just like an addition but like a partner that has come to make things different or to add to the service delivery.
This industry is a service delivery industry and it is about making customers happy irrespective of what happens in the back office.
The office like the checking in counter is what people see. What we have seen is that we try to see it from the passengers’ perspective. We know that there are rooms for improvement. In United Nigeria Airlines, we claim to be a learner organization.
The other point I want to make is our relationship with the agencies. We have good relationships with them and they have been very supportive and we use this opportunity to express our gratitude to them.
When we came in, we went out of our way to learn from those who have been there before us. We were among the first to advocate for the Spring Alliance. Which was not necessarily a codeshare but a collaborative framework to help passengers have a seamless travellers experience when there is disruptions. It has been very helpful but there are rooms for improvement. We are here for the long haul irrespective of what anybody tries to say.
How did you navigate the costs because you came when aviation fuel was not as high as it is today. Also there is high cost of bringing in aircraft and other factors?
If you look at the cost structure of every operation, first of all, you have the aircraft come which is in most cases measured in hourly bases or circle bases for engine, mainframe, and any other things you have in the aircraft. You have to know that every component has a diminishing value. You have an engine 20, 000, 30,000 circles or whatever.
It reaches a certain point and you have to go for some checks whether its nozzle, carbon seal are in order, and so many other things. The first thing you do when you start this operation is to know that you have engine reserves,, maintenance reserves, landing gears and others.
They all have life. Everything is like a clock. You can’t escape maintenance. If you acquire that discipline of providing so that when it comes to your C-check, you don’t have issues with sending it. You just wait until that time. Aircraft cost is one big chunk of it which you have to manage.
The second component is the operating cost which is basically fuel. Consumables, spare parts handling charges, all related to particular operations. When we started, fuel was N200 plus to N300.
As at December 2021, we were buying fuel at N350. Suddenly, it rose to N500 that was when AON started shouting.
Then, it is around N790 and N800 now. The same with forex. You know that 99 percent of input into an aircraft is forex. There is nothing we produce in this country as far aircraft is concerned.
So you need to get your forex. We suffered double jeopardy; one of access to forex, second is availability and cost. It moved from about N400 plus till a time we bought at N900 if you are not lucky to get from CBN.
Currently CBN meets about 20 to 30 percent of the needs and that takes time. You have to queue. Meanwhile, you have an AOG that you have to get the spare parts. It has really been difficult. What we have seen is escalating cost of operation. It is escalating at a very rapid rate.
There was a reaction on the fare side on the fare side from N23, 000, N30, 000 it moved to N50, 000, N70,,000. Now what we are seeing is that because of the economic situation in the country nobody is flying at N70, 000.
So, airlines have reacted irrespective of what people say that they were colluding to fix prices. This is market force driven and survival driven. Now you can see that you get tickets of N40, 000.
But I can assure you that people are underwriting those costs. There is nobody who can fly at N40, 000. It is not possible even if you filled the aircraft. Like us doing CRJ you sell at N40, 000.
NCAA Takes 5 percent, BASL takes N4,250, that is already 10 percent of the fare you have collected.
Then you talk of fuel. One hour flights will take you about 1300 litres of fuel. So there is no way anybody who flies at N40, 000 will not do anything.
Actually, the major problem that Nigerian operators have survived the fuel crisis is again a testament to the promoters and Investors who continue to pump in their own capital to keep the airline flying, not that there is any magic thing about the fares.
If you look at what happened to many airlines outside Nigeria. Many closed shops and many got huge handouts from governments to be able to keep afloat but we are not so lucky in this part of the world.
I think that is the issue. If you manage forex at the rate of black market rate or parallel market rate if we use that term, then combination of that is a recipe for disaster.
The good thing is that if you are looking at the long term, you try as much as possible to keep moving hoping that it will balance. Airline is not a one year business, it is a long term business. The focus of any airline is to manage costs.
What is your view on aviation bank and how far about the spring alliance? How many passengers have you carried?
Spring Alliance has been very helpful. It is not like everybody chooses that but if it happens that you don’t have enough time to reorganize your flight or to inform passengers, you can call our partner airlines to help you.
There is an agreement, they will carry you and the settlement will be done later. We have not issues and from that point of view, I think the numbers are not really important but the spirit and the impact it is having is very very important. We have such agreement with all the people in the alliance.
On the bank, if you look all over the world, there is no place there is bank for aviation. If you look at our infrastructure, agric, industry, they failed completely.
They are struggling and money is being pumped in them every now and then. What is needed is for the banks to develop specialists in the aviation and have desks in their different banks. It is usually a stage of development.
What we require is aircraft leasing company that will be well capitalized and supported by both external and internal investors to act on behalf of operators to lease aircraft.
If it is a Nigerian based institutions, then it will be a lot easier for them to enter into contract with manufacturers and lease aircraft and give to operators and they can easily retrieve them if there is default.
That is another form of specialised financing. You can call it a bank but by name it should be an aircraft leasing company the banks are sufficiently capitalized to be able to fund transactions.
The only problem they have are maybe the tenor and the expertise. If you get allocation from CBN and lease in naira, and you want to replenish, are you able to get at the right rate and so forth.
It is also for airlines to be strong enough to be quoted in the stock exchange or to be able to issue their own corporate bonds. So they go directly to those with money and raise that kind of money. It is something we are dreaming of.
It something we want to do, getting to a level where we can place our receivables and be able to raise money directly from the investors through pension funds. Once the bond is properly rated, any pension fund can be invested. Once we get to that stage, it will be a lot easier to deal with funding. We have carried close to 800,000 passengers.
What is the fleet capacity of United Nigeria Airlines?
We are still operating our four CRJ owned by us and we supplement with leasing from time to time during the peak period. We have plans to expand our fleet. It is being slowed down because of current situation of forex. We had contract with manufacturers and lessors but it has not been fully operationalised because of lack of access to forex.
This year we are going to increase the tempo a little bit and make sure that by the end of second quarter, we will bring in the new fleet we have already committed.
Lessons learnt in the past two years?
The investors or sponsors underwrite the cost by injecting capital to sustain the business. One of the lessons learnt is that it is important to be mindful of the operational set up and cost of operations.
And to what extent do you go to make the customer happy without compromising the viability of the business. We learnt that it doesn’t make sense to be competing on fares. There is no heroism in flying an aircraft.
The only heroism there is sustaining the operations of an airline. Instead of competing on fares, airlines should be focused on what they are doing, make sure you get the customers to a level that they are comfortable and happy with you. Secondly, we have to rely on government or CBN for forex.
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However, there are things that can happen here. You wait until it comes or you pay for whatever price you get. But even at that, you have to be very careful because there are certain vendors or manufacturers will not want you to move money from another account to their account. It is not allowed.
So first you have to get money into your account and then you have to transfer. Many of these sources don’t want to transact into Nigeria. They want to transact outside the country. Then you make your private arrangements.
The other lesson is that the team you have is what matters from lowest to the highest. They are very crucial to the execution of the flight plan. It means that we have to pay attention to our human capital development and we should delay our expansion plans.
Now you can see that you you get tickets of N40, 000.but I can assure you that people are underwriting those costs. There is nobody who can fly at N40, 000. It is not possible even if you filled the aircraft.
Like us doing CRJ you sell at N40, 000. NCAA Takes 5 per cent, BASL takes N4,250, that is already 10 percent of the fare you have collected. Then you talk of fuel. One hour flights will take you about 1300 litres of fuel.
So, there is no way anybody who flies at N40, 000 will not do anything. Actually,the major problem that Nigerian operators have survived the fuel crisis is again a testament to the promoters and Investors who continue to pump in their own capital to keep the airline flying, not that there is any magic thing about the fares. If you look at what happened to many airlines outside Nigeria.
Many closed shops and many got huge handouts from governments to be able to keep afloat but we are not so lucky in this part of the world. I think that is the issue. If you manage forex at the rate of black market rate or parallel market rate if we use that term, then combination of that is a recipe for disaster.
The good thing is that if you are looking at the long term, you try as much as possible to keep moving hoping that it will balance. Airline is not a one year business, it is a long term business. The focus of any airline is to manage costs.
What is your view on aviation bank and how far about the spring alliance. How many passengers have you carried?
Spring Alliance has been very helpful. It is not like everybody chooses that but if it happens, that you don’t have enough time to reorganize your flight or to inform passengers, you can call our partner airlines to help you. There is an agreement, they will carry you and the settlement will be done later. We have not issues and from that point of view, I think the numbers are not really important but the spirit and the impact it is having is very important. We have such agreement with all the people in the alliance.
“On the bank, if you look all over the world, there is no place there is bank for aviation. If you look at our infrastructure, agric, industry, they failed completely. They are struggling and money is being pumped in them every now and then. What is needed is for the banks to develop specialists in the aviation and have desks in their different banks. It is usually a stage of development.
What we require is aircraft leasing company that will be well capitalized and supported by both external and internal investors to act on behalf of operators to lease aircraft. If it is a Nigerian based institutions, then it will be a lot easier for them to enter into contract with manufacturers and lease aircraft and give to operators and they can easily retrieve them if there is default.
That is another form of specialised financing. You can call it a bank but by name it should be an aircraft leasing company.
The banks are sufficiently capitalized to be able to fund transactions. The only problem they have are maybe the tenor and the expertise. If you get allocation from CBN and lease in naira, and you want to replenish, are you able to get at the right rate and so forth.
It is also for airlines to be strong enough to be quoted in the stock exchange or to be able to issue their own corporate bonds. So they go directly to those with money and raise that kind of money.
