Cost pushes domestic airlines to small fuel-efficient aircraft

As maintenance and operations cost keeps rising as a result of the increase in the naira-to-dollar exchange rate, Nigerian airlines are buying smaller, fuel-efficient and low-age aircraft in a bid to bring down cost of operations.

BusinessDay’s checks show that older and bigger aircraft cost airlines more on maintenance cost than smaller and younger aircraft types.

Airlines buy spare parts, lease planes and sometimes pay service providers in dollars but are paid in naira for tickets sold to passengers. The depreciation of the naira has further compounded their woes, forcing them to think of better ways to reduce operating cost in a bid to cushion the effect of the naira-to-dollar variations on their operations.

The checks show further that airlines are gradually shifting from buying big aircraft such as Boeing 727, Boeing 737, Boeing 747, and MD 83, to getting smaller and more fuel-efficient aircraft such as ERJ 145 hopper jets, Embraer 195-E2, BRJ-900, Dash 8-400 for domestic and regional operations.

Seyi Adewale, CEO, Mainstream Cargo Limited, told BusinessDay that the relative stability being experienced in the sector has allowed domestic airline operators (or managers) understand the business side of aviation and there from now develop smarter strategies to operate more efficiently and profitably.

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According to Adewale, recent aircraft purchase types and orders reveal a pull towards buying aircraft types with good fuel efficiency, better seat (space) management, lower age, and smaller cargo hold.

The advantages of having a low-cost business ideology and operating model is that it gives passenger alternative choices, especially those that are cost-sensitive, quick turnaround due to reduced ‘niceties’ and passenger numbers and more routes since they turn over quickly, Adewale said.

Other advantages of operating low-cost aircraft include “Capability to make low-cost airports more visible since this is the airlines target and bias, flexibility in operations and capabilities to develop supporting revenue through direct onboard/ inflight sales, ground transportation or even budget hoteling or its partnership,” he said.

He advised that domestic airlines should go for aircraft types that evidently has better fuel efficiency since aviation fuel constitute 50-55 percent of their operating cost, has better space management with higher or all economy class seats, and smaller cargo hold because the bigger the more it consumes fuel that may not be easily passed unto passenger in a highly competitive market.

Air Peace, Ibom Air and Overland are seen to operate low-cost aircraft in recent times.

Air Peace operates eight Embraer ERJ145 hopper jets with 50-passenger capacity, as the newly delivered Embraer 195-E2 has 124 seat capacities.

Ibom Air operates three Bombardier CRJ900 aircraft types with capacity for 70 passengers.

Overland operates Propeller engine aircraft, which is the Dash 8-400 aircraft type with about 50-passenger capacity.

Olumide Ohunayo, an aviation analyst, told BusinessDay that what happened in the past was that airlines were afraid of cost of training and cost of recurrent programmes for new aircraft. This was because when airlines buy new aircraft that are not operated in a country; they take their pilots through complete training, which cost a lot of money.

Ohunayo further explained that the easiest option for airlines was to quickly buy the 737 aircraft that were more available within the system, so the recurrent training for the pilots could easily be done within the region.

But as operating and maintenance cost continues to bite, airlines have realised that they need smaller aircraft on some routes and that is why airlines are now deliberate in getting smaller, fuel-efficient aircraft for domestic operations, he said.

“Aero pioneered acquisition of small aircraft. Arik had some aircraft on small routes. Air Peace is now leading the way with its E-195 aircraft. Airlines are learning to put their aircraft on routes that can give them profit.

“Overland doesn’t struggle with anyone on big routes. They have gone to small routes and put their small aircraft there in order to avoid having issues with their bottom line and they have been able to manage it well. The new United Airline that is coming up is also toeing that line with acquisition of small aircraft,” Ohunayo said.

Also, Awa Airline, an African airline uses a small Embraer aircraft and rather than do one flight a day, they do about three to four daily flights into Nigeria with a small aircraft, and they have been able to manage the small aircraft for their profitability, he said.

In Europe, low-cost airlines such as EasyJet and Ryanair are easily visible. These airlines are deliberate in the choice of their aircraft types to meet their ideological needs to save and minimise cost, because low cost is their goal.

Southwest Airlines stands in America as a low-cost carrier and thus ensures their fleet and structure meet this need. The airline is arguably the second most profitable airline in the world.

In Seyi Adewale’s opinion, many African airlines have not really differentiated their business ideology in terms of low-cost initiatives, and to operate as a low-cost carrier and therefore defining their aircraft types.

“In Nigeria for example, you witness aircraft that could be intuitively considered as a ‘low-cost aircraft’ but with incongruent products or services including provision of business class seats, integrated cargo business, thereby having large cargo holds, in-flight ‘free’ catering service, aged aircraft fleet that increase maintenance cost and operations costs,” Adewale said.

Roy Ukpebo Ilegbodu, CEO, Arik Air, said during C-checks, airplanes are basically stripped and almost rebuilt. It costs money; the technicians are paid with foreign exchange. Anywhere from $500,000 to $1 million is what airlines need for a C-check.

“When the airplane is going for a C-check, depending on the age of that aircraft, there are some things that the manufacturers will look at. For instance, an airplane that has flown for 1000 hours, there are things they expect. So, based on that, the checks will be done.

“As airlines carry out the checks, you may find out more than what the manufacturers will have recommended. You find things like corrosion for airplanes that have operated in our region because of the moisture. When you find corrosion in an airplane, the cost of repair sometimes will double. But the good thing is that Arik’s airplanes are very new, so you will hardly find corrosion in airplanes that are less than 10 years old,” Ilegbodu said.