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Fare disparity by foreign airlines: Why it persists

BY  LAWANI MIKAIRU

THE issue of fare disparity by foreign airline operating in Nigeria has once again come to the front burner as Nigerians who travelled recently on these foreign airlines complained bitterly about paying higher fares than their fellow passengers from Ghana, for instance, on the same flight.

Investigation by Vanguard revealed that as at April 19th, 2013, passengers travelling on First Class of British Airways from Abuja, Nigeria, to London, Heathrow Airport pay 9,548.25 US Dollars, while another passenger travelling from Ghana on the  same First Class, same plane to London Heathrow Airport will pay 4,970.55 US Dollars. Similarly, passenger on Business Class on the same British Airways from Abuja , Nigeria, to London Heathrow  pays 4,708.80, US Dollars while another passenger from Ghana on the same Business Class, will pay 2,920.55 US Dollars.

This fares disparity is practiced by other foreign airline like KLM-Air France, Lufthansa, Emirate Airline, amongst others. What could be responsible for these higher fares paid by passengers travelling from Nigeria ? Vanguard findings show that despite cry by Nigerians and Nigerian Aviation agencies this fare disparity persist because some of the causes are still there and not properly addressed. And most importantly, the issue has not be revisited since the last public sitting by Senate committee on Aviation.

It will be recalled that Nigeria Government, through the Aviation Ministry, had on March 25, 2012, issued the offending airlines a 30-day ultimatum to address this disparity or face been ban from operating in Nigeria. The ultimatum expired and after Senate Committee on Aviation public sitting on the issue, the airlines still stuck to the offensive fares.

While the storm on fare disparity raged, some of the affected foreign airlines were silent  on the issue. But the British Airways was quite vocal, saying its fares are determined by the forces of demand and supply.

British Airways Country manager for Nigeria, Mr Kolawole Olayinka, had said at the public sitting that it was unfortunate and sad that the issue of airfare disparity and profitability was being discussed. He told the senators that prices are determined by market forces of demand and supply and not by legislation.

He said: “But that aside, you did not actually tell us which laws were violated. I am a Nigerian and as a Nigerian, I will do everything possible where prices can come down, but we only need to do one thing. Prices are determined by the forces of demand and supply; let more airlines come in. Let more airlines fly into Nigeria many more times. Our skies are closed. Open up the skies and let more airlines come in.”

British Airways position on this issue has not changed. In a telephone interview, Mr Olayinka, told Vanguard that the disparity in fares between passengers going to London from Accra , Ghana and those travelling from Lagos to London is now minimal . He said since market forces determine the prices of goods and services, British Airways places the interest and satisfaction of its customers first. That is why its fares are competitive. He further said the operating environment must be taken into consideration when discussing fare disparity. Other factors like market size, demand for premium and economy tickets must also be considered.

Cameron, British PM. and President Jonathan
Cameron, British PM and President Jonathan

Mr Olayinka said “ It is market forces that determine prices. We are in a free market economy. Government do not and cannot fix fares. Our fares change with the seasons. You cannot expect airfares for summer, when there is rush by holiday makers, to be the same like during winter. These seasons determine prices. Our prices are competitive. Our concern is customer’s satisfaction. We try to give our customers best services and at the end of each flight, we want them to say: thank you “.

Last year, when the controversy was on and the Senate Committee on Aviation was sitting, Senate President, David Mark, had said the return of the nation’s national carrier would create employment opportunities for Nigerians as well as restore  some level of competition which will eventually reduce prices.

Ultimatum to foreign airlines

An Aviation Consultant, Mr Chris Aligbe also contributed to the debate when the Aviation Minister gave the foreign airlines ultimatum to address the fare disparity. He said  the  “ Minister was now speaking the minds of Nigeria-based passengers who were usually extorted whenever they flew in foreign airlines. With the ultimatum given by the minister, the Federal Government is taking the issue of disparity in fares paid by passengers from Nigeria seriously. The Federal Government is now showing concern about the plight of Nigerians and others who opt to fly with foreign airlines,”

Reacting also to the Minister’s 30-day ultimatum to foreign airlines to cut down fares or face ban, British Airways had  said it was wrong for the Nigerian government to have based its conclusion only on distance and geographical location in its assessment of fares charged in Nigeria and Ghana. Explaining the reasons for fare disparity between Nigeria and Ghana, the airline told the Senate aviation committee that : “Nigeria and Ghana differ substantially in terms of demand mix. The market in Ghana is smaller than Nigeria and has lower premium traffic as a proportion of total traffic.

“Premium passengers in Nigeria tend to book closer to the date of travel which results in higher fares, and once revenue management principles are applied, British Airways allocates a number of seats to each fare class and cheaper fares are available for bookings made in advance of the travel date but these will necessarily be limited to ensure that there are still seats available for purchase closer to the date of travel.

“ This will, therefore, have an impact on prices, as it would do in any high demand/capacity restricted market .The capacity stipulated under the ASA for Ghana, unlike for Nigeria, has not been reached and in any case, the government of Ghana has already shown a willingness to move towards an ‘open skies’ policy with no restrictions on frequencies in order for the economy of Ghana to benefit from the fast growing aviation market.

Open skies policy

“ An open skies policy will also attract other airlines to operate new services to Ghana, in the knowledge they will be able to increase services to match demand in the future, helping Accra to develop an aviation hub for West Africa.”

British Airways said also that it not true  that all of its fares on the Lagos/London and/or Abuja/London routes were higher than those on the Accra/London route, adding that it offers 40 different fares on Lagos- London route. The airline said  “Our fare offering on the Nigeria-London routes is extensive. In total, on the Lagos-London route, British Airways offers up to 40 different fares across all classes of travel at any one time, each with different conditions such as dates for travel, pre-booking periods and length of stay, which are designed to meet the needs of different passengers. In addition, we have many special offers throughout the year.

Stella Oduah, Aviation Minister
Stella Oduah, Aviation Minister

Cheapest economy fare

“ Our cheapest Lagos-London Club class fare is currently $3507 ($3147 ex Abuja) which compares to the cheapest Accra -London Club fare of $2956, a difference of only $551 ($191 for Abuja), of which $227 is made up of higher Nigerian tax compared to Ghana. So the relative fare from Abuja is actually cheaper than Accra, and only $324 more expensive from Lagos once additional Nigerian tax is taken into account.

“ The cheapest economy fare from Lagos to London is $1051 and $999 from Abuja compared to the cheapest economy fare of $1,164 from Accra to London. In short, many of our Lagos and Abuja economy fares are either cheaper or only marginally higher than fares from Accra despite the problems of constrained capacity out of Nigeria.

“ The main reason premium fares from Nigeria are higher than those comparable fares from Ghana is attributable to capacity restrictions, brought about by current frequency restrictions on air services under the terms of the UK/Nigeria Bilateral Air Services Agreement, BASA. Under the BASA, UK designated airlines are unable to operate more than 21 services per week between the UK and Nigeria. UK airlines have always operated the full number of services allowed under the bilateral ASA. On the other hand, Nigerian carriers, which are also permitted to operate up to 21 services per week between Nigeria and the UK have not taken up their permitted frequencies.

“ It should be noted in this context that in the period from 1999 to date, the frequency restriction has only been increased by four services per week for each side, which has not met the growth of passengers in the same period. As a consequence, there is excess demand for premium seats on British Airways, resulting in very high load factors and, inevitably higher prices as BA seeks to ration seats in order to ensure that seats are available for our Nigerian late-booking premium passengers.

MMA Lagos.
MMA Lagos.

Premium passengers

“As Premium capacity in particular is so constrained, if British Airways were to artificially suppress premium fares, important customer benefits, in the form of (1) late availability of seats; and (2) fully flexible tickets, would effectively be removed from the market and passengers would be unable to travel in their cabin of choice or make changes as may be required by their business needs.

“ By contrast, pursuant to the terms of the UK/Ghana Air Services Agreement, there is still available capacity and frequencies in order to grow services further to meet market demand.

“British Airways is thus able to offer lower premium fares to stimulate the premium market, in full knowledge that we will nearly always be able to offer  late-available premium seats for sale. This is not the case in the constrained Nigerian market.
“All passengers travelling from Nigeria to the UK have a choice of both direct and indirect services. Passengers wishing to travel on direct services between Lagos and London have a choice of three airlines, namely British Airways, Arik Air and Virgin Atlantic.

“Passengers have further choice of indirect services with many European carriers such as Air France, KLM and Lufthansa, as well as other African and Middle Eastern airlines. British Airways competes fairly with all these carriers, and in choosing to book British Airways as opposed to the other available carriers, Nigerian passengers have concluded that British Airways represents at that time the most competitive and/or suitable option for their journey.

Olayinka, who represented the airline, said passengers have a free choice “Similarly, passengers have a free choice as to whether they pay more to travel in our premium cabins rather than in our economy cabin.

Competitive industry

Each premium cabin offers an increased level of enhanced service which British Airways prices accordingly.

“We emphase that it is the passenger who must have the choice of which airline he or she travels on and at which level of service he or she wishes to pay for, which can only be achieved by a competitive industry. Rather than artificially suppressing fares, which have already been set according to a fair and competitive market in a deregulated environment like Nigeria, the Aviation Committee will do Nigerian aviation a world of good by ensuring the fast-growing market in Nigeria is better served by sufficient capacity to meet demand by greatly increasing permitted frequencies under the terms of the BASA.

“This would be the best way to ensure that fares remain competitive, that Nigerian passengers’ demand  for seats are met and that the Nigerian economy is not disadvantaged by lack of aviation connectivity with the rest of the world.”

It was also revealed during the sitting that the UK government had been asking for increased capacity for its carriers operating in Nigeria, adding that the Federal Government was yet to respond to the demand. The airline said it had operated air services between Nigeria and the UK in full conformity with the BASA between both countries.

It said: “As mutually agreed by the UK and the Nigerian governments at bilateral talks in November 2011, the UK CAA is already undertaking an independent study of fares between the UK and Nigeria, and both governments agreed to await the outcome of that study in mid 2012. This is the correct procedure to follow under international law, which pertains to the BASA as it is an international treaty between the UK and Nigeria. British Airways remains committed to Nigeria and continues to serve the country and its people with daily flights to Lagos and Abuja.

“The comfort of our customers is of utmost importance to us, they are the very reason we remain in business, we are proud and delighted that we are able to offer a choice of different competitive fares, a choice of products and connections to our Nigerian customers.”

The British government has also reacted to the controversy. British High Commission spokesman said any ban on  British carriers would erode the bilateral relations between Nigeria and Britain. This was followed by a declaration by the Deputy High Commissioner, Giles Lever, that the federal government has no  rights to ban foreign airlines, arguing that the airlines were private enterprises, whose operations were determined by market forces.

“It is not correct to state that all of BA’s fares on the Lagos/London and/or Abuja/London routes are higher than those on the Accra/London route.

In reaching this conclusion it appears that the highest premium fares from Lagos have been directly compared to the lowest premium fares from Accra. Furthermore, no analysis has been given to economy fares, which account for by far the larger portion of our sales in Nigeria.”

The airline said: “British Airways is fully legally compliant with the requirements of the Air Services Agreement between the UK and Nigeria.

Commercial dispute

We remain committed to Nigeria and continue to serve the country with daily flights to Lagos and Abuja. We have been flying there for more than 75 years and pride ourselves on offering competitive fares, a choice of products and connections to our Nigerian customers. All of our fares are set on a sound commercial basis and remain fully competitive with other carriers in the region including Arik Air.”
The advise of the Minister of Foreign Affairs, Ambassador Olugbenga Ashiru might suffice at this point. He told the committee that they should not allow what he described as commercial dispute degenerate into diplomatic row.

He said: “It should be a commercial discussion and not dispute. What we have is a commercial dispute and what we see happening now is a failure of regulatory agencies to do their jobs. If the regulatory agencies had done their job very well, we would not have got to this stage. There is no justification for the rip off that Nigerians are going through.”

Although  Minister of Aviation, Stella Oduah, in her remarks also described the disparity as exploitative and bad  after the public sitting, nothing has been heard again about fare disparity. She had said then : “Nigeria supports profitable operations when the profits are reasonable but rejects exploitation and unreasonable excessive profiteering by exploiting her people. We are still on this issue and your voice from the Senate is welcome.”


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.