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A diverging West Africa: Ghana finds over-capacity while Nigeria struggles with too little


Only 402km apart, Accra and Lagos could not have more different aviation markets. Accra has found itself with excess capacity, and consequently Brussels Airlines and United Airlines are withdrawing their respective services from Brussels and Washington DC while Delta Air Lines will reduce overall capacity. Meanwhile in Nigeria, the country's lack of capacity has become a national discussion after the Government threatened to suspend British Airways (BA) and Virgin Atlantic for having expensive fares. But the focus has shifted to the Government and its unwillingness to liberalise air service agreements, which are operating at the maximum for UK carriers, as well as its lack of support for a homegrown aviation industry.

This month Air Nigeria will commence Lagos-London services, adding to the market and further utilising Nigerian capacity to the UK, raising the chances of Nigeria being willing to expand its air service agreement with the UK, which has seen little change since 1999. There are 14,000 weekly seats from Ghana to Europe and 33,000 from Nigeria to Europe, despite Nigeria having a population and GDP five to six times larger. The potential in Nigeria is waiting to be unlocked by a government that in the Corruption Perceptions Index ranks 143rd out of 182nd most corrupt nations.

Delta consolidates Accra traffic to New York

Five months after marking its five-year anniversary of a push into the continent of Africa, Delta Air Lines is suspending its three weekly flights from its Atlanta hub to Accra, Ghana in Aug-2012. At the same time it will increase its New York JFK-Accra frequency by one weekly frequency, providing a net reduction of two weekly services between the US and Ghana. All of Delta's Accra services are operated by Boeing 767-300s. Services continue from Accra to Abuja, Nigeria or Monrovia, Liberia.

Weak yields amid high fuel prices are to blame as load factors during the last year on Atlanta-Accra were higher than Delta’s JFK-Accra flights, which are remaining intact. Delta’s move follows a similar decision by United to end its Washington Dulles-Accra flights in Jun-2012.

Delta launched flights from Atlanta to Accra in Jun-2010, joining existing service from New York JFK that the carrier introduced in Jun-2006 shortly after inaugurating its first route – Atlanta-Johannesburg – of a new wave of services to Africa. Delta also operates flights from JFK to Dakar and from Atlanta to Lagos.

Delta was over-confident for the Accra market, dropping its Atlanta-Accra service from four weekly 243-seat A330-200 services to three weekly 210-seat 767-300 services. Delta touted the cargo space of the A330, noting Atlanta was a popular destination for exporters from Ghana due to an extensive offering of same-day onward connections.

Delta and United launched new Accra flights in Jun-2010 and will be eliminating those routes within a two-month period in 2012, diminishing the number of seats between the US and Accra. United currently offers 832 one-way seats from Washington Dulles to Accra, which will increase to 1040 in Jun-2012 before flights end. Delta currently offers 630 weekly one-way seats from Atlanta to Accra.

Select US capacity to Accra Kotoka Airport (seats per week, one way): 19-Sep-2011 to 01-Jul-2012

From Washington Dulles From Atlanta

Delta even invested in Accra during the last year; it debuted two new gates to handle 130 customers that it specifically stated would support its flights from Atlanta and JFK to Accra. The investment was supportive of Delta's position in Accra, where it is now the third largest carrier based on capacity.

Accra Kotoka Airport capacity by carrier (seats per week): 07-May-2012 to 13-May-2012

Delta and United produced strong load factors to Accra

Data from the US DoT show that Delta’s load factor in the Atlanta-Accra market was 82% in 2011, higher than the 71% recorded on the carrier’s flights from JFK to Accra and the 66% on the JFK-Dakar pairing, indicating a yield and not demand problem. Yields face downward pressure from one-stop services through Europe. Sample advance bookings for the high and low seasons show British Airways, Iberia, United/Lufthansa and even Delta partner KLM offer lower fares than Delta's non-stop service.

In a price sensitive market like Ghana, these discounts can sway passengers. Delta would have been restricted in yield flexibility due to fuel burn and lack of network scale compared to one-stop alternatives. Similar European competition plagued American's Chicago-Delhi service.

See related article: Non-stop US-India market continues to shrink with American Airlines ending Chicago-Delhi service

Consolidating services to New York – effectively transferring one Atlanta-Accra service to JFK and cancelling the remaining two Atlanta-Accra services – does give geographic advantages. New York-Accra is 494nm shorter than Atlanta-Accra, allowing Delta to route connecting traffic through New York, offering shorter total journeys than if connecting through Atlanta.

United also recorded favourable load factors on its flights to Accra in 2011 of 75%, which is a healthy result considering most long-haul routes have a spool-up time of 12 to 24 months. United's Accra service would have faced similar prospects as Delta: low premium traffic coupled with price-sensitive leisure traffic being wooed by cheaper itineraries through Europe.

Indeed, where United undercuts Delta's fare, it is on codeshare services with Lufthansa, allowing United with little capital expenditure to gain revenue from the Europe-Accra codeshare. United is also struggling with 5% revenue growth lagging Delta's 10% and US Airways' 9% and will join other legacy US carriers in shrinking capacity this year.

See related articles:

Brussels Airlines advances in Africa but retreats in Accra

Brussels Airlines over the past two years has been building up its African network, which has become a major focus for the carrier owing to historical and colonial ties as well as a weak European home market. In many of its long-haul African markets Brussels Airlines shares the route with only one other European carrier, typically Air France, while short-haul African points see greater competition.

Brussels Airlines African route network comparison: 08-May-2012

Destination Service from other European carriers
Abidjan  Air France
Accra  Alitalia, British Airways, Iberia, Lufthansa, Turkish and Virgin Atlantic
Agadir  bmi, Condor, easyJet, Jetairfly, Luxair, Ryanair, Thomson, Transavia, Transavia France
Bamako  Aigle Azur, Air France, TAP
Banjul  n/a
Bujumbura  n/a
Cairo  Aeroflot, Air France, Alitalia, Austrian, bmi, British Airways, Iberia, KLM, LOT, Lufthansa, Swiss, Turkish
Casablanca  Air France, Alitalia, bmi, easyJet, Iberia, Jetairfly, Lufthansa, TAP, Turkish
Conakry  Air France
Cotonou  Air France
Dakar  Air Europa, Air France, Corsairfly, Iberia, Meridinia Fly, TAP, Turkish
Douala  Air France
Entebbe  British Airways, KLM, Turkish
Freetown  Air France, bmi
Kigali  KLM
Kinshasa  Air France
Lome  Air France
Luanda  Air France, British Airways, Iberia, KLM, Lufthansa, TAP
Luxor  airberlin, easyJet, Jetairfly, Thomson, Transavia, Transavia France
Marrakech  Air France, bmi, British Airways, easyJet, Iberia, Jetairfly, Luxair, Ryanair, TAP, Thomson, Transavia, Transavia France, Vueling
Monrovia  Air France
Nairobi  British Airways, Condor, KLM, Swiss, Turkish
Ouagadougou  Air France
Yaounde  Air France

In hindsight, the carrier may have been overly-ambitious with four-weekly A330 services to Accra, which is well-served by Alitalia, British Airways, Iberia, Lufthansa, Turkish and Virgin Atlantic. Those carriers either rely on strong O&D demand or have extensive networks to offer connecting flights. Brussels Airlines, in comparison, has a small and decreasing European network and Belgium has no colonial ties to Ghana that would give a boost, as in other African markets.

See related article: Brussels Airlines to further expand in Africa and launch New York but cut back in Europe

Brussels Airlines international capacity by region (seats per week): 07-May-2012 to 13-May-2012

Nigeria has limited capacity, forcing fares up – to Government's dislike

The shortage of international capacity in Nigeria has reached a point of being a national discussion, if perhaps inadvertently. Earlier this year the Nigerian Government made the unusual order of demanding British Airways and Virgin Atlantic, the sole British operators into Lagos, to drop their fares or otherwise face banning.

The Government distributed statistics indicating fares from Lagos to London were twice as much as Accra-London services, which is almost the same distance as Lagos-London. There were even supposed instances of Lagos-London fares being higher than Johannesburg-London. The Government referred to this claimed imbalance as "anti-Nigerian" and "exploitation and unreasonable excessive profiteering". The Government even asserted that 25% of British Airways' global 2006 profit was derived solely from Nigerian flights.

But facts began to tell another story, with local reports indicating the Government compared flexible Lagos tickets to inflexible Accra tickets, which naturally are priced differently. A sample of fares available in May-2012 for trips in Oct-2012 indicate BA and Virgin have higher fares in premium cabins from Lagos than from Accra, but nowhere near the levels suggested by the Nigerian Civil Aviation Authority, which local outlet the Punch described as "uncharacteristically enthusiastic in compiling figures".

Round-trip fare* comparison for British Airways and Virgin Atlantic from London Heathrow to Accra, Johannesburg and Lagos (GBP): Oct-2012

Carrier Route Economy Premium Economy Business Class First Class
British Airways Johannesburg-London Heathrow 697 1275 3097 6093
British Airways Accra-London Heathrow 721 1039 1829 3074
British Airways Lagos-London Heathrow 651 1164 2053 5888
Virgin Atlantic Johannesburg-London Heathrow 693 1294 3097 n/a
Virgin Atlantic Accra-London Heathrow 726 1046 1711 n/a
Virgin Atlantic Lagos-London Heathrow 663 1134 2103 n/a

Lagos economy fares are lower than from Accra while premium economy and business class trend higher. The largest notable difference in fares is British Airways' first class fares, the only offering that comes close to being double the offering from Accra as the Nigerian Government contended. British Airways is one of the few operators in Nigeria with a dedicated first class product and, combined with high demand from Nigerians for first class travel and restricted growth under bilaterals, pushes prices up as part of natural demand and supply equations.

British Airways did note fare distortions could be larger closer to booking as "premium passengers in Nigeria tend to book closer to the date of travel which results in higher fares," the Punch reported the carrier saying. "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. 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."

BA noted that as a result of the Ghana-UK bilateral not being full used, "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 have late ­available premium seats for sale. This is not the case in the constrained Nigerian market."

The Nigerian government did not appear to compare prices on Arik Air. Since the comparison, Air Nigeria has launched Lagos-London fares. The Nigerian carriers offers fares only slightly less than their British counterparts.

Round-trip fare* comparison for all carriers serving Lagos and London (all airports; GBP): Oct-2012

Carrier Route Economy Premium Economy Business Class First Class
British Airways Lagos-London Heathrow 651 1164 2053 5888
Virgin Atlantic Lagos-London Heathrow 663 1134 2103 n/a
Arik Lagos-London Heathrow 620 n/a 1894 n/a
Air Nigeria Lagos-London Gatwick 639 n/a 1822 n/a

The British carriers also not appear to be engaging in the type of "anti-Nigeria" pricing described by the Government as their London-originating fares for Nigeria are higher except in premium economy and first class, likely due to stronger business class demand in the UK and stronger first class demand in Nigeria.

Round-trip fare* comparison for British carriers serving Lagos and London (all airports; GBP): Oct-2012

Carrier Route Economy Premium Economy Business Class First Class
British Airways London Heathrow-Lagos 677 956 3545 5574
British Airways Lagos-London Heathrow 651 1164 2053 5888
Virgin Atlantic London Heathrow-Lagos 676 966 3574 n/a
Virgin Atlantic Lagos-London Heathrow 663 1134 2103 n/a

Nigerians discuss lack of liberalisation

Some local discussion looked past the Government's incomplete statistics and instead gave a simple and condemning view of the Nigeria government for two reasons. First, the Nigerian Government was not fostering a local aviation industry that could competitively challenge both intercontinental and local rivals; Ethiopian Airlines and Kenya Airways are admired across the continent for their efficiency and profitability despite being fully or partially government-owned. While Air Nigeria this month is resuming long-haul services, there has been a dearth of long-haul links while regional expansion and associated liberalisation has not been facilitated by the Government, an anchor in West Africa.

Second was the view that prices, skewed or not, are a reflection of supply and demand. As British Airways said in a statement, since 1999 the UK-Nigeria bilateral agreement has been expanded only to permit four additional weekly roundtrip flights from each country, for a total of 21 for each country. British Airways and Virgin Atlantic have used the full allotment, with each offering a daily flight to Lagos (on some of their largest aircraft) while BA has a daily service to Abuja.

The Punch reported 200,000 Nigerians applied for UK visas in the first eight months of 2010 – enough to fill 75% of all current direct London-Nigeria capacity. BA said the Nigerian Government "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".

Air Nigeria this month will add capacity with thrice-weekly Lagos-London Gatwick service increasing to daily in Jun-2012. With Arik Air's daily Lagos-London and Abuja-London services, Nigerian carriers will fully utilise their end of the UK-Nigeria bilateral, potentially paving the way for Nigeria to heed to the UK's long request to expand the bilateral. But a stumbling block will be Nigeria's displeasure with the lack of available Heathrow slots.

See related article: Air Nigeria to resume long-haul network as West African aviation grows

Middle East network carriers cannot alleviate the situation. While they offer competitive fares, their hubs in the Middle East lead to journey distances 128% longer, turning a seven-hour non-stop service into nearly 20 hours of travelling time. Their bilaterals are also not open skies.

39% of seats in Nigeria are on international services. The significant gap between domestic and international services indicates the unrealised demand for international services growth. The fourth-largest source of seats in Nigeria – British Airways – has just two daily flights: one a 747-400 and the other a 777-200.

Nigeria international capacity by carrier (seats per week): 07-May-2012 to 13-May-2012

Nigeria domestic capacity by carrier (seats per week): 07-May-2012 to 13-May-2012

Nigeria and Ghana dual for West Africa, but Nigeria could easily be the end-game country

Growth in booming west Africa is being met by carriers in Nigeria and Ghana that hope to establish their country as a travel hub, with Sir Stelios even planning a low-cost carrier in Ghana. Yet Nigeria's large population coupled with high GDP and GDP growth would make it an instant pick were it not for the restrictions and inefficiencies carriers, especially British Airways and Virgin Atlantic, are experiencing.

Airbus has predicted that Accra and Lagos will become “mega cities” in the next 20 years, meaning those markets will handle 10,000 or more long-haul passengers per day. Yet that outlook also means Lagos cannot entirely usurp Accra despite other factors aligning for it.

See related article: Nigeria and Ghana drive West African aviation development

Ghana is successful in its own right, if on a smaller scale, although its projected GDP growth for 2012 – 7.3% – outpaces Nigeria (6.6%) as well as the other African nations Delta for one serves. While British carriers may see a bilateral expansion with Nigeria in the near future as Nigerian carriers want to expand, further growth it seems will be on Nigeria's terms – a relationship present much elsewhere.

Delta is consolidating in Accra while Brussels Airlines and United are withdrawing, but in the medium-term they will be able to unlock Accra's growing potential. Other carriers will wait for permission to open up existing demand in Nigeria. Rivalries between hubs are good for passengers.

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