Dear Honourable Minister of Aviation, National Carrier - Go Big or Go Home

Nigerians like things big. Nigeria is the biggest economy in Africa. Nigeria has the largest population in Africa. Lagos is one of the largest (if not the largest) cities in Africa. The fleet of private jets owned by Nigerians is also probably the largest in Africa.

Yet... there's no Nigerian airline that can lay claim to being close to Africa's largest. Our airports are - if anything - the worst in Africa.

Nigeria should have the largest airline in Africa. The logic is simple. In Europe, Germany has the largest economy and Lufthansa is arguably the largest airline. If you say British Airways/Iberia is the largest, the logic still works when you add the economies of the UK and Spain. There's supposed to be a correlation between size of economy, population and size and/or importance of air transport.

There is an ongoing debate over the proposed national carrier. Should it exist or shouldn't it? Well this is not one of those arguments whether it should or not. I believe that the government is very serious about creating a national carrier.

So with that in mind and as an aviation enthusiast, entrepreneur and a senior executive who has had profit and loss responsibilities in the airline business, let me assume that I will go forward and give an outline of what I would do if I was tasked with building it.

Everything we must do to build this new national carrier must be based on facts and nothing else. If you look closely at the industry it is clear that success and profitability happens at the fringes and never in the middle. The most successful airlines globally are either full service premium carriers or low cost carriers (this doesn't mean low fares). For the record there is no low cost carrier in Nigeria, just low fares airlines. I'm very biased towards a low cost carrier because I believe that we need to democratize the skies and let flying be for anyone who desires to fly. To be a low cost carrier is also a state of mind and requires massive amount of focus and discipline. Zero frivolity!

Are we going to build an airline for the elite or for everyone else? I think the elite have plenty of choices with big seats in the front of the plane and even access to private jets. So we can deduce that they are well catered for. Change was the mantra our new government rode on. So let's do something very different and choose to disrupt the market by forming a low cost carrier, focused on the average Nigerian and others who want to move about easily. This will make the other airlines feel slightly at ease because the government would be sponsoring an airline focused on growing the market and not cannibalizing the market of the current operators.

In a study commissioned by jetWest using an internationally renowned market research firm based in Lagos, we found that the road travel market in Nigeria is almost 10 times the individual air travel market. 7 million Nigerians fly on average 2.5 times a year which accounts for the nearly 18 million passenger movement. The same study showed that approximately 70 million people travel the roads each year. 70 MILLION!! That's half of our population. Imagine if you convert 10% of that 70 million to fly because it is now within their reach? That's 7 million more flyers. And if those new flyers travel twice a year? You guessed it, you have in fact just doubled the Nigerian aviation market and everyone will gain!

Honourable Minister, GO FOR IT. DO SOMETHING DIFFERENT. DISRUPT THE MARKET!

WHAT MAKES A GOOD AIRLINE?

Simple, offer a product people are willing to pay for, be on time like your life depended on it and employ the right people. Take good care of them and inspire them to work because they believe in the spirit of the airline. Simple right? Well not as simple as it sounds but completely achievable, if everyone is on the same page. Let me give you another simple guiding principle: simplify and lock down your processes on the things you control and find ways to mitigate the ones you don't.

The biggest issue all airlines face is fuel. Right now prices are low, so no one is complaining. What happens when they spike again? You've got to be on top of your game and make sure you enter a hedging contract well before prices peak again because they will.

CASH IS KING!

This saying is true in most businesses but even more critical in the airline business. How you manage your cash is critical.

Aircraft Financing; Be smart. Don't tie up all your cash buying aircraft. I know, as Nigerians, we love to own things but think about it like this: Aircraft are tools to earn revenue. We want an airline that has high dispatch reliability (the percentage of departures that leave within a specified period of a scheduled departure time) and can help keep our costs down, right? Plus we want to put our best foot forward so we want brand new aircraft, right? We also know that the older the aircraft gets, it generally starts to cost you more to maintain etc.So here's what we do; we make a down payment for the new aircraft, get all the benefits from the aircraft manufacturer (crew training, spares support, technical training etc.), then smartly do what's called a sale lease back with a reputable lessor.

This frees up much needed cash and allows you to get into new aircraft every 7 years. Did I mention that if the negotiations go really well, the company can actually make a slight profit in the sale lease back, which means more cash at hand? This is a possibility. This allows the NC to have a very young fleet, which correlates to passenger confidence and perhaps critically keep your costs down. Again see the aircraft as a means to an end, not the end in itself.

KNOW YOUR MARKET!

As I alluded in my opening paragraph, are we building an airline for the A and B socio economic groups or the C and D? My argument is that will the A and B give up all those airline miles and other perks to fly Nigerian? History has shown that this is not the case, because their needs are met. Focus on the people who would welcome an alternative. Meet the needs of the underserved and they will thank you in spades.

EFFICIENCY AND PRODUCTIVITY

Automate everything that you possibly can, without exception. Be modern; lead the way in technology and new ways to distribute services. Be cutting edge. Forego all those archaic processes. Be daring and bold. Lastly, fly the heck out of those destinations everyday. Turn the aircraft around quickly. The higher the utilization hours the lower your costs. But let's ask ourselves how you can utilise the planes more at night if much of the infrastructure cannot support this?

NETWORK PLAN

There is an awful amount of data out there to help build a network plan that makes sense. Build your network plan based on data and nothing else. Build it locally and intercontinentally. Let the people know you're reliable, a time machine that they can set their clocks to. It is only when you have built this kind of reputation that you can even start to dare to go transcontinental. This can take as long as 3-5 years. We will not become as big as Ethiopian or SAA overnight. However, the great thing about data is that you can literally plan your first 5 years without loosing sleep. Be patient. Follow the numbers!

FLEET PLAN

Be agnostic to aircraft manufacturers, go with the best deal that meet your needs. Remember they want to sell planes so they will do what needs to be done to get you theirs. Go big and you will get fantastic discounts.

PEOPLE PLAN

This is the most important and often most neglected part in the overwhelming majority of Nigerian companies. This is perhaps the most crucial part of your quest for success. It's very simple; pick a guy or girl solely on the fact that they have a first class, masters or Ph.D but let them have the wrong attitude and you will run into trouble as we always do here in Nigeria. Pick people based on attitude and continuously train them for skill. Make sure to give your middle managers leadership training so they understand that they are there to help the teams they lead and not the other way around. I cannot over emphasize how critical your manpower plan is. The People plan is your biggest competitive advantage.

MANAGEMENT TEAM

There is a lot of talk about getting a technical partner. While there is a lot of merit to this approach, when are we going to grow up and start to take responsibilities for our projects? I say hire a strong management team that has a clear vision and works together to reach a common goal, which is to build the most profitable airline in Africa. Find people who believe what we believe. Further, our history should remind us that most would be technical partners also happen to be our competitors, so what real incentive do they have to get us where we aspire to be?

FUNDING

Let me get to it. The government has no cash, so everyone can pass on that angle. But here's how I propose that they can get this funded. Issue a Sovereign Guarantee for the project cost. This will give everyone a lot of confidence. The equity and debt can be raised a lot easier and probably a lot cheaper with this in place. If the management is smart they can leverage this position to allow the new entity access to the kind of cash it needs to be successful. Think about it this way: the two most successful start ups I know, JetBlue and Azul started with $140m and $200m in equity respectively. They were able to leverage this equity to get amazing equity to debt ratios. This allowed them access to brand new aircraft and systems that gave them an advantage from the onset. They had other things but this was very important

Now I know you're asking why does this make sense? Well for two reasons:

1. The government doesn't have to spend a red kobo and it can get out of its guarantor obligation in 3 years.

2. What other options do we have if we want this done properly without undue influence by the richest investors?

If things go remotely close to plan, this airline should be at 20-30 aircraft in 3 years (aggressive I know but hey, we got to go BIG) and should be doing north of $500m in annual revenues. Using a 3x multiplier this means the airline could have a valuation of $1.5bn in 3 years. At this point, when it should have shown good corporate governance and a penchant for being the solid airline we have always wanted, if market conditions are right, this will be the time to do an IPO. With the funds raised at IPO, the government guarantee can now be retired and the company will have to stand on its own.

One more thing about the IPO and why this can be a true NATIONAL carrier owned by Nigerians rather than a national carrier for the state of Nigeria. The IPO can choose to restrict any individual or corporate entity from purchasing more than a 5% stake in the business. This should in principle give access to ordinary Nigerians who want a part of a Nigerian success story.

I truly hope that if we endeavour down this path, we will make it a world-beater, at least an African beater.

Two more things

Airports

The national carrier project will fail if we don't address this issue immediately. The object of the national carrier is to carry traffic through the hub so that Lagos, Abuja or PH can become the destination of choice for those transiting to other destinations in Africa. Later we can tackle the world if we like. Airports are the most critical part of the service chain. If PHC is truly the worst airport in the world then we need to address that issue and not waste money trying to fight a CNN poll. We need to see what airports are doing these days and fix ours to get there in a hurry. Furthermore all the agencies from NAMA, Nigerian Immigrations and Customs service need to work towards making our airports truly user friendly and very welcoming.

2. Get the Nigerian people involved

One last thing I have learnt in my time in airlines is that everyone has an opinion on how to run an airline or the things that affect an airline. For this National Carrier project let us make it fun. Please don't give it a generic name like Nigerian Airlines or any other stodgy name that we can think of. Use tools like social media to engage Nigerians to come up with a name for the carrier. You would be surprised how that will swing momentum in your direction. Furthermore, make a contest out of the aircraft livery design, maybe the uniforms too. Make it fun, engage the numerous talented Nigerians who would love to say, "See that plane, I designed the livery".

Honourable Minister, thank you for your listening ear.

Respectfully,

Dikko Nwachukwu

Nwachukwu was most recently the Chief Commercial Officer at Aero Contractors of Nigeria; where he was responsible for revenues, network planning and fleet planning, amongst other key roles. He is currently senior partner at jetWest Partners Ltd., an aviation advisory focused on bringing global best practices to airlines, airports and service providers in Africa's aviation sector.

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on Nov 14, 2015

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