Air Fare Disparity: Between Investigation And The Need For Immediate Remedy

The Senate Committee on Aviation recently conducted a public hearing on allegations leveled against British Airways and Virgin Atlantic for their role in the disparity of airfare charges as well as the flaunting of aviation laws. CHIBUZO UKAIBE, who followed the hearings captured the moments and more.

On April 16, 2012 the key actors, in the aviation sector, (including the Ministers of Aviation, Foreign Affairs and the regulatory agencies as well as the foreign airlines) gathered in the room one hearing room venue of the public hearing. The atmosphere was charged as the stakeholders; particularly the minister of aviation and the two accused airlines were still smarting from running tussle over the discriminatory air fare charge.

Cautious of the diplomatic row that could ensue in the cause of the hearing, Minister of Foreign Affairs, Mr Olugbenga Ashiru, called for caution such that the situation does not deteriorate into a diplomatic faceoff. He indeed noted that as it stands, it was purely a commercial issue. He however did not spare both parties involved; the regulatory agencies and the airlines, lambasting them in equal measure.

While he said “There is no justification for the rip off that Nigerians are going through,’’ he added “What is happening now is a failure of regulatory agencies to do their job. If the regulatory agencies had done their job very well, we will not have got to this stage.

He continued “It should not create furor between their host country and Nigeria. We in government don’t want this exercise to degenerate into a diplomatic row that will warrant you to invite me back here. I believe that my coming here at this time may not be desirable because most of the issue being tackled is within the purview of Aviation ministry”.

The Minister of Aviation, Princess Stella Odua-Ogiem, reiterated the running battle with the airlines. She said apart from her stringent warnings to BA and Virgin Atlantic that the price imbalance will not be tolerated and must be dismantled. “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.”

Having conducted inquiries into the activities of the airlines in the past, the Director General of NCAA, Dr Harold Demuren, who while berating the operations of the foreign Airlines in the country said in 2006 alone, the BA raked in 451million pounds out of which 112m pounds was generated from Nigeria alone. Dr Demuren, told the public hearing that “BA and VAA coordinated and cooperated in fixing, periodically raising, and maintaining the Passenger Fuel Surcharge (PFS) with respect to travel including to and from Nigeria.”

“The PFS, having been discovered not to be what BA and VAA portrayed it to be, was a special device that deprived the federal government of legitimate revenue that should have been derived from the statutory five per cent of the Ticket Sales Charge.” According to him, BA and VAA had earlier admitted to the same misconduct in the US and the UK and they are already compensating travellers in those countries.

However, a staunch defense was to come from the airlines, in the center of the storm. In its brave attempt to absolve itself of any blame, the representative of British Airways cited that the law of market forces was at the heart of the way the fares are charged.

The BA representative in Nigeria, Mr. Kola Olayinka was adamant that they have not flaunted any laws in their operations in the country. He maintained that the air ticket operation in Nigeria conforms to the Bilateral Air Services Agreement (BASA) with Nigeria. He was unfortunate that the profitability of the airline was being discussed in the Senate. He, however, noted that there is no law that the airlines should pay five per cent of the PFS to the NCAA as it did for the TSC, adding that should such legal explanation come to the notice of the airline, it would immediately comply.

He said “You did not actually tell us which laws were violated. As a Nigerian I will always wish prices can come down; 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.

“Prices will tumble tomorrow if we increase supply. Every airline in the world charge passenger fuel surcharge. It is not a hidden charge, it is meant for airlines to recoup ever rising aviation fuel. 5% sales tax why we are not paying it, it is a statutory law. That law did not tell us to pay for additional fuel surcharge. Blame the law. There is a difference of $4000. Nigeria’s distance is shorter to that of Accra to London. Distance, demand, and operating environment, determine cost.”

But the high point of the day’s hearing was the demand by the Committee for the immediate review of the Bilateral Air Services Agreement (BASA) between Nigeria and Britain.

The NCAA boss had told the Senate panel that Nigeria and Britain are supposed to have 21 flight frequency each, but that while Britain, through British Airways and Virgin Atlantic enjoys its slot, Nigeria has been restricted to only seven slots which is used by Arik Air. However, the last time Nigeria signed BASA with Britain was in 1988.

But signs that the resolve maintained by the foreign airline on some of the allegations (especially the 5 percent Passenger Fuel Surcharge (PSF)) had thawed surfaced on the second day of hearing where some of the airlines admitted that they had defaulted by not paying the 5per cent statutorily required from all ticket sales, despite their claims of ignorance to the provision of the law on that matter.

The airlines argued that the PFS was charged by the airlines to cover for the cost of aviation occasioned by global increases in crude oil, the Committee noted that the airlines never reflected in the value of the PFS any fall in the price of crude in the international market.

On the 5 percent charge, the General Manager of Air France-KLM Nigeria, Mr. Christian Herpi, said they were ready to comply with any extant Nigerian law requiring the airline to pay 5 percent from the PFS.

However, the foreign airlines, especially British Airways, Air France, and KLM, advised the country to establish a national airline as a step towards boosting the aviation industry adding that Nigeria should be able to run a national carrier despite the fact that some smaller African countries own national airlines with difficulty in management.

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Conclusion….

As the ultimatum placed on the arbitrary fare increase comes to a close, it is yet to be seen whether the federal government through the Minister of Aviation will keep to her position of grounding foreign airlines, which has become the major airline of choice for not just businessmen but even for government officials.

Already the NCAA has rolled out new operational guidelines for the both foreign and domestic carriers, which includes tariff rates, fare charges; even though recent information indicates that the airlines are yet to reduce their charges.

As such, watchers of the sector wonder could a diplomatic row between both countries be in the offing in the event that the foreign airlines insist on the market forces driving its charge of airfares. Obviously, it is a thin path, requiring much caution.

This is also against the background of previous diplomatic talks which commenced between the Minister of Aviation and some officials of the British Airways, Virgin Atlantic with the British High Commissioner in Abuja. It was reported that the British delegation had asked for time to investigate the allegations of disparity in fares and report back in December last year.

However, reports indicate that the United Kingdom Department of Transportation will in May release a detailed report on airfares charged by British and Nigerian airlines on the Nigeria-UK route.

Nonetheless, watchers of the sector have raised eyebrows over the seeming down play of the connivance of the regulatory agencies as pointed out by the Senate President and the Foreign Affairs Minister.

As Nigerians await the report of the Senate Aviation Committee there are expectations on them to strengthen the aviation laws with the aim of stopping exploitations and waste in the sector, and if need be empowering the regulatory agencies to be more proactive.

Also, anticipations are that the report would look into factoring a system that will ensuring that a national carrier is on stream to help contain the overwhelming dominance of foreign airlines of the nation’s airspace.

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