THE nation’s aviation sector space has been in the news of late. The sudden, but very pleasant, at least to the consumers, slash in the prices of airline tickets, on the ever-bustling Lagos to London route, has made the sector the talking point of many in the past few weeks.
On March 30, this year, Air Peace commenced a direct flight to Gatwick Airport, in London, from Lagos, a development that witnessed the tumbling down of air fares on the route.
Prior to the advent of the domestic airline on that route, and its introduction of a return economy class ticket, priced at N1.2 million, flight tickets on the route had gone as high as N3.5 million.
Interestingly, the foreign airlines seem to be responding in equal measure. In the past three weeks, they had drastically reduced their fares on same route to remain competitive. This development, undoubtedly has thrown up more questions than answers.
Are these foreign airlines engaged in predatory pricing by simply undercutting, with their latest pricing, with the sole aim of frustrating Air Peace out of the route, or the usual price war seen in a market segment that is becoming increasingly competitive?
The Chairman of Air Peace, Allen Onyema, sees it as undercutting, with the intention of throwing his airline out of that juicy route.
«It›s a very devilish conspiracy. All of a sudden (foreign) airlines are underpricing below the cost. It›s not up to one month, an airline was advertising $100, another one $305, $350. Fill up the entire aircraft and carry people on the wings, it›s not even enough to buy your fuel. So why are they doing that?» the Air Peace boss had asked, rather rhetorically.
But, while speaking on the issue, the immediate past Executive Vice Chairman, Federal Competition and Consumer Protection Commission (FCCPC), Babatunde Irukera, would want a thorough investigation into the above claim to establish whether it›s price wars, or predatory pricing.
He argued that while price wars usually benefit the consumers, predation, he stated, benefits nobody, except the predator.
Irukera believes predation creeps in when a brand decides to go below the market price, knowing that any competitor that does not have the financial muscle or market share than the brand will not survive.
He however acknowledged the fact that it is always difficult to establish predatory pricing, especially in aviation.
«Establishing predatory pricing is complex and complicated in aviation. That said, there are yellow flags here, and begs the question and calls for inquiry, even scrutiny. Price wars benefit consumers, but predation benefits only predators. It almost always leads to profiteering,» the former FCCPC boss stated.
But are these airlines really engaged in underpricing or predatory pricing?
While Irukera believes the relevant regulatory bodies, both within and outside the sector, should wade in and fix the puzzles, former President of the National Institute of Marketing of Nigeria (NIMN), Tony Agenmonmen, believes the issues at stake are quiet bigger and diverse.
Agenmonmen noted that it is not unusual to see this type of development in the market place.
“Competition in the market place is not unusual. In fact, it is the norm. Any industry where there is no competition will be moribund and the consumers or the general public will not get the best of it. As a marketing person, I will encourage competition,” he stated.
While describing the foray of Air Peace into the international route as a very welcome development, the former NIMN boss however argued that it would be foolhardy for the domestic airline not to expect the type of fight-back it is currently getting from the foreign airlines.
“Air Peace, either for patriotic reasons or strategic reasons brought their prices to the level they brought them. But, I would be surprised if Air Peace did not expect that the competition, which, in this case, is every other airline, would react one way or the other because whether we like it or not, the coming in of Air Peace has changed the dynamics. So they would be expected to react in one way or the other,” he added.
While Agenmonmen noted that it would be difficult for Air Peace to pin down the foreign airlines as guilty of predatory pricing, since their prices are still clearly higher than what Air Peace is offering.
“I’ve checked the prices that are being bandied. I can’t find any of $100. Yes the major airlines like Virgin and others have dropped their prices, but from what I still saw as at yesterday, last Friday, most of them are still clearly higher than what the Air Peace is offering,” he stated.
Agenmonmen would however want the management of Air Peace to brace up for competition rather than throwing accusations at other airlines. This, he added, can be achieved by seeking the much-needed support from the government, through tax waivers or tax holidays, so as to make its pricing much more competitive in the market.
“I think the airline should also be thinking of how to position itself to enable it attract more patronage in that segment. Sometimes, pricing is not the only factor that attracts consumers to a brand, after all Heineken is far more expensive than other lager beer in the market, and yet, the beer is still being hugely patronized,” he argued.
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