Sir: A price war has broken out in a submarket of the nation’s aviation sector, and the passengers are the major beneficiaries. But in the long term, this may hurt the airlines and put the fliers in a bind.
A price war or price competition occurs when businesses in a particular industry compete against each other by repeatedly lowering their prices in an attempt to gain market share and drive out competitors. Since Nigeria’s carrier, Air Peace Airlines, launched its Lagos-London route over two weeks ago with a drastic slash in airfare, its main competitors on the route, BA and Virgin Atlantic, have announced reduction in ticket prices to levels not seen before. From N15 million for a first -class seat and N5 million in an economy, the two British carriers are now charging over 80 per cent lower in response to Air Peace’s introductory offer of just N5 million for first-class and N1.5 million for economy.
For a six-hour flight, this was the most outrageous pricing in the industry. Other carriers like South African Airlines, Morocco Air, Ethiopian Air and Turkish Air, which do not fly direct from Lagos to London, have equally reduced their fares. There has never been such a fierce price war in the nation’s aviation business before. Allen Onyeama, chairman of Air Peace, said in a television interview last week that the foreign carriers were engaging in price war to drive his airline out of business so as to return to their cut-throat pricing. He appealed to Nigerians to fly Air Peace, not just out of nationalistic considerations, but also for their strategic self-interest.
Price competition is rampant in many industries. Notable examples of recent price wars include the 1992 airline price war in the U.S. during which American Airlines, NorthWest Airlines and other U.S. carriers matched and exceeded the reduced prices of one another, resulting in increased sales volume but huge losses. There was also the 2020 Russia-Saudi Arabia oil price war which led to a 65 per cent quarterly fall in the price of oil.
Price wars could hurt the competing businesses as revenues and profits dip, and in some cases, weaker competitors who cannot cope may go out of business by the time prices eventually stabilise at lower level. But in this case, if Air Peace is forced out of the London route, the international carriers, which apparently have the tacit support of their home governments, will jack up the fares again, and Nigerians would be the ultimate losers. This is why we must stand by the Nigerian flag carrier.
Companies that typically win price wars are those with better cost structures and widest profit margins. Among the three (BA, Virgin and Air Peace), the British carriers have deeper pockets and can cope better with the raging price war. This war will last for the remaining part of the year, but I suspect that the British authorities will employ other tactics to frustrate the Nigerian flag carrier and weaken its resolve and resilience. The British carriers may also continue in the fight by lowering the quality of in-flight services just to cut costs.
Etim Etim.
