Whenever a new business enters any industry, they often crash their prices to compete and gain some market share. It seems like a good strategy, but it is a risky move. If you are not ready to fight it through, don’t start what you cannot finish.
Sometimes, a price reduction may work in your favour.
Do you remember when sim cards were sold for ₦20,000 and ₦25,000? In 2003, two years after early operators dominated the market, Glo entered the market and sold it for ₦7,000. Other telcos began to crash their prices. Today, you can get a sim card for as low as ₦100 or even free. Glo survived the price war.
Whenever you start a price war, expect a backlash. Glo did not complain or beg Nigerians to patronize them based on nationalism or patriotism, they only fought the war tactically and strategically.
Other times, a price reduction may work against you.
You cannot price-compete with a business that is bigger than you. Reducing your penetration price to compete with the industry’s top dogs often has repercussions. If the initial price was ₦100 and you reduce it to ₦50, they can reduce theirs to ₦30. You cannot go below that else you run at a loss.
What is the fate of Air Peace in this price war?
Some Nigerian airlines have tolled the path of Air Peace and failed. Will Air Peace survive this move? What does Air Peace need to fight this war to the end? Other international airlines aim to price Air Peace out of the market. They already crashed the price of Lagos – London from ₦17 million to ₦5 million and below
It’s going to be a tough and long war for Air Peace.
British Airways, Virgin Atlantic, Air France and KLM have enough cash reserves and resources to frustrate and fight Air Peace. They can afford to do that. They are already established in the airline industry.
They can take legislative actions to restrict Air Peace from flying to certain countries and regions. They can invite Air Peace to form a dangerous partnership to stabilize the price. They can even buy Air Peace and then soar the price.
As soon as they can underprice Air Peace out of the market, they jack back their price. If Air Peace charges ₦50 and other airlines charge ₦30, customers will shift to the cheaper option. Customers have zero loyalty. Loyalty is difficult when money is involved.
What should Air Peace do?
- Prioritize value.
9mobile has about 13 million subscribers out of the 217.9 million subscribers in Nigeria. When 9mobile reduced its price of 1 gig data drastically, other telcos did not shake because they did not even consider 9mobile as a competitor.
Although 9mobile’s data is the cheapest in Nigeria, Nigerians don’t consider it valuable enough to be patronized. 2,433 subscribers ported out of the 9mobile network in November 2023. In February 2024, 9mobile subscribers flooded social media to complain bitterly about its poor network services.
Customers are only loyal to value and will stick to any services that offer higher value, regardless of how low the competitors price their services.
Value is the biggest motivation for middle-class Nigerians who travel by air. For the middle class, it is about the most convenient airline and not necessarily the cheapest. Value is beyond serving airline passengers pounded yam and egusi soup.
Airline passengers detest last-minute cancellations, route changes and flight delays. Value involves making it easier to book flights, refund money and return lost luggage. If Air Peace can maintain international standards and customer service, they will survive the price war.
2. Pass messages that help customers to see the business as “Our business”
People love to support what they like and own. Give Nigerians the sense of belonging that Air Peace belongs to them and they will make it their first choice.
Air Peace came through for Nigerians during the xenophobic attack in South Africa, the Russia-Ukraine war and the South Sudan crisis by freely evacuating Nigerians trapped in these wars.
Patriotism comes with a price and Air Peace has paid the price to gain the love of Nigerians. Nevertheless, Air Peace needs to take advantage of this emotional bonding they already have with Nigerians.
In a tribalistic country like Nigeria, Air Peace should sell itself more as a national airline rather than a business owned by ‘one Igbo man.’ Nigerians will see Air Peace as their own if Air Peace brands itself more as a national airline. If Nigerians understand that this price war is a win for them too, the battle is partly won.
3. Provide irresistible offers
One straw is enough is break the camel’s back. While early operators were billing calls in minutes and rounded off every call that ended in seconds, into minutes, Glo came on board with the per-second billing system and every existing player in the sector immediately followed. While other telcos charged ₦50 per minute, Glo charged as low as 1 kobo per second. Irresistible!
Regardless of the income class, customers’ loyalty switches unapologetically whenever they are presented with an irresistible offer. Irresistible offers are innovative baits that are used to win customers, gain market share and disrupt any industry.
Before Air Peace can present a mouthwatering offer to the market, they need to understand their target market first. The middle class is not necessarily moved by quantity, nor are they looking to save cost, but they can be won by other creative offers.
4. Protect the balance sheet
The big foreign airlines do not necessarily need to fight Air Peace before it loses the battle. Air Peace just needs to record losses continuously and the game is over.
Before Air Peace can deploy a penetration pricing strategy or present irresistible offers, they need to protect their balance sheet or reduce their profit margin. Air Peace needs to be sure that their financial record is healthy enough to accommodate the cost of this price war without hurting its bank account. Fighting a price war is expensive.
Aside from ground handling costs, en-route navigation services, and landing and parking fees, it costs airlines between $500,000 and $1 million to carry out mandatory C-checks on their aircraft every 18 months. It costs not less than ₦2 million to operate a one-way flight using a Boeing 737 aircraft.
Air Peace is not a charity airline.
5. Switch from penetration pricing to discounted pricing
When Green Africa Airlines announced the launch of its inaugural flight to Ibadan on August 2024, it did not outrightly compete based on penetration pricing. Customers flew between Lagos and Ibadan for as low as ₦6,500 and ₦25,000 between Abuja and Ibadan.
Everyone knew that this price was not sustainable in the long run. That was why the announcement was made as a “discount price” to mark its second anniversary. The discounted prices were only available for a limited time. If Air Peace cannot keep up with this entry price, let it switch to a discounted pricing model.
6. Stabilize before going public
The last Nigerian airline on the international route that went public shut down business 18 months after, due to debts and decreased aircraft. Ten years after it was founded, Med-View Airline Plc was listed on the Nigerian Stock Exchange. .
Med-View Airline was the only Nigerian airline in the list of air carriers banned in the European Union. The downturn started in 2017 when its flight from Lagos to London was disrupted due to operational reasons, leaving its passengers stranded and embarrassed at the Lagos Airport. Air Peace is already
IPO is not a first aid in a price war. Raising funds quickly to win the foreign competitors at this sensitive time may be wrong. Going public may be too early.
Although Air Peace is West Africa’s largest carrier, it is just entering international operations and it needs to firstly stabilize its position. Foreign airlines may buy major shares secretly and have greater voting rights before proceeding to a hostile acquisition of Air Peace.
7. Seek the support of the Nigerian government
Many Nigerian airlines cannot compete with big foreign carriers because of a lack of access to finance and the high-interest rate charged by banks on loans. Foreign airlines get a single-digit interest rate for loans to buy aircraft whereas Nigerian banks charge around 26 percent interest rate on loans.
This isn’t good for any business. This has made it difficult for Nigerian airlines to buy aircraft outright or lease rentals. Nigerian airlines do not have access to aircraft on the same terms as other big foreign airlines.
The Aviation Working Group said that until the Nigerian laws and practice directions are amended from granting injunctions on aircraft on dry lease, aircraft will not be brought in dry lease into Nigeria. If the Nigerian government can support Air Peace through policies, incentives, subsidies and tax reduction, Air Peace can stand a chance of surviving the price war in the long run.
I have discussed more about how to price your product and services in my book SELL OR DIE POOR. I also explained how to creatively win sleeping giants in SATURN. Grab Your Copy Now.
© Kingsley Ndimele
Your Reliable Consultant