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Revenues are rising after the COVID-19 restriction was eased. People are returning to air travel. WOLE SHADARE writes that the challenge for airlines now is how to keep costs under control
Nigerian airlines are most unlikely to return to profitability year. This is not peculiar to the nation’s carriers as many carriers in many parts of the world are witnessing serious hiccups.
Only a few markets, like the United States and some parts of Asia like China and Japan, have seen an almost 90 percent recovery after restrictions were removed or relaxed following the shutdowns occasioned by the COVID- 19 pandemic. Nigeria’s domestic aviation industry recovered quickly.
This was prompted by good measures put in place by the Ministry of Aviation, the Nigerian Civil Aviation Authority (NCAA), the Federal Airports Authority of Nigeria (FAAN), and others to ensure people complied with the protocols established by these agencies to provide safer flights and a quick return to air travel.
The desire to travel by air and the need to reconnect with families, friends, and business saw the booming domestic air travel. The security situation on the major roads as a result of kidnapping, banditry, and all other vices encouraged a ‘booming’ domestic aviation market.
The multiple headwinds confronting the carrier, including inflation and high fuel prices, have hit the initial gains made after the re-opening of borders and one that has pushed back recovery till 2023 and 2024 with African aviation projected to return to the pre-2019 era in 2024, according to the International Air Transport Association (IATA), the clearing house for over 200 global airlines.
The increase in the price of jet fuel, triggered by the conflict between Russia and Ukraine, has the potential to slow down travel recovery according to the African Airline Association (AFRAA).
High Jet A1 cost
Aviation fuel costs more in Nigeria and other oil-producing countries than their counterparts that do not produce oil. For instance, in Nigeria, despite the stability in the lifting of aviation fuel across the country and the deregulation of the commodity, JET A1 has hit an all-time high of N270 per litre.
The skyrocketing price of JETA1 in Nigeria has added more to the pains of airlines, which use 30 percent of their revenues for fuelling aircraft. Aviation fuel is central to the operations of an airline as it constitutes between 35 and 40 percent of an airline’s cost. The price of the commodity – laden with taxes – in the West African sub-region, is the highest in Africa.
While the specialised fuel is sold for about $2.30 cents per gallon in Nigeria, $2.30 in Benin, and $1.94 cents per gallon in Cameroon, it is sold for close to $3.14 cents in Ghana, which also produces oil. In Luanda, Angola (also an oil-producing country), it costs $3.75 per gallon; Libreville $2.05 per gallon; Khartoum, Sudan $2.44 per gallon.
It is only Equatorial Guinea that sells JET A1 for $0.46. Jet fuel prices in some African capitals are double the global average and it is posing a threat to its aviation sector’s development. The high cost of jet fuel in Africa, compared to other regions due to distribution inefficiencies and infrastructure constraints, has held back the development of airlines and fare reduction.
Apart from the issues of highly-priced jet fuel, Africa’s jet fuel shortfall is expected to triple from 1.8 million tonnes in 2013 to around 5.2 million tonnes by 2025. As a result of the high fuel price, ticket prices are relatively high.
If fuel price comes down and costs of operations reduce, airlines are likely to bring down their fares. Five African airlines continued their international routes expansion drive and had surpassed the number of international routes operated pre-COVID.
Ten other African airlines either re-opened suspended routes or launched new international routes. As of February 2022, African airlines had reinstated approximately 79.9 percent of their pre-COVID international routes.
The Intra-African connectivity reached 72 percent of the pre-COVID level in February. It is estimated to increase to 75 percent in March because of the easing of COVID-19 restrictions in several African countries.
In Algeria, connectivity increased due to the reopening of many destinations, particularly in West Africa. Ethiopian Airlines, Royal Air Maroc, and EgyptAir are among the airlines that opened new routes to African destinations in the reporting period.
Across Africa in general, passenger traffic volumes remain depressed. However, with the relaxation of lockdown and COVID-19 restrictions in many countries, traffic is set to rise.
Low airlines revenue
Airline revenues remained low with many operators battling cash flow issues. Full-year revenue loss for 2022 is estimated at $4.7 billion, equivalent to 27.3 percent of the 2019 revenues.
In 2021, African airlines cumulatively lost $8.6 billion in revenues due to the impact of the pandemic, representing 49.8 percent of 2019 revenues. But air travel’s recovery is not happening at the same pace across the world.
While demand in North America this year will almost be equal to 2019, IATA expects demand in Africa will be lower than the global average of 82 percent. Between the first quarters of 2019 and 2022, the number of passengers in Nigeria’s domestic air travel market increased by one-quarter.
Only Colombia posted a better growth figure (31.7 percent) in the world. Africa’s aviation industry is expected to report a loss of $700 million this year, the lowest figure among the five regions that will report losses this year. But other regions’ losses from 2021 are expected to reduce faster than Africa’s.
The Director-General of IATA, Willie Walsh, while speaking with New Telegraph at the sidelines of the just-concluded IATA 78th Annual General Meeting (AGM) in Doha, Qatar, disclosed that African airlines will recover between 2023 and 2024. His words: “Looking at the momentum, full recovery will be in 2024. At the global level and as an industry, it will be in 2023, but the basis is not the same everywhere.
The U.S. is back to recovery already; the U.S. domestic market is back to what it was in 2019. It very much depends on the market. Markets with big domestic elements are recovering faster. “Russian domestic market was way ahead before 2019 before the war in Ukraine.
The Chinese domestic market has been recovering strongly but obviously disrupted by the closure in Beijing. If you look at Africa, it is principally an international market and therefore the small domestic market is picking up because of all the travel restrictions that are being removed.
The recovery in Africa has seen a slower pace than other regions in the world, ” he added.
Airlines are resilient. People are flying in ever greater numbers. It is a time for optimism, even if there are still challenges with costs.