For Aviation, It’s Slow Path
The aviation industry in Nigeria is not immune from the recession that has hit airlines globally. WOLE SHADARE writes on other issues that shaped the second quarter of 2016
The aviation sector in the last quarter was on a slow path. It was a mixed grill for a sector that is globally hit by recession. For Nigerian airlines, they are very much faced with hard times, leading to the cutting down of routes, especially on the lucrative Lagos –Accra route due to scarcity of foreign exchange. Even foreign airlines are also not spared following excruciating pain of sourcing foreign exchange coupled with tough operating environment that led to loss making by Spanish carrier-Iberia and American airline, United. Both airlines pulled out of the country as the Nigerian government was urged to release more than $599 million in air ticket sales blocked by the West African nation’s chronic foreign currency shortage.
Airlines in recession
The International Air Transport Association (IATA), the clearing house for 160 airlines have been meeting the with government to negotiate after the organization representing airlines warned: “The inability of airlines to access forex in Africa’s largest economy, if not solved, will affect air transport services to, from and within Nigeria and undermine the country’s position as West Africa’s aviation hub.”
The carriers are in serious financial position. If cash continues to evaporate at its present rate, even the strongest airlines will need to raise money. But the price they will pay for it could cripple them for years. Even airlines with healthy balance sheets are suffering. Meanwhile, the carriers are seeking a fresh window for stable foreign exchange rate for them to ease their operations.
This, they said, would help to stem the astronomical rise in prices of air ticket. The carriers insist that a flexible exchange rate makes it difficult for them to determine exactly what to charge travellers. The plan to meet the Central Bank of Nigeria (CBN) was unveiled by the IATA at a meeting it held with foreign airlines last week. A top airline official who was at the meeting told woleshadare.net that aside that, the clearing house for global airlines would also discuss the issue of over $599 million of the airlines’ funds that are trapped in the country.
Privatisation plans
The sector witnessed huge talks on the planned privatisation of aerodromes. The twin problems of mismanagement and corruption encountered by the state-owned corporations constitute the impetus for talk about plan to privatise some Nigerian airports. The government through the Minister of Transportation, Rotimi Chibuike Amaechi has continuously said that there is no going back on the exercise. Some stakeholders are opposed to the idea while many others have backed the govern-ment’s action, arguing that it would help the government to channel resources where they are needed most.
Allowing transparency
They, however, stated that for government to demonstrate to investors that it is serious and committed to the privatisation programme, the first step is to make the process very transparent by throwing the bid open to would-be investors.
Experts are of the view that privatisation of airports is directly tied to the economic prosperity of the country especially in increasing their operational efficiency and profitability, but most importantly in stimulating growth in the non-oil sector of the economy. Some also believe it is the most efficient way of curtailing corruption in the management of airports. Not a few believe that the country has not managed its airports efficiently as they remain a national embarrassment and the resources to do so are no longer readily available.
Perennial JET A1 scarcity
The perennial scarcity of aviation fuel, otherwise known as JET A1 has not been tackled by the various groups responsible for the flow of the commodity. This has forced marketers to raise the price of the commodity from between N114 and N116 to between N150, N160 and N170 per litre depending on the location. In Lagos, aviation fuel, otherwise known as JET A1, goes for N150 per litre, while it costs N160 and N170 in Abuja and Kano respectively.
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 N170 per litre.
The skyrocketing price of JETA1 in Nigeria has added more to the pains of airlines, which use over 30 per cent of their revenues for fuelling aircraft. Managing Director of First- Nation Airlines, Mr. Kayode Odukoya, confirmed that in Lagos, aviation fuel, otherwise known as JET A1, sells for N150 per litre, but it costs N160 and N170 in Abuja and Kano respectively.
Fuel is key
Aviation fuel is central to the operations of an airline, as it constitutes between 35-40 per cent 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 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 mt in 2013 to around 5.2 million mt by 2025. As a result of the high fuel price, ticket prices are relatively high. If the fuel price comes down and costs of operations reduce, airlines are likely to bring down their fares. Today, fuel prices globally average per 1.3 dollar. In Africa, it ranges between $2 and $3.77.
In some places, more than twice what it is globally. Vice-President for Africa, International Air Transport Association (IATA), Raphael Kuuchi, said on the average, they notice that fuel price is 21 per cent more expensive in Africa than the world average. “In addition to that, we brought these taxes together. Africa is not a rich continent and we ask, why must we be paying the most? If you look at the high fuel taxes in Africa, the victims are actually oil producers,” he said. Kuuchi lamented that in most of the oil producing countries; aviation fuel is mostly expensive, adding that it is baffling.
Conclusion
Most Nigerian airlines are suffering because of their poor business plan. A lot of routes are not developed on business principle. A start up airline should begin with domestic operation; then regional operation and the business plan should reflect business reality. You find many airlines in Francophone countries rushing to operate to Paris, while Anglophone countries rush to go to London without checking the business sense in that route.
