High Operating Costs Worry Airlines’ Investment

The Chief Operating Officer of United Nigeria Airlines, Osita Okonkwo, said the escalating costs in airline operations, which have grown rapidly, have become one of the problems of airlines in the country. He noted that the rate of escalation of costs of operation was mind-boggling, leaving the operators with adjustments in fares.

Okonkwo, while speaking with Aviation Metric at the weekend, said: “If you look at the cost structure of every operation, first of all, you have the aircraft come which is in most cases measured in hourly bases or circle bases for engine, mainframe, and any other things you have in the aircraft. “You have to know that every component has a diminishing value. You have an engine with 20,000, 30,000 circles or whatever.

“It reaches a certain point and you have to go for some checks. “Aircraft cost is one big chunk of it which you have to manage. The second component is the operating cost which is basically fuel. Consumables and spare parts handling charges are all related to particular operations. When we started, fuel was N200 per litre and rose to N300. “As of December 2021, we were buying fuel at N350. Suddenly, it rose to N500 per litre; that was when Airline Operators of Nigeria (AON) started shouting.”

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Then, it is around N790 and N800 now.” He explained that 99 per cent of input into an aircraft was forex dominated, stressing that there were no parts of an aeroplane that are produced in the country as far as aircraft is concerned.

“So you need to get your forex. We suffered double jeopardy; one of access to forex, and the second is availability and cost. It moved from about N400 plus to a time we bought at N900 for a dollar if you are not lucky to get it from the Central Bank of Nigeria (CBN).

“Currently, CBN meets about 20 per cent to 30 per cent of the needs and that takes time. You have to queue. Meanwhile, you have an AOG that you have to get the spare parts. It has really been difficult. What we have seen is escalating cost of operation. It is escalating at a very rapid rate. “There was a reaction on the fare side on the fare side from N23, 000, N30, 000 it moved to N50,000, N70,,000. Now what we are seeing is that because of the economic situation in the country, nobody is flying at N70,000,” he said.

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The airline chief noted that as a result of the situation, airlines decided to react irrespective of what people said that they were colluding to fix prices, hinting that the airline business is driven by market forces as a way to survive as an operator. “Now you can see that you get tickets of N40, 000 but I can assure you that people are underwriting those costs.

“There is nobody who can fly at N40,000. It is not possible even if you filled the aircraft. We operate CRJ aircraft and you sell at N40,000. NCAA takes five per cent, and MMA2 takes N4,250, which is already 10 per cent of the fare you have collected. Then you talk of fuel. One-hour flights will take you about 1300 litres of fuel. So there is no way anybody who flies at N40,000 will not do anything,” he added.

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He decried the attitude of some airlines he claimed underwrite costs by injecting capital from other sources to sustain the business, reiterating that one of the lessons learnt was that it is important to be mindful of the operational setup and cost of operations. “We learnt in the last two years that it doesn’t make sense to be competing on fares.

Okonkwo

There is no heroism in flying an aircraft. The only heroism there is sustaining the operations of an airline. Instead of competing on fares, airlines should be focused on what they are doing, make sure you get the customers to a level that they are comfortable and happy with you,” he added.

Wole Shadare