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Traffic falls as fear grips airlines over loan default

The tough economic reality faced by the country has reduced capacity on routes, as fourth quarter 2015 saw air traffic decline by -nine per cent. And with the recent hike in air fares, Nigerian airlines may default on loans obligation, according to Chief Executive Officer of Financial Derivatives Company Limited, Mr. Bismarck Rewane.
Rewane, who made this disclosure in his monthly economic news and views, said that the global airline share prices dropped by 11.6 per cent, the worst since 2008 recession, coupled with terrorist attacks that increased negative sentiments to airline stocks.
He noted that the premium fares (First Class and Business Class) are the buffer for airline profitability, adding that domestic airlines want to raise air fares by 45 per cent because of Naira weakness, leading to higher operating costs.
His words: “The International Air Transport Association (IATA) rate of exchange is now flexible. Dollar scarcity still a fundamental problem with backlog beginning to creep up again after nine months of using N200/$, it is currently N312/$.”
Rewane was equally worried about the skyrocketing of Jet A1, as fuel spikes 100 per cent to N240 per litre from 2015, stressing that maintenance costs have also gone up coupled with flight delays while cancellations have done incalculable damage to airline operations in the country.
Rewane listed other factor affecting domestic airlines to include weaker Naira and declining purchasing power, cutting back on international travel, current connectivity within Africa that he considered very poor and state governments’ fiscal imbalance as they slash travel costs.
He lauded Ethiopian Airways for offering the best deals, explaining that Lagos-Newark via Lome, Togo on a
Dreamliner goes for N400,000 while on other carriers, it goes for between N750,000 and N900,000.
While fares have gone up by as high as between 60 and 70 per cent on international routes and 25 per cent on the domestic route, the low patronage of passengers occasioned by recession has made it very difficult for carriers to break-even and be profitable.
This would in turn make it practically impossible to service their debts, as virtually all Nigerian airlines are heavily indebted to local and foreign financial institutions to the tune of over $10 billion.
Two of the airlines are currently under receivership of the Assets Management Corporation of Nigeria (AMCON). Just last week, airline operators under the aegis of Airline Operators of Nigeria (AON) were piqued by the skyrocketing price of aviation fuel.
They called on the Federal Government to urgently help to address the problem, which has been inflicting untold hardship on airlines and passengers.
The operators said JET A1 scarcity has led to airlines experiencing acute shortage in recent times, noting that they are at the mercy of the oil marketers, lamenting that many times their hands are tied such that they are left with no other option than to cancel flights.
Till April this year, airlines bought Jet A1 fuel for N105 a litre. About a month ago, the price jumped to N145. Two weeks later, it rose to about N200 a litre. Currently, the price has risen to N240 a litre.
This has greatly increased their operational cost. For instance, considering that the cost of fuel accounts for about 40 per cent of the operational cost of most airlines, the colossal rise in price of the product by over 100 per cent has equally increased the operational cost astronomically.
In the light of this, their feasibility studies and financial projections are greatly threatened, thereby putting the airlines in a dangerous and difficult financial position.
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