Turbulent year for aviation
For aviation sector, Year 2016 was turbulent. It was a year that witnessed unprecedented downward spiral for the sector generally. Stakeholders are, however, hopeful that 2017 will bring good tidings as WOLE SHADARE X-rays the sector
Year 2016 is one, operators, service providers and other stakeholders would want to forget in a hurry. It was a year profitability dropped so sharply, no thanks to recession that ravaged Nigerian economy and shook its very foundation.
It was not as if airlines were profitable. The year brought excruciating pain to carriers, aviation agency and other support service providers, who depend solely on foreign exchange. There are three key factors threatening Nigeria’s airline industry.
One is that everything about aircraft maintenance, including repairs and most often technical personnel, is imported and C-check is done overseas. So in a recession whereby over N400 is exchanging for $1, it was difficult for Nigerian airlines that sell tickets in naira to raise enough funds to maintain their aircraft. Secondly, over 30 per cent of operational cost is spent on aviation fuel.
Today, the product sells at N230 per litre because it is imported as Nigerian refineries are not working. Thirdly, airfares do not reflect the actual cost of operation because of the low disposable income of Nigerian citizens.
At the current cost of aviation fuel and maintenance, for a Nigerian airline to make profit it should charge about N45, 000 for one-hour flight, according to aviation analysts.
This amount, thgough outrageous, is the actual pricing that could generate profitable revenue for airlines. Nigerian airlines lost over 45 per cent of their passenger traffic since February this year due to the downturn of Nigeria’s economy.
The passenger traffic continues to deplete as recession sets in and the industry continues to bite harder. Nigerian airlines are struggling to stay in business. Why does the airline industry find it so hard to make profit?
Just one look at the troubles of virtually all the carriers, one clearly saw the problems they had to deal with on a regular basis. The airline industry as a whole struggles to be profitable, with profit margins at less than one per.
This year saw the stoppage of operations by Nigeria’s oldest airline, Aero Contractors, as many others were at the verge of stopping services occasioned by lack of access to forex, high cost of maintenance of their equipment and others.
By February 2016, the signs of Aero going under became evident because AMCON decided to stop putting money into the airline and requested that it should sack about 70 per cent of its staff for the airline to reposition.
Labour kicked against this and alleged that AMCON representatives in Aero had connived with the management to corruptly enrich themselves at the expense of the airline.
Also in the year, two airlines, United and Iberia left while Emirates and Delta cut their extra Lagos and Abuja flights. The two carriers limited their entry into Lagos alone.
Some of them had threatened to abandon Nigerian routes due to their inability to repatriate money made from tickets sales in the country,which they said affected their operations.
They also attributed low value of the local currency, unfavourable forex policy, aviation fuel scarcity and high cost of fuel, and poor infrastructure as reasons that forced them out of the country.
The situation sent panic to the sector because it indicated that there were serious problems. This shrank the air travel market. The departure of these major carriers cut down capacity, leaving the market uncompetitive.
The consequence of this was skyrocketing airfares, limiting travel choices. It must be said that Nigeria is a very lucrative market for international carriers. Most European carriers make good yields from Nigeria.
This high yield has made airlines like Delta, Ethiopian, RwandAir and British Airways among others not to contemplate jettisoning the Nigerian market. Just recently, Sales Manager, West and East Africa of Delta Air Lines, Bobby Bryan, said that the US carrier was not willing to leave Nigeria, stressing that Nigeria remained a lucrative market at all seasons because of the passion they have for travelling.
Minister of State for Aviation, Hadi Sirika at a forum, recently said with what government had done to correct these things, many more of the airlines would have pulled out by now.
“But now as we speak, government, through the CBN, has made available $300 million out of the $600 million of the airlines funds stocked in Nigeria to pay the airlines to demonstrate its commitment to the sector.” It was not all gloom.
The year saw the determination of government to concession four of the major airports. Despite the initial controversy that trailed the exercise, many, including pessimists, said it was the best way to go considering that government does not have the resources to embark on ambitious infrastructure repairs. Fact is that the government does not have the managerial operating capacity to manage airport this day and age.
The bureaucracy of the civil service is not conducive to the automation expected of an airport environment under the best of circumstances. Worried by the hardship carriers’ face, the Federal Government waived tariffs paid by airlines on imported aircraft parts.
Chairman, Airline Operators of Nigeria (AON), Captain Nogie Meggison, had before now said airline operators were groaning under huge amount of tariff paid on the importation of the spare parts.
Determined to make impact and cushion the suffering of carriers, Sirika pressurised the Central Bank of Nigeria (CBN) to approve a Special Secondary Market Intervention Retail Sales (SMIS) forex window for domestic airline operators and manufacturers to stimulate ease of doing business in the sectors.
The important one-off-stopshop would fast track easy clearance of the backlog of matured forex obligations. Speaking on the difficulties faced this year, Managing Director of Bristow Helicopters (Nigeria), Capt. Akin Oni, said: “I see huge opportunities in Nigerian aviation sector. I see a lot of opportunities in the oil and gas industry but that will only happen when we get out of the recession.
“To see ourselves through this difficult period, we are hoping that things will improve. We are beginning to see a huge shift now when oil is going at $55 and going towards $60, when this thing turns, hopefully next year, we will survive this period and we will be able to go back to what we had in 2014.”
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