Optimising local air transport for rebound, growth
If the local aviation sector must return to pre-pandemic figures and ready for profitability in the months ahead, major reforms in the areas of airport infrastructure, taxes, charges and cost-saving measures must not be afterthoughts, WOLE OYEBADE writes.
Since the pandemic recovery phase got on the way two years ago, no other year has been tagged as ‘fundamental’ to global aviation as 2023. It is the year major airlines will return to the path of profitability – no matter how small.
Specifically, legacy carriers are expected to post a minimal profit of $4.7 billion a 0.6 per cent net profit margin. It is the first profit since 2019 when industry net profits were $26.4 billion or 3.1 per cent net profit margin.
Unfortunately, African carriers have been projected to miss out on the party. In fact, Ethiopian, South African, Nigerian and other continental airlines are expected to post a loss of $213 million in 2023 – an improvement on the $638 million loss in 2022.
Passenger demand growth of 27.4 per cent is expected to outpace capacity growth of 21.9 per cent. Over the year, the region is expected to serve 86.3 per cent of pre-crisis demand levels with 83.9 per cent of pre-crisis capacity.
Besides the spike in the cost of aviation fuel, which is global, Africa is particularly exposed to macroeconomic headwinds, which have increased the vulnerability of several economies and rendered connectivity more complex.
Apparently in agreement, stakeholders are unanimous that if Nigeria, especially, must turn the corner and make an unexpected rebound in this “profit-making year of global aviation”, then it must overhaul its airport infrastructure to meet potential demand, cut multiple taxes and charges, enable aircraft utilisation and cut operating cost to incentivize both consumers and operators alike.
Infrastructure, taxes and charges
One of the major hurdles for traffic recovery and growth is poor or inadequate infrastructure, resulting in expensive yet sub-standard passenger services at most airports. Airline operators reiterated similar concerns recently as they bemoaned multiple fees, taxes and charges on air transport, estimated to cost between 40 to 50 per cent on an average airfare.
About a year ago, The Guardian reported that perennial sundry charges that are levied at local and international airports placed Nigeria among the most expensive aviation countries in Africa.
The local sector accounts for sundry taxes and charges numbering 35. The multiple charges cost the airlines between 38 and 65 per cent of revenue.
An AirInsight report ranked Nigeria as the eighth most expensive aviation country in Africa – only behind Niger, Liberia, Guinea Bissau, Senegal, Bangui, Sierra Leone, and Republic of Congo.
Commercial Director of the Togo-based carrier, Asky Airline, Nowel Ngala, told The Guardian that the high charges were not peculiar to Nigeria but continent-wide, collectively “stifling the growth of the African air transport sector.”
Ngala noted that the issue is not new, though regretted that it keeps hurting the airlines and the travellers. He said: “It is important for our consumers, the travellers, to know that almost 40 to 50 per cent of what you pay as a ticket goes to taxes, charges and fees. That is, taxes from the government, charges from the airports and fees even from the local governments. There are 14 different taxes in West Africa alone – in the form of development, infrastructure, tourism taxes and so on. The list just keeps growing.
“This is not well understood by most travellers who feel that airlines are overcharging them. But the net fare that comes to the airlines is very minimal to take care of all the other operational costs like handling, overflight permits, catering and others,” he said.
He added that a reduction in the sundry taxes and charges would open up the air transport sector to new travellers that had been barred by the exorbitant cost of airfares.
The Nigerian terrain is blessed with at least an airport in almost all 36 States. With 216 million population and 10 airlines, it would suggest a sector humming and buzzing round the clock.
On the contrary, the airspace is oddly familiar with airports that are mostly active in the daytime (that is, sunset airport) and paltry passenger traffic of less than 12 million yearly!
Chief Executive Officer of Ibom Air, George Uriesi, earlier said that the “Nigerian conundrum” is stacked against local airlines.” Uriesi noted that the Nigerian airline uses the same aeroplane as everyone in the world but because the operator is from Nigeria, he pays higher acquisition cost, higher cost of insurance that is three times more than in Europe, North America and Asia, uses weak naira to pay in dollars and so on.
“On top of it all, you are operating in a systemically limiting environment that makes it harder for you to be as productive as your colleagues in Europe, Asia and North America.” He added that the sunset airport phenomenon (across most airports nationwide) is a strange one because it is one of the limiters to aircraft utilisation. Most of the sunset airports are declared operational from 6am or 7am to 6pm or 8pm.
“What is strange is that all of them, from the declared information, have navigational and visual aids, CAT 1 or 2 Instrument Landing Systems (ILSs) and with runway lighting,” he said
Chairman West-Link Airlines, Capt. Ibrahim Mshelia, added there is no reason for the airport managers to keep welcoming new airlines without expanding available infrastructure to meet their growing needs.
Mshelia narrated that airlines like Arik, Air Peace, Ibom Air, Aero, and Dana Air, on a 7 o’clock departure schedule, would cumulatively have about 600 passengers to process (in Lagos or Abuja).
“Because of the infrastructure challenge, it takes you five minutes to check–in each passenger. Even if you reduce it to two minutes per passenger, how many counters would you need to be able to check-in those people within the two-hour window that the airline has? It is a lot!
“If you (airline) have no space, then you will have congestion, then chaos and then commotion at the end. So you have issues with passenger delay, sorting baggage, access to the tarmac, moving bags, number of vehicles that can do it and so on.
“There are so many things that are dependent on the infrastructure that we are talking about. There is infrastructure but the capacity of airlines has overwhelmed it and one wonders why all these years nothing was done to expand it until only recently that they are doing some expansion,” he said.
Mshelia added that the immediate solution is to expand the space at Abuja airport and extend operating hours in Lagos vis-à-vis the rehabilitated Runway18 Left.
“Between these two airports, to be frank, there is no problem with daylight operations. So, the quick fix is to open up the entire airport to midnight services. If you do so, the airlines will naturally adjust their schedules and give space, it would naturally mitigate congestion without doing anything to the current infrastructure. If you open the airport to close at midnight, you have solved a lot of the problems already, and in Abuja, open up the old international terminal that is not being used,” he said.
Cut ‘wastages’ on overseas maintenance
Former Rector of the Nigeria College of Aviation Technology (NCAT), Capt. Samuel Caulcrick, added that the sector is routinely losing a lot of revenue to overseas maintenance, which is the bane of airlines’ survival and a major drain on the local economy.
Caulcrick noted that for those airplanes to keep operating in Nigeria, “it means it is our economy that is supporting them to fly” and no justification to keep shipping them overseas to grow other economies.
Unfortunately, “We keep taking the business of MROs in foreign countries. It means we are transferring wealth to those countries when we created and should own the business. But it is better to let that business stay within our economy. That is one argument by which the MRO supports the economy and should be supported by all,” he said.
Caulcrick added that the advantages of having an MRO in Nigeria include the use of local labour, personnel, growth of experience and the government earning tax revenues.
“Then, you don’t have to pay for fuel to ferry the aircraft to and fro, which you were going to buy in dollars. So, those are the cost-saving advantages. Right now, Nigeria is losing taxes that are being paid to foreign countries instead of Nigeria, coupled with the depletion of foreign reserves.”
Lately, the maintenance section of Nigerian aviation has received a rash of boosts in private sector investment. Besides Aero Contractors that is licensed to repair Boeing737 Classics, 7Star Hangar has recorded a feat in conducting C-check on MD-83 aircraft. Among others, Leadstream Aviation has also shown strength in Dash-8 repairs, while Akwa Ibom state government will soon open its new hangar to local investors.
“We only need to create an enabling environment for MRO investors and this can be done through policy,” Caulcrik said. “For instance, Nigeria Civil Aviation Authority (NCAA) can say it would not renew an existing Air Operating Certificate (AOC) or issue a new one to an intending operator without a local MRO identified in the application form. The government can give them a timeline because this could take up to three years to accomplish.
“Once you do that, just leave the rest to the private investors because they know there is an investment created for them. Once an investor knows that their business is being protected, then, they will be willing to invest in the industry.
“They can then approach a bank to seek a loan. That is how you create a market – you create a market through policy. A policy will naturally create a market. That is how China developed today; it’s through policy and law,” he said.
A former scribe of the National Union of Air Transport Employees (NUATE), Olayinka Abioye, however, said that the Aviation Roadmap was already due for review if it must fly. “In 2023, I hope that the great Roadmap initiated by the outgoing administration will be addressed and reviewed holistically so that the same Roadmap can be returned with a human face and inclusive of stakeholders so that at the end of their implementation, we can both boldly say that we did all these together.
“You are aware that MROs are springing up here and there. This should be encouraged particularly given the enormous benefits Nigeria will enjoy from them. We must commend the government of Akwa Ibom, the Aero Contractors Management and the 7Stars. The FG should support these initiatives by granting them some waivers to enable them to achieve their optimum expectations,” Abioye said.
Secretary General of the Aviation Safety Round Table Initiative (ASRTI), Group Capt. John Ojikutu (rtd) called for the redefinition of the Nigerian air transport sector to suit existing realities.
In his consistent position, Ojikutu had called for the discard of the national carrier, and to be replaced with a publicly-owned national flag carrier, to conform to the global trend.
Secondly, he called for the immediate review of the concession of multiple destinations in the Commercial Agreements given to some foreign airlines that have exposed them to the domestic routes and therefore the domestic markets of the domestic airlines.
“The foreign airlines should be limited to either Lagos or Abuja and not to the two airports but they can go to any other besides Lagos and Abuja.” He added that there is no easy way out of the high cost of operation and airfare above N70,000, given that almost everything in the sector is dependent on dollars.