Monday, 11th December 2023

Airlines retain 100% fare hike over forex scarcity, Jet-A1 price spike

By Wole Oyebade
27 April 2021   |   4:15 am
Despite disbursement of N5 billion bailout fund to support the aviation sector, there has been no improvement in the financial status or operational challenges facing local airlines, with most operators retaining high airfares across routes.

• More than 25 aircraft stuck overseas due to liquidity crisis
• Experts hinge aviation survival on local refineries, special FX window, interlining arrangements
• It’s unfortunate to rely 100% on imported Jet A1, says Joji

Despite disbursement of N5 billion bailout fund to support the aviation sector, there has been no improvement in the financial status or operational challenges facing local airlines, with most operators retaining high airfares across routes.

A survey of airfares in the last couple of weeks showed an average of 100 per cent spike across major routes, compared to rates about a year ago. Some one-way economy class tickets were sold to desperate travellers for as high as N140, 000 – that is, over 300 per cent rise and more than half the price of a return-ticket on Lagos-London or Atlanta, Addis Ababa or Dubai route.

Though operators blamed the “obnoxious” price regime on forces of demand and supply, The Guardian learnt that price pushback was not unconnected with airlines’ capacity constraint and fleet rationing that has lingered with forex scarcity, coupled with the recent spike in aviation fuel price.

As a result of liquidity crisis, no fewer than 25 aircraft are stuck in maintenance facilities overseas. Air Peace airline, the largest fleet operator in the country, accounts for 17 of the stranded toll.

Stakeholders, made up of operators and commentators, regretted the prolonged hardship on travellers. They said the desperate situation should ease out with better monitoring of operators’ charges, local refining of Jet A1, special forex window for dollar-dependent industry and better cooperation in the form of interlining and code-sharing arrangement among operating carriers.

The Federal Government recently disbursed the sum of N4 billion to airline operators and N1 billion to regulators and service providers to subsidise huge losses on account of the COVID-19 lockdown.

Though the disbursement was adjudged meagre compared to COVID-19 induced devastation to aviation businesses, expectations were high that it would bring respite to liquidity constraints and scale down airfares from the rooftop as of last December.

Nothing has improved as the market survey shows. Compared to an average of N30, 000 offered at resumption of local flights last July, online booking platforms as at the weekend, showed varying prices, ranging from N33, 065 to N65, 430 (one-way economy) and N70, 040 to N105, 203 (return), depending on airline of choice, destination, place and time of booking.

The latest transport survey of the National Bureau of Statistics (NBS), released last week, also showed that average passenger airfare paid for a specified route single journey increased by 18.71 per cent year-on-year.

NBS showed that the average airfare rose to N36, 495.41 in March 2021 from N36, 458.11 in February 2021. States with highest airfare were Anambra/Lagos (N38, 600.00), Delta/Jigawa (N38, 500.00), Bauchi (N38, 450.00) while states with lowest airfare were Akwa-Ibom (N32, 700.00), Sokoto (N33, 200.00), and Katsina (N35, 150.00).

HOWEVER, over-the-counter booking and today’s flights across all routes showed far higher rates than shown by online platforms and NBS’s estimates. Bookings at the airport attract the highest rates, ranging from N55, 000 to N86, 500 on one-way Economy Class. Penultimate weekend, an air traveller bought an Abuja-Lagos one-way ticket over-the-counter for N120, 000. Another passenger in Kano, en route Lagos, was charged N140, 000 on one of the major carriers. Charges on the northern region are particularly cut-throat since the exit of Azman Air over safety concerns.

Chief Operating Officer of one of the local carriers denied a blanket increase in airfares, explaining that the “occasional surge” in prices was peculiar to individual airlines and its experience in getting scarce foreign exchange to meet maintenance obligations.

“Accessing forex is a general problem that is not peculiar to airlines. But we are in a sector that is 100 per cent dependent on dollars, though selling tickets in very weak naira. We have not been able to access forex at CBN-rate lately, but because I needed to get an aircraft back in operation and not to keep passengers stranded, I decided to buy dollars at black market rate of N480/$, perhaps to do maintenance worth $2.5 million.

“Is it reasonable to put passengers on that aircraft at the rate of N30, 000? If we do, we will soon run out of business and there will be no aviation industry the next time a passenger comes calling. Don’t also forget that aviation fuel now costs N270-plus per litre outside Lagos and Abuja, because of marketers’ monopoly.

“In this circumstance, if I have to sell a one-way ticket for N70, 000 to recoup my cost of operation alone, so be it. And sadly, we would continue to have the same narrative until the economic indices are right or the government deploys a stop-gap measure like a special FX window for some critical sectors like aviation,” he said.

While new airlines like United Nigeria Airline have joined the sector to bolster capacity, the impact was yet to be felt by consumers as several of the existing fleet of airlines are either overseas or grounded, awaiting maintenance and its heavy cost.

Chief Operating Officer of Air Peace Airline, Oluwatoyin Olajide, confirmed that 17 aircraft were undergoing varying levels of maintenance overseas.

Olajide said they were doing everything possible to return the aircraft one after the other to launch more routes and resume others that were temporarily suspended.

Chairman of United Nigeria Airline, Obiora Okonkwo, said: “CBN has not given dollars to airlines since February 2021 owing to scarcity of the currency. Aircraft business is capital intensive. The solution to survival of airlines is better access to spare parts. But aircraft spare parts are not sold here in Nigeria; they are sold overseas. Aviation industry should be given all the necessary support to ensure survival of airlines.”

SIMILARLY, the rise in the cost of aviation fuel, from N160 to N260 per litre, in the last few days, was also blamed for over 50 per cent rise in the cost of airfares.

Okonkwo said that airlines would in most cases resort to increasing fares through adjustment in ticket price as a result of the high cost of the commodity.

The airline chief, however, said he would want to believe that the operators would be unreasonable, fixing ticket prices that are beyond the reach of customers.

Okonkwo said, instead of unhealthy competition, airlines might be condemned to interline and codeshare arrangement with one another, to scale the hurdle, adding that his airline was willing and ready to have such a relationship.

Chief Executive Officer of Skypower Express Airways, Capt. Mohammed Joji, said it was unfortunate the sector still imports aviation fuel 100 per cent.

“It is sad and unbelievable that a country with three refineries cannot refine Jet A1 for local use. Someone must be sabotaging the system; otherwise we have no business importing fuel. The refineries are strategically located. Kaduna refinery takes care of the north, while Warri takes care of the south.

“As it is, you cannot travel from Maiduguri to Lagos by road anymore. So, you need to fly and you need fuel. We only need to refine the product locally and make it cheap, and about 40 per cent of the cost will reduce,” Joji said.

He, however, stressed that the local operators should have no good justification for the haywire price regime, given that the Federal Government had given duty-free on commercial aircraft and spare parts coming into the country.

Former commandant of the Lagos Airport and aviation security consultant, Group Capt. John Ojikutu (rtd), disagreed with Joji on pricing. Ojikutu reckoned that airlines might, for once, be charging the right fares commensurate with economic realities.

He recalled that from the 1990s to date, exchange rates had spiked several times without airlines changing ticket fares. He said it was no surprise that the airlines continued to struggle, owing service providers and regulatory agencies deductions of five per cent Ticket Sales Charge (TSC) and Passenger Services Charge (PSC), just to stay afloat.

“Rather than these airlines applying or charging appropriate fares for their flights, they target public money to make up for losses. They cannot be charging $100 (N3, 800/N4, 000) when exchange rate was N40/$ in 1990, and still be charging less than N40, 000 today when dollar is N500/$.

“It does not make economic sense today when all aircraft parts and even fuel is imported as against the local availability in the 80s/90s. The Nigerian Civil Aviation Authority (NCAA) can regulate but there is no problem with the increase if dollar sells for N500. Airfare to places of one hour flight distance can and should not be less than $100 or N50, 000,” Ojikutu said.