August 07, (THEWILL) – Nigeria’s aviation sector is in dire straits; perhaps, the worst it has experienced over a long time. The frightening situation portends grave danger for an economy seen to be tumbling towards a precipice.
Stakeholders are lamenting the unbearably high cost of operations, especially aviation fuel, decrepit facilities, poor services and threats of insecurity. International carriers are cutting down on their flights to the country while some domestic airlines are going out of business.
At the centre of the sector’s current crisis is the high exchange rate and exorbitant cost of aviation fuel, known as Jet A1, which increased by over 200 percent from N300 per litre in February 2022 to about N1,000 per litre in July. Consequently, the cost of flight tickets has skyrocketed. Domestic airlines have increased domestic fares by over 100 percent. An hour’s flight on economy class has risen up to N125,000 from the N50,000 it sold earlier in the year depending on the time of the day.
The aviation industry is capital intensive. About 80 percent of its operations are in foreign currency. Sourcing for the dollar to meet these obligations has become a herculean task in an economy that battles with an unending foreign exchange crisis. The negative impact on the industry has led to low revenue and decrease in passenger patronage amid the non-repatriation of international carriers’ ticket sales proceeds.
The International Air Transport Association (IATA) had expressed concern over the decision by the Federal Government of Nigeria to block foreign airlines from repatriating ticket sales revenue running to $450m (N188.6 billion) into their respective countries.
Last July, Emirates Airlines notified the Nigerian authorities of its plans to cut the number of flights from Dubai to Lagos from 11 to 7 per week by mid-August due to the backlog of ticket sales they could not repatriate.
Back home, the Nigerian Civil Aviation Authority (NCAA) on July 20, 2022 suspended Dana Air flight operations indefinitely over the airline’s inability to conduct safe flights. The incident occurred two days after one of Nigeria’s oldest indigenous airlines, Aero Contractors, had on July 18 announced the suspension of its operations, citing the impact of the challenging operating environment on its daily operations.
Industry operators reveal that many airlines’ aircraft are either grounded or ‘trapped’ abroad where they had been taken for maintenance, but could not be retrieved due to shortage of foreign exchange to settle the bills.
Aviation Round Table, which is a body of professionals in the sector, has warned that more airlines might be forced to halt operations because of the prevailing economic headwinds. Today, many people are no longer travelling by air due to the hike in the price of tickets, which poses a great danger to the survival of airlines and the aviation industry.
Given the fact that the key to the success of airline business is affordability, passenger patronage will invariably drop if fares are unaffordable, leading to empty flights which becomes a double whammy.
This has implications for the government revenue, business survival and jobs. A total of 15,225,627 travellers passed through Nigeria’s airports in 2021, according to National Bureau of Statistics, this was an increase of 101.02 percent in domestic and international travel when compared to 2020.
The Federal Airports Authority of Nigeria (FAAN), proposed a revenue budget of N188 billion for the current year – 2022, as against N125.4 billion approved for the year 2021, which represented an increase of 50.4 percent. According to IATA, the aviation industry provides jobs for over 20,000 Nigerians in various sub-sectors.
What is happening to the aviation sector is a reflection of the challenges of the wider economy, which has been poorly managed over the years. Aviation is a critical sector. There is imminent danger in the entire industry which is bound to spiral out of control if something is not done urgently.
The government may consider a temporary suspension or significant downward review of the port charges and taxes on aviation fuel, pending when normalcy returns.
The aviation sector is responsible for the creation of thousands of jobs, it is wrong for the Nigerian government to deny carriers the opportunity to repatriate their revenue. The Central Bank of Nigeria should therefore work out urgent and practical strategies to enable the international airlines to repatriate their blocked ticket revenue domiciled in naira.
The government should consider an extensive modernisation of the airport terminals with shopping malls and alternative power supply, like renewable energy, to keep the airports functioning and to reduce the cost of operations. This will also help to turn the fortunes of the nation’s 18 unviable airports to boost government revenue and reduce excess tax on the airlines and passengers.
According to reports, Nigeria has lost no fewer than 50 airlines in the last five decades. These airlines, most of which go under, usually close shop within a spate of 10 years after commencing operations. This is not a good report for an emerging economy that aims to play in the league of top performing global economies.