Culled—Proshare

February 20, 2017/FBNQuest Research

Nigeria’s aviation sector has suffered from the general slowdown in the economy. Based on data from the Nigerian Civil Aviation Authority, last year passenger traffic declined by -0.5% y/y on domestic flights.

Furthermore, the recent national accounts released by the National Bureau of Statistics show that air transport contracted by -3.1% y/y in Q3 2016 (see chart below).

We link this underperformance partly to the continued squeeze on household pockets which has eroded disposable income.

The lingering fx sourcing issues continue to pose a major challenge for the aviation sector. Securing spare parts for maintenance as well as jet fuel imports is difficult.

The price of aviation fuel, unlike that of PMS, is unregulated. Thus operators have to bear the full inflationary cost pressures associated with fx volatility as well as fluctuations in oil prices. While domestic air fares have almost doubled, the increases have been insufficient to offset the cost pressures.

A welcome development is the recent listing of Medview Air on the exchange. Given that newly listed companies deepen the market, this is a step in the right direction.

Although its share of the NSE’s market capitalisation is relatively insignificant (at 0.2%), it is the only listed firm that gives investors exposure to the aviation sector.