September 9, 2022/CSL Research
The Vanguard newspaper reports that the President of National Association of Nigeria Travel
Agencies (NANTA) has expressed concerns that the continued increment in the price of local and international airfares is hostile to the survival of the Nigerian aviation downstream sector.
Foreign airlines had for most of August been selling high inventory tickets and reducing their flights to cut down losses. The airlines introduced tickets that ranged from N1.2million to N1.5million for economy class, which used to be sold for N400,000 earlier this year. They also introduced N4million tickets that used to go for between N1.5million and N2million for business class.
The soaring cost of aviation fuel and foreign exchange scarcity, which has constrained foreign airlines from repatriating their funds, necessitated these actions. The cost of JET A1 has shot up from c.N200 per litre (US$0.47) last year to a 2022 high of N903 (US$2.1) per litre and foreign airlines threatened to pull out over the inability to repatriate accumulated funds from tickets sold in naira, forcing the Central Bank of Nigeria to release US$265m to settle ticket sales owed.
Since the start of the year, airline operators have complained about the scarcity and rising cost of aviation fuel (which accounts for c.40% of their operational costs), with the attendant impact on the cost of operations and conditions of service. Earlier in May, the House of Representatives alongside the Nigerian National Petroleum Company Limited (NNPC) and the Central Bank of Nigeria (CBN) resolved to allow NNPC to supply Jet A1 to marketers nominated by the embattled airline operators for three months at a fixed price of N480/litre.
Beyond the high cost of aviation fuel, the current acute shortage of FX is also a big problem for airline operators. For domestic airlines, carrying out operational activities such as servicing their aircraft has become almost impossible amidst the acute scarcity of forex. For example, to do a C-check on a Boeing 737 is estimated in dollars and must be sourced mainly from the parallel market. The scarcity of FX is also constraining international carriers from repatriating accumulated funds from tickets sold in naira. Trapping airlines’ funds in an economy with an unstable currency is a major risk for foreign operators.
The aviation sector, which just recovered from the pandemic-induced recession, is likely to have its interesting prospects punctuated if the aviation fuel and FX crisis persist. Many Nigerian passengers have been experiencing incessant flight delays, cancellations, and astronomical increment in airfares. Given the systemic importance of air travel for the conduct of trade and other economic activities, immediate actions to address the fuel supply chain disruptions and ensure FX availability for the airlines are imperative.
Also, transport via air is considered one of the safest channels, considering the despicable level of insecurity bewildering the country. Hence, resolving the current issues facing the sector is essential if the movement of goods and services is to be assured, as terrorists/bandits appear to have taken over major road highways in the country
