April 25, 2023/CSL Research
According to a recent report from the National Bureau of Statistics, domestic air transport fares rose by 66.36% in one year. The report covered only five modes of transport in the country which were: Air transport, Bus Intercity, Bus Intracity, Motorcycle and Waterway, except for Rail transport. While it can be confirmed that most airlines raised prices, the increment varied across airlines based on our survey.
The increase in air ticket fares stemmed from many factors, however, the airline operators under the aegis of Airline Operators of Nigeria (AON), noted that a major challenge faced was the unavailability of aviation fuel amidst the rising cost of fuel, causing flight delays and cancellations for some airlines on the date of departure. 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.
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. Many airlines resorted to threatening to stop flight operations to force the CBN to allocate FX to them. Looking ahead, we see no respite. The CBN is facing a real shortage of dollars. Demand simply exceeds supply by a wide margin. The aviation sector growth is likely to remain lacklustre if the FX crisis persists.
The aviation sector was one of the sectors worst hit by the pandemic, causing airlines to abandon the skies and punctuating the interesting prospects of that year. The sector recorded -36.98% in 2020 from a GDP growth of 13.2% in 2019. Currently, the sector which was once on its knees began to recover following the reopening of the economy in Q3 2020 and price increments are factors that supported growth. Also, the low base in 2020 and intervention in form of a N4.0bn bailout fund by the government aided the growth seen. In 2022, air transport contributed 7.21% to the Transportation & Storage division of Services sector which contributed 56.3% to GDP.
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