Domestic airlines operating in Nigeria are struggling to keep flying in the face of rising operational costs and declining passenger traffic.
A weaker naira has resulted in a sharp rise in aircraft maintenance costs, while passenger traffic has declined as Nigerians struggle with rising inflation which is eroding their purchasing power, forcing many to forgo the “luxury” of flying.
At an exchange rate N199 to a dollar, it used cost airlines between $1 million to $2 million, amounting to N199 million to N299 million to carry out a comprehensive C and D maintenance checks, depending on the aircraft type. However, with the interbank exchange rate at an average of N305 to a dollar, airlines now have to pay about N305million to N405million for their aircraft maintenance, which must be done once every 15 to 18 months.
The C-Check is a comprehensive inspection that covers hidden parts so that any damage or cracks in the internal parts of the aircraft can be detected. The most detailed inspection is the D Check. This inspection is a general overhaul of the aircraft.
Domestic airlines have also seen a sharp rise in the cost of aviation fuel. Presently, aviation fuel is sold at a rate of N200-N210 per litre against N120 per litre a year ago, a 75% increase. Aviation experts say a Boeing 737 medium haul aircraft will consume an average of 37,000 to 40,000 litres of fuel on a return trip between Lagos and Abuja, Port Harcourt, Kano or Enugu, which are Nigeria’s major destinations.
The average domestic airline carries about 150-200 passengers depending on the aircraft type or size and operates an average 25 to 27 flights daily, depending on the destinations they cover. This means a Boeing 737 used for domestic operations could consume as much as 540,000 litres of fuel per day worth about N113 million at the current price of N210 per litre. At N120 per litre, the same quantity of fuel would have cost the airline just N64 million.
At full capacity, assuming an aircraft does 27 flights in a day, carrying 200 passengers on each trip at a cost of N20, 000 per head, the aircraft can make N108 million in revenues, slightly below what it will cost the same airline to buy aviation fuel only.
“Nigerian airlines are going through hell to survive. Almost all the business airlines do, they have to pay in dollars, while their sales are in naira; they have to use the naira to get dollars at a high rate,” said Harold Demuren, former director-general, Nigerian Civil Aviation Authority (NCAA).
The airlines problems have been compounded by the fact that while costs are rising, passenger traffic is declining. According to figures from the National Bureau of Statistics (NBS) passenger traffic for inbound and outbound destinations decreased by 30.62percent in 2015 reversing a 20 per cent rise in 2014. NBS data for the second quarter of 2016 also show that airline transport contracted by -2.6% when compared to the same period of 2015. This means that while costs are rising for domestic airlines, revenues are suffering.
“The country’s macroeconomic challenges are weighing heavily on domestic airline operators. Given the foreign sourcing issues, the cost of importing jet fuel has surged and has had a negative impact on profit margins. The foreign exchange illiquidity has made it difficult for airlines to secure imported spare parts. More than one foreign airline has withdrawn its service, and others have scaled down their operations due to delays in repatriating naira ticket sales” stated FBNQuest in a recent note to investors.
Allen Onyema, chairman of Air Peace Limited, has also warned that unless urgent action is taken to establish Maintenance, Overhaul and Repair (MRO) facility locally, domestic airlines would find it extremely difficult to continue to operate.
Onyema said the cost of aviation fuel, which constitutes over 40 percent of airline’s operational expenses, and aircraft maintenance cost are eating up the revenue of airlines.
He noted that with a weakened naira, it is too costly to be ferrying aircraft overseas for maintenance, so urgent establishment of MRO in Nigeria is needed to save the country billions of naira in foreign exchange. Sources at the Nigerian Civil Aviation Authority (NCAA) say that about 25 percent of existing aircraft owned by commercial airlines are in maintenance or AOG (aircraft on ground) either because they are no more airworthy or are due for maintenance.
Domestic airlines have tried to cushion the impact of the rising costs on their revenues by increasing ticket prices.
Arik Air’s ticket fare is up 36 percent to N60, 000 from previous rates of N44, 000 to N48, 000 for a return ticket from Lagos to Abuja and Lagos to Port Harcourt, when the foreign exchange rate was N199 last year.
First Nation, Air Peace and Med-view airlines have also increased fares by 38 percent to N58, 000 from an average of N42, 000 for a Lagos – Abuja and Lagos- Port Harcourt return ticket, during the period.
Airfares for Dana airline, which was previously N40, 000 for a Lagos-Abuja return ticket, increased to N50, 000 seeing an increase by 25 per cent.
Nogie Meggison, chairman, Airline Operators of Nigeria, told BusinessDay that the cost of aircraft maintenance has added to the problems of the operators as it has increased their cost of operation.
Meggison called on the Federal Government to implement foreign exchange concessions for airlines, so they can run their operations effectively and efficiently, and warned of the dire consequences if airlines are unable to access foreign exchange to carry out critical activities like aircraft maintenance.
“Unfortunately, only Arik and Aero have maintenance hangars in their bases in Nigeria. That is not to say they are in anyway different from the others, because Arik Air is in partnership with Lufthansa, where they pay heavily. Also, Aero cannot go beyond C checks,” Meggison said.
Experts in the aviation sector have also warned about the consequences of airlines skipping their maintenance schedules because of rising cost. They say that this could lead to air crashes, as the airlines may resort to cutting corners in order to keep their aircraft in the air.
In September, Aero Contractors suspended its operations indefinitely overburdened by rising debts and cost of operations.
