A Bleak Future for Domestic Airlines

With rising price of aviation fuel, depreciating naira and high airfares, which has depleted passenger traffic, experts fear that some Nigerian carriers may go aground, writes Chinedu Eze

Many airlines that went under in Nigeria did so at operational crisis point, and this could happen during scarcity of aviation fuel, high exchange rate, some inimical government policies that attracted massive criticism and low passenger traffic. 

But there was always a predecessor to these factors. It may be maladministration of the airline, mismanagement of operational funds or some other unfavourable internal or external factor.

These factors are present in the industry now. For the first time in several years, price of aviation fuel rose beyond N190 per litre and climbed to maximum N700 per litre as at Monday. The naria had nosedived in value, depreciating to the extent that parallel market is now about N600/$. No succour is coming from government, so the airlines are on their own,sourcing foreign currency from the parallel market.

This degenerating situation has prompted the former CEO of Aero Contractors, Captain Ado Sanusi to warn that some airlines may go under before the end of this year. To make the matter worse, per capita income has drastically depleted that with hike in airfares, fewer people now travel by air because of the hike in airfares. But such hike by airlines is inevitable due to the rising price of aviation fuel and the exchange rate. 

Lack of Operational Funds

Airline Operators of Nigeria (AON) said they have been subsidizing flight ticket with base fare at N50, 000 for one hour flight and expressed fear that airlines might stop operating if no action is taken to put a check on the rising price of aviation fuel, which they demanded should go back to N200 per litre.

Non-availability and high cost of aviation fuel exacerbated flight delays and cancellation and operators fear that if this continues some airlines would be forced to suspend their operations.

THISDAY learnt that landing cost of aviation fuel rose from N590 to N615-N620 and when fuel charges of N3.50k per litre is added to the cost by the Federal Airports Authority of Nigeria (FAAN), it would rise to about N622.50 in Lagos, N700.00 in Abuja and N750.00 in Kano.

Sanusi who is also former Managing Director of the Nigerian Airspace Management Agency (NAMA), told THISDAY that due to the scarcity and high cost of aviation fuel, fuel marketers are now giving airlines new conditions before they sell the products to them.

The marketers have insisted that airlines must pay before the product would be supplied to them, a practice that is not the standard in the industry, which is globally known for payment after purchase of the product.

Sanusi said, “You pay for fuel in advance, which is not done in the aviation industry. It will make operations very difficult and lead to more delays and cancellations. You cannot deposit money before you buy fuel.

“If nothing is done urgently, this may lead to the beginning of airlines going down because they cannot continue operating like this, so the federal government should urgently look for the solution of the problem,” he said.

Sanusi said government must intervene by doing away with the middlemen but allow marketers to import the product and sell directly to the airlines.

“These middle men don’t understand aviation. The marketers are part of the industry whose operations are approved by the Nigerian Civil Aviation Authority (NCAA). Ideally the airlines can buy from the marketers who will issue them invoice and they pay in 24 to 48 hours. This is the way it is done. You cannot even deposit money with the marketers because if you do, they may not even have the product at the time you want it because of uncertainty and volatility in the supply of the product. If care is not taken, Nigerian airlines may go down,” Sanusiwarned.

Cartel

Oil marketers were also accused of forming cartels and fixing prices of the products. Reports also indicate that they prefer to sell fuel to foreign airlines while holding back from selling to domestic operators. Allegation is also rife that the marketers create artificial scarcity in order to hike the prices.

But during the meeting with House of Representatives and airline operators, the Chairman/CEO of Nepal Oil and Gas Services Limited, Ngozi Ekeoma debunked the insinuation that aviation fuel marketers have become a cartel, saying the parameters for determining the price remain unambiguous.

“Aviation fuel is not a cartel based product. The parameters for determining prices are there. As of today, a vessel costs $25,000 per day at the port. There is the marine cost; we have problems even loading the ATK (the jet fuel). We use trucks that run on diesel. This also adds to the costs. We will have to put all of these costs. For every litre, I am paying FAAN N3: 50k.”

The fuel marketers also said that they give priority to foreign airlines as against local airlines because the foreign carriers pay for aviation fuel in dollars, so most marketers quickly sell to them to get dollars to import more. They also said that they sell to domestic airlines according to existing business relationship, adding that they are more inclined to sell when they are paid cash.

Right Pricing and Safety

At the meeting with the House of Representatives recently, the airline operators requested that the price of aviation fuel should go back to N200 per litre and noted that selling the product at such exorbitant would threaten air safety because it costs so much money to sustain high standard of safety of the aircraft, but if all the operating funds are used to fund aviation fuel the airlines would have no money to maintain their aircraft. 

The Vice President of AON and the Chairman/CEO of Air Peace Airline who spoke on behalf of the operators said,  “AON is making an appeal to bring down the cost of aviation fuel to N200 per liter. We cannot last the next 72 hours. We didn’t ground our operation because we didn’t want political actors to make a capital out of it. Our DG (Director General of the Nigerian Civil Aviation Authority (NCAA), Captain Musa Nuhu) has said it succinctly that safety was at stake. Two days ago we held a meeting. Aviation fuel price moved from N180 per liter some weeks ago it became N405, N415, N450 per litre. With due respect to DG, fuel takes 30 percent cost of operation all over the world, but here in Nigeria, the cost of operation is about 70 per cent even before this increase.  The oil marketers were changing the prices of the product anytime over the years but what happened in the last two weeks is unbelievable. We thought that was very alarming at N450 per litre only for us to wake up two days ago it became N599. The following morning it became N670 per litre.  

“We cannot operate this way. What we would have done was to shut down.  But when we looked back, with benefit of hindsight, what the legislature did for airlines, what the Presidency did for airlines, we decided to sacrifice for this country. On this table you find true Nigerian patriots (airline operators) because we are subsidizing what Nigerians are using in flying, but we cannot continue because we cannot last the next 72 hours doing that because we are indebted. We don’t want AMCON to come after us. It is a lot. It has gone above 150 per cent of our cost,” AON said.

The operators noted that with the outrageous increase in the cost of aviation fuel not only that safety is threatened but the airlines have reduced the number of flights.

“The DG was talking about safety. He was talking about the maintenance of those planes. It is capital intensive to maintain those planes. Airline business does not reward you profitably but it is a business that drives your passion. We are doing this for the sake of our country. When we look at the faces of thousands of Nigerians we have given employment, we don’t want to shut down but the truth is that that is the right thing to do. But after we have looked at these factors we have decided to pay a price. We have cut our flights down to about 60 per cent and what we are flying now is about 30 per cent because the product is not even available. Nigerians know that this product is scarce. The delays and cancellations that are happening now are unimaginable.  Sometimes you fly 2:00 am, 3:00 am whenever you get the fuel,” Onyema said on behalf of the operators.

Sourcing the Product

The airlines in one of the meeting had decided that they would want to start importing the products themselves but industry observers noted that it might not be the solution to the problem because the airlines may not have storage facilities and would not buy the product cheaper than the marketers.

The Secretary General of Aviation Round Table (ART) and former Commandant of the Murtala Muhammed International Airport, Lagos, Group Captain John Ojikutu (retd) said, “More crisis loom when import licence is issued to the airlines as requested; where would their depot be or where would their storage be at the airports? How would they transport the fuel from the port to the airports and who pays for the transportation? Are they considering these as additional costs or they’ll go back again to government for intervention? Getting licence to import side by side is not what the airlines need. First, remove the monopoly of the NNPC alone importing fuel and bring back Total, Mobil, AP, MRS and Conoil. Secondly, repair the pipeline bridging the supply of fuel from Ejigbo to the airport. The solution to these two will reduce the fuel cost by minimum 30 per cent,” he said.

Ojikutu also noted that no foreign airline would buy fuel from the domestic airlines’ market but from their traditional marketers at home that have same market here.

However, former Director of Operations, Nigerian Aviation Handing Company (NAHCO), Mr. Hurbert Odika told newsmen that the hike in airfares was due to airlines’ running cost. Odika explained, that the industry would never have witnessed the current economic predicament caused by shortage of aviation fuel if the refineries were working

“We will refine here at chapter labour cost, no ocean freight to bring back the finished product, no charges in foreign currency for refining the PMS or AGO to return them back to the country. Nigeria at the moment is cheating itself” he said, regretting that till today no one had explained why the refineries were not up and running, adding that the oil boom was time bound as renewable energy has come to stay while the West is working seriously to ensure that by 2040, renewable energy in Europe would form 80 – 90 percent of their energy consumption.