Naira Devaluation: Airline Operators Fret over Imminent Extinction of Domestic Airlines

Chinedu Eze

Airline operators have raised the concern that some domestic airlines may suspend operations permanently from March next year, if there is no government intervention to cushion the high cost of operation in the Nigerian aviation sector.

The operators stated that the devaluation of the naira, which now exchange for N1,200 to $1, could force some airlines into bankruptcy.

According to the Managing Director and CEO of Aero Contractors, Captain Ado Sanusi, said some airlines would go down from early next year if there is no help from the federal government.

He insisted that what will delay the demise of some airlines is the Christmas season, which will likely record high passenger traffic.

He however said from March next year when low season will set it, some airlines would not be able to cope with the high cost of flight operations.

Sanusi said: “Some domestic airlines will go under by March next year. There will be reduction in the number of airlines. So, some airlines will fall by the side, if government does not give reasonable assistance to the operators. This is because the cost of operation has continued to increase. Jet A1 is now N1,100 per litre. The major challenge is that we don’t manufacture any aircraft spares in Nigeria; so, the moment the value of dollar increases against Naira, the cost of spares increases.”

Sanusi however observed that there would be no drastic reduction of passenger traffic in the domestic air travel because majority of those who travel by air will still be able to afford the high cost of ticket, “but they could adjust in the frequency of their travel.”

Speaking, the Chairman and CEO of United Nigeria Airlines who is also the spokesman of Airline Operators of Nigeria (AON), Professor Obiora Okonkwo, told THISDAY in an exclusive interview that the rapid devaluation of the naira against the dollar is adversely affecting all businesses, especially aviation business  

He said that 99 per cent of airline operations is dependent on forex, especially the dollar, emphasizing that the dollar is aviation currency all over the world.

Okonkwo said there are two options to save the airlines one of which is a federal government intervention by providing aviation fuel at affordable cost, “the second option is for government to provide airlines access to dollar at lower rate.”

He warned that if the cost of operation continues to increase and the airlines pass the cost to the travellers, a time would come when the airlines cannot continue to pass this cost to travellers.

“There is a limit the fares can be affordable under prevailing circumstances. It will affect load factor if the fares continue to increase and when the load factor reduces, the airlines will begin to bear the loss and the airlines do not have the financial system that can endure such losses for a long time. The airline will not continue to operate at a loss; so, they will be forced to close down.

“Aviation is a catalyst to economic development in Nigeria and throughout the world. So, if airlines stop operation, it will affect other economic activities. The reason why government builds roads is to connect people from one place to another. That is also the reason airports are built, to connect people from one place to another by air. If flight service stops it will affect the economy directly and indirectly. We have been speaking about this but we are yet to get positive response. We have been holding discussions with the Minister of Aviation and hopefully he will do something for the airlines,” Okonkwo said.

He emphasised that the airlines are going through tough times, remarking that in a situation like this there should be special policy aimed at alleviating the fiscal challenges that are affecting certain sectors of the economy.

 Aviation, he said, is in the first three critical economic sectors, which include agriculture, power generation and then transport.

“What impacts the world is movement of people, goods and services. The greatest impact COVID-19 had on world economy was the suspension of flight operations. So, we are concerned that continuous adjustment of fares might drive away travellers and this will affect the airlines. The financial ability of airline has impact in its safety and integrity.  The devaluation of the naira is moving too fast. We hope that government will intervene,” he said.

On his part, the Managing Director of Flight and Logistics Solutions Limited, Amos Akpan, told THISDAY that, “Nigerian domestic airlines earn naira from all their services but spend foreign currency for most of the cost for producing the services they offer. Training, maintenance, spare parts, insurance, aircraft lease payments are all paid with foreign currency. Aviation fuel has become very expensive due to the landing cost in Nigeria. The low value of the naira and the scarcity of foreign currency makes the cost of production of the airline services in Nigeria very high.”

Akpan also stated that if an airline operator must be able to keep producing its services, he must sell at prices that will cover its cost plus make profit.

“This is the dilemma the domestic airline operator faces with the current economic situation in the country. The airfares should keep rising to match the cost of production but the passenger’s income has limit. Patronage for air travel will drop at a point. The break-even payload will be extremely difficult to reach. Low passenger turnout means reduced flights frequency. Reduced flights frequency means low utilization of aircraft. If an operator is forced by circumstances to utilise her aircraft below certain specified hours in a month, he will spend more to retain the aircraft than she earns from that aircraft in a month. It’s like taking basket to the stream to fetch water. You return home empty. It’s like producing a tin of beverage with 10 naira and trying to sell it at eight naira because of bad market, low patronage, or low spending capacity of your target market.

“The solutions have been repeated like cracked records by every expert in town, which include: refine aviation fuel in Nigeria; create maintenance and overhaul capacity in Nigeria; establish an aviation equipment leasing financial institution so we can get funds at single digit interest rate over longer periods. Synchronize Nigeria College of Aviation Technology syllabus to meet the manpower needs of operators,” he added.