2016, another turbulent year for air travel business
The difficulties suffered by both air passengers and airline operators in 2016 notwithstanding, industry watchers are of the view that the huge potential of the sector should not be lost, writes WOLE OYEBADE.
Year 2016 will go down as one of the most difficult for air passengers and operators in the industry. Except for the fact that no major mishap was recorded, the sector staggered on amid multiple challenges and almost on the brink of collapse.
But it didn’t crash. And like a cat with many lives, the sector pulled through the daunting challenges, with pockets of government’s interventions to keep the industry afloat the economic recession.
For major happenings in the last one year, the sector opened its account on February 3rd with a helicopter crash in Lagos. All 11 occupants, however, survived after the Sikorsky 76C helicopter operated by Bristow Nigeria Limited plunged into the Atlantic Ocean.
The twin problem of aviation fuel shortage and scarcity of foreign exchange (forex) subsequently bit harder, and persisted all year round.
While the problems pre-dated 2016, the consequences in the area of flights delays, multiple cancellations and attendant fare hike on foreign travels left a sore taste in the mouth of air passengers.
The apex regulatory body, Nigerian Civil Aviation Authority (NCAA), in May, looked at the harrowing experiences of travellers at airports nationwide, and declared the fuel situation as “nightmarish”. It was, indeed, a period when total domestic flight operations in the country were down by 50 per cent, said the Chairman of the Airline Operators of Nigeria (AON), Capt. Nogie Meggison.
Though the foreign airlines were not untroubled by the perennial fuel scarcity, their inability to repatriate funds back to their home countries posed more serious challenge to the airlines that were already hit by low patronage.
Since the current administration restricted access to forex in 2015, the airlines have been unable to repatriate funds from ticket sales. The International Air Transport Association (IATA), being the clearing house for over 260 airlines worldwide, estimated the trapped funds to the tune of $600million as at May.
Apparently unable to bear with the system and its depleted market, Spanish national carrier, Iberia, and its United States counterpart, United Airlines, suspended operations indefinitely. Several other airlines scaled down operations; either introducing smaller aircraft like British Airways did or reducing their frequencies and routes, like Emirates, Delta, and Turkish Airlines and a host of others.
The sector heaved a sigh of relief in June, when the Central Bank of Nigeria (CBN), the lender of last resort, introduced the new forex policy and unblocked access to the scarce commodity (dollar).
Details of the new forex regime soon settled in and the initial relief vanished. At the new exchange rate of N330 to $1, the airlines began to lose at least 40 per cent of accumulated revenue.
Federal Government’s inclusion of aviation on the priority list of sectors to get forex concession grants in October, did little to assuage the losses. On every $1million repatriated out of the country, the sum of N80million is lost by the airlines. Consequently, the cost of air fares rose between 50 and 100 per cent on some foreign routes.
Domestic operators were not left out as the new forex policy and attendant hike in exchange rate further stifled the already troubled industry. Immediate effect was the return of aviation fuel scarcity. Aviation fuel, otherwise called Jet-A1, is 100 per cent imported into the country and at the mercy of foreign exchange rates and its availability.
With the exchange rates mounting the roof top, price of aviation fuel rose from N110 to N230-plus per litre. Meanwhile, fuel alone accounts for about 40 per cent of the total operation cost of an airline.
Two domestic airlines during the period ran at 10 per cent of their capacity and had to temporarily shut down operations.
Some airlines could not meet the financial obligations in buying fuel and paying workers’ salary will obviously be incapacitated to carry out routine maintenance on its aircrafts. Others could not indulge in the C-check maintenance mandatory for commercial aircraft every 18 months, which costs between $300, 000 and $500,000 at an average Maintenance, Repair and Overhaul (MRO) facility overseas.
Because of the humongous sum involved, compounded by forex spike, operating domestic airlines grounded some aircraft. Some went for maintenance and never returned as operators do not have funds to foot the bill. The situation, therefore, explains why an airline with over 10 aircraft had just a functional plane on the apron on the day it temporarily shut down operations.
To make matters worse, virtually all the domestic airlines are indebted to banks and regulatory authorities running into billions. While they have no justifiable claim to access another loan from any bank, regulatory authorities like the Federal Airports Authority of Nigeria (FAAN), and Nigerian Airspace Management Agency (NAMA), among others are going gung-ho to force some debts on already financially distressed airlines.
In the year under review, efforts by the Federal Government to address the infrastructure gap at the airports didn’t go unnoticed. The government, through the Ministry of State for Aviation, took a bold step to propose the concessioning of airports and get stakeholders’ buy-in.
The first phase of the proposed concession will cover the international airports in Lagos, Abuja, Port Harcourt and Kano. The remaining 22 airports scattered across the country will be concessioned in the second phase
The Minister of State for Aviation, Hadi Sirika, had argued that concession arrangement is the last option to transform the airport, especially at a time of economic recession with attendant paucity of funds.
He highlighted the gains of concession, saying: “Nigeria is currently doing a total of five million passengers from Abuja and 15 million nationwide. But if we have the best airports, very strong carrier out of Nigeria and a very good leasing company to fund it and a very good financing system to augment the insurance and give confidence, then we will have a new aviation sector.
“Figures from the International Air Transport Association (IATA), International Civil Aviation Organisation (ICAO) and other experts including the World Bank, show that the sector is growing at the rate of five per cent per annum and doubling at every 15 years, but the potential in Nigeria has not been harnessed. The fact is that the figures will quadruple; multiply four times, which means that from the onset, once these airports are in place and the carrier is flying, we will multiply 15 by four and is 60 million passengers. That is what is waiting to be taped into with concessioning of our airports,” Sirika said.
Meggison added that though the current situation was a specific reflection of a troubled economy at large, the aviation sector remained critical to the health of the economy and should get its deserved attention in the New Year.
Aviation fuel marketer, Olasimbo Betiku, agreed that the year had indeed been tough for importers and operators alike, and expressed confidence in a permanent solution in the New Year.
Betiku, who is the General Manager and Chief Operating Officer at CITA Petroleum Limited, said plans by the Federal Government to refine aviation fuel at the Kaduna and Port-Harcourt refineries were already in top gear. Coupled with cooperation of other stakeholders, “the sector is in for a lasting solution to the perennial fuel scarcity in 2017.”
Besides infrastructure development through concession plan and improved aviation fuel supply, Airport Security Consultant, Group Captain John Ojikutu (rtd.) said regulatory agencies should also be alive to their responsibilities for optimal services from the operators.
Ojikutu reasoned that the regulators, especially the NCAA should audit the airlines to determine their debts or financial health and also the sustainability of their operations.
He said: “How can airlines that sell tickets not on credits but always on cash, both on passenger and cargo, be in need of intervention funds than those providing them safety services, which they hardly pay for?
“With the annual statistics on passenger air traffic and cargo freight produced by the Federal Airports Authority of Nigeria (FAAN), you will find out that the revenue generated by all operators in the sector is sufficient to sustain the operation of the industry, with no intervention funds from government.
“The problem is not as complicated as is being portrayed; it requires that these airlines are provided with facts not sentiments. As we go into the New Year, we must act along with the 2017 ‘Budget of Growth’,” Ojikutu said.