One of the most expensive pricing regimes in local airfares may be upon the aviation industry, as ticket rates have more than doubled in a week.
The spike, which operators blamed on an exchange rate that hit N500 to $1 at the black market last week, has seen an average one-hour economy class seat of N33,000 rise to N75,000 over the counter of some airlines. Its average return trip variant also climbed to N121,000 from about N60,000 a week ago.
Stakeholders are unanimous it was one of the highest price leaps in years, warning that the last has not been seen since airlines only deployed the spike to cover basic costs, and not to make profit.
Similarly, foreign airlines have also been caught in the forex tangle, as over $200 million of accumulated ticket fares sold in the last couple of weeks have lately been stuck in Nigeria due to constraints at Central Bank of Nigeria (CBN).
Aviation stakeholders, however, said unless the Federal Government bailed out the local industry and avail a special forex window for local and foreign operators, airfares might continue to spike and become unbearable for the travelling public in the festive season. In the interim, they have advised travellers to make their travel bookings ahead of time to get fairer deal.
The Guardian monitoring of fares at the weekend showed a slightly varying price range across the airlines and routes. On the average, all routes, subject to availability, were sold for between N55,000 and N75,000 Economy Class one-way tickets. Return tickets for the same class averaged N120,000. The one-way Business Class of N58,000 was sold for an average of N100,000, where available.
For instance, an Azman Air Lagos-Kano Economy flight ticket that used to sell for N30,000 went for N55,000. The same airline sold Lagos-Abuja 10 a.m. flight yesterday for N85,000. Dana Air’s Lagos-Abuja Economy Class was sold for N56,000, compared to N29,000 average rates in the past. For today’s flights, all the Lagos-Abuja morning flights had been fully booked as at Saturday, except for Arik Air that was just resuming operations after shutdown by the unions. Arik sold for N53,000 yesterday.
A travel agent, Akin Ogunnubi, said indications of fare hike had been palpable in the last two weeks, but only went haywire last Thursday, when aviation unions picketed Arik Air.
“Arik has the second highest traffic after Air Peace. Picketing such an airline means serious disruption across the network. On Thursday and Friday, people searched for tickets at all costs. So, today’s flights that used to go for about N40,000 on the counter went to N50,000, N60,000 and N70,000; yet travellers were still seeking desperately. I think this is bound to happen, where airlines have reduced their itineraries because of the Covid-19 effects. We have limited flights for a lot of business travellers,” Ogunnubi said.
Devastating effects of the Covid-19 pandemic notwithstanding, the recent spike in naira-to-dollar rate has also exposed local airlines to more financial needs. Except workers’ salaries and ticket sales, everything else in aviation is denominated in dollars.
Chief operation officer of one of the local carriers said the major worry was the high cost of maintenance. C-check, which is required every 18 months, now costs an average of $2 million per commercial aircraft.
“You do the maths. At N500 to $1, a C-check is now N1 billion; just for one aircraft! And that is one component of other obligations. So, if you have N33,000 tickets now selling for N70,000, you cannot really blame the airlines, but the economy and its handlers. All the airlines that are lucky to have a couple of planes in operation have reduced their frequencies and routes just to be able to cut losses. Since the government has refused to help us, we have to spread the cost across the traffic available. We feel for our customers, but survival is paramount,” he said.
Former commandant of Lagos Airport and aviation security consultant, John Ojikutu, said airlines might, for once, be charging the right fares that are commensurate with economic realities.
Ojikutu recalled that from the 1990s to date, exchange rates had spiked several times without airlines changing ticket fares. He said it was no surprise that the airlines continued to struggle, owing service providers and regulatory agencies deductions of five per cent Ticket Sales Charge (TSC) and Passenger Services Charge (PSC), just to stay afloat.
“Rather than these airlines applying or charging appropriate fares for their flights, they target public money to make up for losses. They cannot be charging $100 (N3,800/N4,000) when exchange rate was N40/$ in 1990, and still be charging less than N40,000 today when dollar is N500/$.
“It does not make economic sense today when all aircraft parts and even fuel is imported as against the local availability in the 80s/90s. Nigerian Civil Aviation Authority (NCAA) can regulate but there is no problem with the increase if dollar sells for N500. Airfare to places of one hour flight distance can and should not be less than $100 or N50,000.”
By the Nigerian Civil Aviation Regulations, airfare pricing has been deregulated, and subject to the estimates of the operating carrier. The caveat, however, is that a carrier that may so wish to change rates should intimate the Directorate of Air Transport Regulation (DATR) of the NCAA with a cost analysis of the new pricing. As at yesterday, there is no confirmation of airlines intimidating NCAA of the new pricing regime.
Travel specialist and Chairman of the Airlines Joint Passenger Committee of the International Air Transport Association (IATA), Bankole Bernard, said it was most disappointing that the industry was fast becoming lawless, with no form of engagement between the operators and regulators.
He observed that the entire sector still had low patronage of about 30 per cent, causing airlines to run at a loss. This has been made worse by the fact that the exchange rate has lately gone up from N380 to N490/$, with airlines pushed to the black market to source for dollars to meet aviation obligations.
“We all know that aviation is essential service and central to commerce. How come no one has deemed it fit to engage the airline operators and push their case before the CBN to give them a special FX window? That is what I find strange in this matter. This is a very difficult time for all and I shudder to imagine where we all will be by the next quarter,” Bernard said.
He added that forex scarcity was already affecting foreign airlines with as much as $200 million already stuck in Nigeria. He said the implication might be foreign airlines selling tickets in dollars, both for the inability to repatriate funds and likelihood of naira devaluation.
IATA’s Regional Vice President for Africa and the Middle East (AME), Muhammed Albakri, recently disclosed that Nigeria and other African countries had blocked funds totalled at $516 million.
The main cause of the blocked fund is the inaccessibility to foreign exchange by operators as the countries’ economies suffer due to the coronavirus pandemic. Most countries are struggling economically with its attendant effect on the global airline industry.
Industry analyst and member of the Aviation Safety Round Table Initiative (ASRTI), Olumide Ohunayo, said no one could really blame the airlines for the spike, but the government that refused bailout to the airlines when it mattered the most.
Ohunayo said there was a need to create a special FX window for the scheduled operators alone, coupled with the swift roll out of pandemic stimulus for the operators to reduce pressure on liquidity.
“It is unfortunate that both airlines and consumers have all found themselves in this difficult situation. Passengers should begin to plan ahead to get seats and good fares. If they have to travel, they should do the bookings ahead of time given that this is the festive season and fares will naturally jack up. Air travel is still better than road. Passengers should bear with the industry,” Ohunayo said.
The Guardian