Domestic airlines operating in Nigeria in the past one year have raised airfares to cushion effect of 53 percent increase in the cost of aircraft maintenance resulting from the increase in foreign exchange (FX) rate in a bid to stay afloat, analysts say.
A major challenge facing the airlines is that they generate revenues in naira whereas they carry out maintenance and purchase major aircraft parts in foreign currency. So, with the low value of the naira, the airlines are paying more than twice the maintenance cost they used to pay to carry out C-Check on their aircraft.
“The cost of aircraft maintenance will automatically cause airlines to increase airfares to cushion effect of the cost of operations,” Tayo Ojuri, industry expert and CEO of Aglo Limited, an aviation support service company, told BusinessDay.
Aviation is a function of disposable income and the people that travel in Nigeria are more of a travel driven by business, especially for domestic travel, Ojuri said.
“Looking at the routes, Lagos to Abuja, Lagos to Port Harcourt, Lagos to Kano, Abuja to Asaba, these routes are driven by business. The other option for airlines will be for them to increase their fares, and increasing fares will mean increase on the cost of goods and services for people that travel by air,” he said.
Four major airlines operating in Nigeria were forced to hike fares by an average of 36 percent year-on-year following the high cost of aircraft maintenance
Arik Air’s ticket fare jumped 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 FX rate was N199 last year.
First Nation, Air Peace and Med-view airlines also saw fares rise 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 of 25 percent.
The Nigerian Civil Aviation Authority (NCAA) few weeks back said it did not authorise airlines to increase airfares, just as the aviation regulatory body said airfares, add-ons, charges, tariffs and terms and condition of service were fully liberalised.
According to Sam Adurogboye, spokesman for NCAA, airfares and sundry charges have been statutorily deregulated and subjected to market forces.
Corroborating, Nogie Meggison, chairman, Airline Operators of Nigeria, told BusinessDay that the cost of aircraft maintenance had added to the problems of the operators as it had increased their cost of operations.
The chairman called on the Federal Government to implement the FX concession for airlines so they could run their operations effectively, and warned of dire consequences if airlines were unable to access FX 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 others, because Arik Air is in partnership with Lufthansa, where they pay heavily. Also, Aero cannot go beyond C checks,” Meggison said.
According to Meggison, other airlines can only carry out ‘line checks’ at the airsides, even though airlines are no longer required to pay duty on parts imported into Nigeria, the manufacturers’ directives on aircraft maintenance have to be strictly adhered to.
Experts in the aviation sector have also said that the consequence is safety breach, which may lead to air crashes, as the airlines may resort to cutting corners in order to keep their aircraft in the air.
BusinessDay’s checks show that when the exchange rate was N199 to a dollar, it cost airlines between $1 million to $2 million, amounting to N199 million to N299 million to carry out a comprehensive C-check and a D-check, depending on the aircraft type.
However, with the interbank exchange rate of N305 to a dollar, airlines have to pay about N305 million to N405 million for their aircraft maintenance within a period of 15 to 18 months of operations, resulting to 53 percent increase.
Harold Demuren, former director-general, Nigerian Civil Aviation Authority (NCAA), said recently that Nigerian airlines were going through difficult times because they earn their revenues in naira and carry out maintenance, buy spares and pay some technical personnel in foreign currency.
“Nigerian airlines are going through hell to survive. Almost all the business airlines do, they do, they have to pay in dollars while their sales are in naira; they have to use the naira to get dollar at a high rate,” Demuren said.
BuisnessDay’s checks show that an aircraft is subject to C check every 15 to 18 months. This type of aircraft maintenance 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 generally an overhaul.
Allen Onyema, chairman, Air Peace Limited, had warned that unless urgent action was taken to review the cost of aircraft insurance in Nigeria and the establishment of Maintenance, Overhaul and Repair (MRO) facility locally, domestic airlines would find it extremely difficult to continue to operate.
Onyema said besides the cost of aviation fuel, which constitutes over 40 percent of airline’s operational cost, aircraft maintenance erode the revenue of airlines.
With the low value of the naira, it is exorbitant ferrying aircraft overseas for maintenance, so urgent establishment of MRO in Nigeria is needed to save the country billions of naira in FX, he noted.
Sources at the NCAA say about 25 percent of existing aircraft owned by commercial airlines are on maintenance or AOG (aircraft on ground), either because they are no more airworthy or are due for maintenance.
“It is a no brainer that airfares may spike as operators pass on increased costs of operation to the consumers,” a macro analyst with Afrinvest said.
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