Passenger traffic by air surged to a two-year high in 2016, according to National Bureau of Statistics (NBS), and the same year Africa’s biggest economy suffered its first slump in a quarter of a century and disposable incomes weakened the most in seven years.
According to the NBS, passenger traffic at the domestic and international airports scattered across the various states in Nigeria touched 15,232,597 persons in 2016, from 14,330,857 recorded in 2015. Passenger traffic in 2014 was 15,335,745, and 14,126,767 in 2013.
The general expectation was for a slowdown in demand for air travel, given the macro challenges Nigeria has faced over the past several quarters, even as average disposable incomes fell below $2,500 for the first time since 2008.
While positive base effects may be partly responsible for the yearly increase in passenger traffic in 2016, John Ojikutu, secretary general, Aviation Round Table, (ART) and CEO of Centurion Security and Safety Consults, told BusinessDay that the effect of the Open Skies policy might have fanned passenger traffic.
“Airport management records departing, arriving and disembarked transiting passengers only. Embarking and disembarking passengers on open skies agreement are included except transit passengers that remained on-board. Rwanda flights between Lagos and Lome could have contributed to the increase so also are the additional frequencies given to Asky and Delta Airline to Abuja,” Ojikutu said.
Dung Pam, chairman, Governing Board of the Nigerian Aviation Safety Initiative (NASI), also tips the open skies decision to have boosted traffic.
“NCAA has given more frequencies to Ethiopian Airline, Asky Airline, Rwanda Air and South African Airline, on the back of the Open Skies decision, which does not put a limit to the frequencies these airlines can operate; it just depends on whether the airport can accommodate them,” Pam said.
BusinessDay’s checks show that a fallout of the open skies policy recently led to the approval of the aviation ministry for Asky Airlines, the Pan African Airline to commence non-stop flight from Lagos to Johannesburg and Rwanda Air, East African carrier to commence Lagos-Accra operations.
Pam noted that another reason that could be responsible for the surge in traffic was Nigeria’s growing middle class, identifying reduced ticket prices as another reason for boost in passenger traffic.
“At some point, AirPeace, Dana, Arik and Aero were doing promo of less than N20,000 for a ticket. Passengers rushed at this price, although the decision had its negative consequences on the airlines in terms of revenues,” he said.
Domestic air traffic accounted for 72 percent of the total, with the NBS including passenger data from four additional airports (Bauchi, Eket, Gombe and Uyo). Combined, these airports accounted for 667,900 passengers in 2016.
Domestic air travel is predominantly for corporate or business purposes. Abuja airport is a recipient of this category of travellers and was recently reopened after a six weeks’ shutdown for runway repairs. Passengers were temporarily diverted to Kaduna airport.
As for international travel, passenger traffic contracted by 2.5 percent y/y in 2016, compared with a contraction of 9.0% recorded in 2015.
The sustained contraction is not surprising, given that international airline operators were hit by foreign exchange sourcing challenges.
However, in Q3 2016 there was an increase in international passenger traffic to 1.2 million passengers from 1.0 million passengers. Summer vacations fell within the third quarter, so the increase recorded in Q3 could well be due to a seasonal pick-up.
“FX illiquidity resulted in repatriation challenges for international airline operators. This led to increased air fare tickets and in some cases a reduction in the number of weekly flights (thus adversely affecting air passenger traffic),” FBN Quest analysts observe.
“We assume that airlines are gaining some respite on the back of the CBN’s recent FX interventions,” FBN Quest added by email.
The CBN has sold over $2 billion in recent weeks to airline operator, fuel marketers and manufacturers, desperate to clear a mounting dollar backlog that has crippled economic activity.
Acute dollar shortages have troubled airlines in Nigeria. Securing spare parts for maintenance as well as jet fuel imports has been difficult on the back of dollar shortages.
The rising price of aviation fuel, which is unregulated, has meant operators have had to bear the full inflationary cost pressures associated with fx volatility as well as fluctuations in oil prices.
A welcome development, however, was the recent listing of Medview Air on the Nigeria Stock Exchange (NSE), although its share of the NSE’s market capitalisation is relatively insignificant- at 0.2 percent, it is the only listed firm that gives investors exposure to the aviation sector. Medview shares were unchanged from yesterday’s price at N1.50 on Wednesday.
As the woes of airlines deepened, the Federal Government recently took over the operations of debt-plagued Arik Air, the biggest airline in the country. United Airlines and Iberia pulled out of the country over the financial challenges.
Tayo Ojuri, an industry expert and CEO, Aglo Limited, an aviation support service told BusinessDay that the Nigerian air transport industry remains attractive because most travel in Nigeria are business travels.
“People will always travel for business purposes in various locations both within Nigeria and outside Nigeria. There may likely be a drop in leisure travels but not for business purposes. The only thing business men do is that they pass that travel cost to the consumers who bear the brunt,” Ojuri explained.
Nigeria’s economy contracted 1.5 percent in 2016, according to the NBS, but is widely tipped to exit recession in the first quarter of 2017.
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