In February, airlines raised the base fare for domestic economy flight tickets from roughly N35,000 to N50,000, claiming increased operational costs, a decision that upset travellers and at least one government agency, in charge of consumer protection. Since the peak of the pandemic, flight tickets have become more expensive, even now that the worst appears to have passed and people are travelling more freely again.
Here are five reasons airfares have become more expensive;
Maintenance costs
Aircraft are maintained every 12 to 18 months. This maintenance is compulsory or the aircraft would be grounded. BusinessDay’s findings show that it cost an airline an average of $800,000 to $1million to carry out C-checks on an airplane depending on the age of the aircraft.
This is one of the costs that erode the revenues of airlines. This amount does not include the cost of transporting the aircraft abroad and other charges which will amount to over $200,000.
John Ojikutu, member of the aviation industry think tank group, Aviation Round Table (ART) and chief executive of Centurion Securities, had told BusinessDay that one single C-check on one Boeing aircraft costs between $800,000 to $1million.
Ojikutu said this amount is enough to wipe out one year of profit made by an airline, so if they get cheaper maintenance options, they will explore these options.
Exchange rate
Forex is another challenge to airlines in many ways. To begin with, airlines bill in naira but purchase spare parts and equipment in dollars or other foreign currencies. As a result, this can be labelled as a currency exchange risk.
The naira has risen from N360 to N600 to a dollar on the parallel market in two years.
Alexander Nwuba, managing director, Smile Air Ghana and former MD, Associated Airlines and WestAir Benin told BusinessDay that the naira has gone from N300 to N600 in the parallel market yet the Central Bank of Nigeria (CBN) says it will soon stop providing dollars to commercial banks.
This means airlines will have to source foreign exchange from the parallel market and prices will keep rising.
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Aviation fuel price
Due to aviation fuel scarcity and the high cost of operation, airlines have struggled to conduct flawless flight operations during the last two months.
Aviation gasoline (JetA1), which cost between N230 and N250 per litre last year, currently costs more than N600 at the country’s airports.
In addition to the ongoing rise in gasoline prices, fuel supply is at best epileptic at several airports, causing delays, and supply nationally is at best unpredictable, with airlines waiting for fuel at airports across the country several times a day.
On a flight, the B737, a popular aircraft in Nigeria, burns between 3000 and 3500 litres per hour. The airline will pay N2.1 million for fuel alone for a plane that burns 3500 litres.
Taxes/Surcharges
Airlines have complained that the taxes and levies they must pay in Nigeria are the highest in the world. Government taxes and surcharges account for more than 40 percent of airline earnings, according to BusinessDay investigations.
According to BusinessDay’s investigations, airlines are required to pay
· 5 percent Ticket Sales Charge
· 5 percent Cargo Sales Charge
· 5 percent Passenger Service Charge
· 5 percent Charter Sales Charge
· 5 percent Aircraft Inspection Fee
· 5 percent Simulator Inspection Fee
· 5 percent Landing Charge, and
· 5 percent Parking Charge for each passenger ticket sold.
Other charges include Terminal Navigational Charge, Enroute Charge, Fuel Surcharge, Airport Space Rent, Electricity Charges, Apron Pass, Ramp Access Charges, ODC and a newly imposed Registration Fee all of which are paid to government agencies.
Obiukwu Mbanuzuo, chief commercial officer, Green Africa gives a further breakdown of these taxes and surcharges.
According to Mbanuzuo on any N50,000 a one-way ticket sold by airlines, airlines pay N2,000 to the Federal Airports Authority of Nigeria, (FAAN) as Passenger Service Charge, and five percent, (N2,500) as five percent to the Nigeria Civil Aviation Authority, (NCAA).
From whatever is left, the airline also pays N2.50k for each litre of fuel to FAAN (via the marketer) and landing fees which depend on the aircraft’s landing weight, he explained.
“Basically, FAAN collects a ‘throughput’ charge on each litre of Jet A1 sold to airlines. I understand that this was historically due to the underground fuel hydrants that supply International but those no longer work. Anyway, whatever price of Jet A1 is, the marketer adds N2.50 per litre that the airline pays and this is paid to FAAN,” Mbanuzuo said.
He further explained that on every flight, airlines pay between N20,000 to N25,000 per ticket to Nigeria Airspace Management Agency, (NAMA) as terminal navigation charges and en route navigation charges and this excludes other charges to airports for space rental at the check-in counters, to handlers (NAHCO/SAHCO) etc.
Other Operational Cost
Other operating costs, such as aircraft maintenance, abroad training for pilots and crews, and so on, emerge in addition to the N2.1 million spent on jet fuel.
Losses are incurred as a result of the foreign currency rate; for example, an airline that buys spare parts in dollars but sells tickets in naira incurs higher costs. Aside from replacement parts and aircraft maintenance, pilot and crew training abroad are also done in dollars.
If the airline charges N50,000 for each seat on average, the aircraft would earn N 6 million for a plane with a capacity of 120 passengers. Other costs, including taxes, crew, and routine maintenance, would still be borne by the airline. Following the expenses, the airline is left with a very small profit.
The Airline Operators of Nigeria, (AON) have for years, lamented the tough operating environment, making it difficult for them to operate efficiently.
