By Chinelo Obogo, [email protected]
For months running, Nigerians have been peppered by skyrocketing airfares on both international and domestic routes, a worrisome development that has led to a 40 per cent travel market decline. The principal reason, according to aviation analysts, is naira devaluation as a weaker currency increases the operational costs for airlines.
There is also the issue of ever-increasing cost of aviation fuel (Jet A1), which has further strained airlines’ budgets. Another headache is the difficulties foreign airlines face in their struggle to repatriate earnings, limiting ticket availability and rapidly driving up prices. These challenges forced airlines to restrict discounted fares, pushing many Nigerians to book tickets through international websites, contributing to the inflated costs experienced locally.
While the Central Bank of Nigeria’s (CBN) release of trapped funds to foreign airlines provided some relief, sky-high ticket prices have continued to burden Nigerian travelers. In response to the hardship faced by passengers, the acting Director General of the Nigerian Civil Aviation Authority (NCAA), Captain Chris Najomo, has set up a committee to brainstorm and list strategies for reducing international flight costs.
Analysts spoke to Daily Sun, proffering solutions to ease the burden. From tackling forex constraints to exploring alternative routes, these experts offer a glimmer of hope for travelers struggling to navigate the current aviation landscape.
Trapped funds
Aviation consultant, Dr. Gbenga Olowo, told Daily Sun that the reason fares are higher from Nigeria than neighbouring countries is because of the commercial payload. He said: “Commercial payload, that is, “Sold Inside Ticketed Inside’ (SITI) and “Sold Inside Ticketed Outside (SITO) are the only two measures that will bring down ticket prices and that is not happening as we speak. Rather, ‘Sold Outside Ticketed Inside’ (SOTI) and ‘Sold Outside Ticketed Outside’ (SOTO) are happening. Hence, fares are higher from Nigeria.
“Also, the airlines home remittance backlog with commercial banks should be a priority. Why are there no funds for this remittance for upwards of four years now? As soon as this is addressed, airlines will begin to open up their inventory on lower tariffs for sale.”
Naira devaluation, major culprit
Aviation security expert, John Ojikutu, told Daily Sun that there is nothing any committee can do to bring down the cost of flight tickets and that no amount of talking can change the situation except Nigeria balances consumption with production, import with export and participation with the international airlines on the BASA routes.
“How would the NCAA and its committee bring down $1,000 (N1.4m) the general fares of air tickets to Europe, USA, Asia, etc at the present naira rate? How would you want to bring down the local tickets fares too that was $100 for an average flight lower than the present naira rate of N1, 400? We are just not being realistic about our presence in commercial aviation especially in the business of international commercial aviation. We forget also that unlike the early and mid-90’s, we had fuel being refined locally and supply was by bridging through pipelines direct to the major airports.
“Today, fuel is being imported in dollars and supply is through private tankers and there are transport fees and demurrage payments at the point of entry and discharge. If all these have been in the periodic focus on the NCAA in its oversight and enforcement of the economic regulations in the Nig CARs on the airlines yearly financial reports. The situation would have been seen before now and solutions applied. Unfortunately, there is nothing any committee can do now and no further interventions on subsidies can do much, so except the worse. Please note that the average fares to Europe, Asia, US, etc for years have been $1,000. What has changed is not dollar fares but the exchange rate from N40 per dollar in 1990 to N1, 400 to one dollar in 2024,” he said.
Multiple charges from service providers
Multiple charges from Nigerian service providers is one of the reasons the cost of tickets on international routes from Nigeria is higher compared to others, the president Association of Foreign Airlines and Representatives in Nigeria (AFARN), Dr. Kingsley Nwokoma told Daily Sun.
Nwokoma said, “Everything has a history. Before air fares went up, we could fly to London with N400, 000 or even N500, 000, then we had the issue of trapped funds and airlines had to start selling their higher inventories. Then we have the exchange rate issue which has also gone up, so, there are lots of factors causing the increase in air fare. It is a good thing that the regulatory agency is looking into the issue because everyone wants affordable fares, so if the acting DG can meet with the foreign airlines and if more money to clear the backlog of trapped funds can come from the Federal Government, that would be helpful.
“The costing of international flight tickets is based on that country’s overhead. These foreign airlines pay for couple of stuff and when you pay loads of fees like landing fees, navigational fees, ground handling and so many fees in a country and it is cheaper in other countries, it would affect the cost of the ticket. These fees are cheaper in countries like Togo, Benin Republic, Ghana etc, so, it is a given that tickets would be cheaper on that route.”
BASA reciprocity should be a priority
Aviation analyst, Olumide Ohunayo, told Daily Sun that it is a good sign the regulatory agency has admitted that airfares are unreasonably high. He said however, that despite other issues like exchange rate and high fuel cost, there is need to address those issues that are within the control of the industry, leaving the external ones for the forces of demand and supply.
He added that it is important that Nigeria participates and makes use of the reciprocity clause in the BASA and whether directly or in partnership with an airline, the country must find a way of using it.
“It is that reciprocity clause that would throw capacity into the market and we must find a way around it. The withdrawal of Emirates has reduced international capacity and has also affected price, so, we must find a way around it. In Australia, they warehoused all government travel, so airlines come to discuss with the department handling all public funded government travel and they have special rates that encourages public funds to be used for their airlines. In our own case, it is public funds that increases the fares because everyone wants to buy it themselves. The navy handles theirs, the army handles theirs and different departments are doing theirs because they know that the higher the fares, the higher the commission. If we are saying that the economy is bad, all public travel should be pegged at economy class tickets. Anyone going above public travel should pay the difference and you would see if the fares wouldn’t come down,” he said.
NCAA has no control over ticket pricing
Another aviation analyst, Amos Akpan, said the NCAA has no control over the cost of the inputs that go into production of seat and cargo space for the aircraft operators and therefore, cannot determine the price to sell a seat or a cargo space on a flight for the operator. He told Daily Sun that as a regulator, NCAA is given the mandate to ensure operators conduct businesses within the ambient of specified documented procedures, supervise all that operators and monitor their economic wellness using key indices of measurement.
He said the ticket fares and cargo rates are business decisions determined by many factors: majorly cost of production and market forces like demand and supply. For domestic operators, he said about 98 per cent of the inputs required to produce flight services are not produced locally as they are foreign products priced in foreign currency.
“Forex is scarce and expensive, fuel is expensive, spare parts and maintenance are in forex, funds to work with is expensive. Airline management have difficulties fixing prices for their products because the ability of the Nigerian customer to pay has a limit. If a seat on the flight from Lagos to Abuja is produced at N140,000 on an A220 aircraft with 140 seats, you don’t expect the operator to sell a seat on that flight for less than the cost of production. The management can play with volumes, scales using increased frequencies and high patronage, but even this would be subject to the effect of the national economy on the purse of potential air travelers. If NCAA fixes price of tickets and cargo rates, they should be able to fix price of aviation fuel, forex rate, interest rate on funds, maintenance costs,” he said.
Way forward
Akpan said agencies and institutions whose services airline operators require for on time / schedule reliability must give efficient and reliable services to the airline operators as operators ability to be schedule reliable affects customers patronage which in turn impacts on the airline’s income.
He urged the government to reduce obstacles to smooth operations like making sure all landing aids are functional up to installed capacity, runways and taxi ways be fully lit, check-in counters must be sufficient and equipped and make release of spares from arriving international flights fast for aircraft on ground (AOG) to return to service. He also said fuel suppliers should be more reliable especially in providing information on fuel status at stations.
“The management of Nigerian airlines have now taken on board the importance of choosing aircraft that fits the economy of their routes. They now consider fuel consumption rate, payload capacity and maintenance cost as critical success factors in acquisition of aircraft for specific routes.
What is needed now is accurate data so the airlines’ management can input in their planning template. It is very difficult to plan in our environment because of abrupt irrational changes. For example, aviation fuel was N350 per liter in August 2022 and by August 2023 it was N1, 000 per liter. Forex was $1/N450 by February 2023 as at this February 2024 it is N1, 450/$1. How would a business planner escalate cost of fuel and forex to the magnitude above 200 per cent in his plan within one year?
“Ticket fares and cargo rates will keep rising if airline operators are to remain in business. The only check against increase is the customers inability to pay, which will force the management of the airline to deploy various strategies to stay in business like do away with inflight catering, use more technology to replace cost of human labour, increase aircraft utilisation where demand is high. When the cost of these items can be predictable over a period in our environment, the airline management will be able to plan and work the plan then fares can stabilize for seasons.
“For international airlines, they are responding to the fluctuations in the foreign currency exchange rates in Nigeria and the forces of demand and supply. Available seats are always competed for in Nigeria so they fix premium prices on seats out of Nigeria. This means demand is higher than the supply. In supplier’s market the prices are higher. When the demand for seats is less than the supply of seats prices will come down,” he said.
Akpan said the NCAA should encourage Nigerian airlines with capacity to enter the international flight market so that the price per seat will reduce. He urged Nigerians to fly Nigerian airlines on any route they are available, as the more Nigerian airlines succeed and stay in business the lower the fares for Nigerian routes.
“If an airline puts a 250-seater to operate Togo – London daily, that airline has to make plans to bring Nigerians to fill the seats because Togolese travelers will not be sufficient in numbers to make economic payload for such flight operations. The airline has to be reasonable in ticket prices to attract and retain travelers. If a Nigerian airline starts daily flight operations from Nigeria to London, British Airways and Virgin Atlantic will either reduce their fares or instigate backdoor obstacles for that Nigerian airline to have issues like higher cost in London or epileptic services/schedule unreliability. Nigerian government has come to know this aeropolitics, but need the political will to protect our airlines in the international arena,” he said.