Airlines May Increase Fares As $/N792 Impacts On Operations

There are strong indications that the per­sistent fall of the naira against foreign currencies, especially the dollar, may compel airline operators to once again hike airfares.

This is as a source close to one of the airlines told Daily Independent on Wednesday that the current situation may have also affected the carriers from acquiring spare parts and repayments on leased equipment.

Checks by Daily Independent on Wednesday indicated that a dollar ex­changed for N792 at the official rate, while it exchanged for about N820 at the alter­nate market (black market). Some of the airline operators lamented that the cur­rent situation has jumped up the cost of operations, especially in the acquisition of spare parts for aircraft and payment of leases on aircraft. They also warned that if the situation continued, the only option left for the operators was to raise the airfares once again. ­

They, however, ruled out a sack of workers, especially pilots, engi­neers, and other technical person­nel, saying an aircraft has minimal personnel attached to it. Virtually, every aspect of aircraft operations is dollarised, while domestic air­lines charge passengers in naira.

The airlines had about 18 months ago fixed N50,000 as base fare for 45 minutes to an hour flight, a sit­uation which drew condemnation among aviation stakeholders, air travelers, and the Federal Compe­tition and Consumer Protection Commission (FCCPC), which ac­cused them of antitrust practice.

But, within the same period, the fortune of the naira has further dwindled, thereby worsening the business environment for inves­tors.

Speaking on the issue, Mazi Osita Okonkwo, the Chief Op­erating Officer (COO), of United Nigeria Airlines (UNA), said the hike in airfare was inevitable with the current situation. Okonkwo decried that the continuous nai­ra drop had escalated the cost of operations, which, he said, are in mostly dollars.

He explained that United Nige­ria Airlines, for instance, may be compelled to increase fares by 10 to 20 percent or more if the situation continued, but ruled out a sack of workers.

He explained that the primary concern of the management was to ensure aircraft fly safely, while also adhering strictly to industry standards and recommendations as stipulated by the Internation­al Civil Aviation Organisation (ICAO) and the Nigeria Civil Avi­ation Authority (NCAA).

The COO further stated that UNA may also review the salaries of its workers to cope with the cur­rent situation.

He said, “Airfare review is inevitable. It is something that must happen for anybody to keep afloat. Even at that, with inflation and difficulty in transportation, any airline including our airline is already looking at how to amelio­rate the sufferings of our workers. So, obviously, wages will rise, and operating costs will rise. The only source of revenue for airlines is just the fares and I think it is some­thing that is inevitable, but I don’t know when.

“It will be at a level that will reflect the current dollar reality. You also have to be careful not to discourage the travelling public because everybody is suffering. But definitely, we see the airfares rising between 10 and 20 percent if not more. That is what it is now. It will have to be gradual; it can’t happen in one day.”

Most of our major costs are in forex; spare parts, and leases (dry or wet) are in dollars. If you have aircraft loans, you are paying in dollars. So, it’s about 40 to 50 per­cent of escalation. That is major and there is a need for serious adjustments for one to remain in service.”

Job consideration is to ensure that the aircraft are flying safe­ly and once they are flying, you don’t have any reason to retrench anybody. All the focuses now are to make sure we keep the aircraft flying safely and keep operations going. If you have trained a pilot or an engineer and you lay him off, by the time the person returns, he is already out of current and he will require more training to be able to get back online.”

On the forex unification by the Federal Government, Okonkwo said the policy would create even ground for all investors unlike in the past where some were given special treatment by the govern­ment.

He also said that the policy would make dollars more available for operators, but said the country was still at the experimental stage with the policy.

Okonkwo further advised the government to beam its search­light on other areas of sourcing finances for the country.”

And then, there must be inflow from other sources to avoid this vol­atility. If the government can get access to softer loans, there may be intervention by the World Bank, In­ternational Monetary Fund (IMF), and other credit agencies coming in with more suitable funds that will ensure some stability.

“We have seen some foreign portfolio investors coming in, I believe that there will be some sta­bility and we are hopeful. In Nige­ria, we are always very hopeful,” he said.

Also, Mr. Obi Mbanuzuo, an aviation consultant, said that while Jet A1 has been deregulated for years, the indigenous airline op­erators are still confronted with the challenges of costs and spare parts.

He explained that the airlines charge air travellers in naira, but carry out maintenance and oth­er operations in foreign curren­cies. Like Okonkwo, Mbanuzuo emphasised that downsizing the workforce was never an option for the operators as they have to comply with minimal require­ments for aircraft operations. On the way out of the conundrum, he proposed bulk negotiation and the purchase of equipment.

He also didn’t rule out a hike in airfares by the airlines, but noted it may lead to reduced traffic. Mba­nuzuo also warned against un­dercutting by any of the airlines, maintaining that this would boo­merang in the long run. “Without you saying so, ticket review is one of the options for the airline. They need to review the airfares. N20,000 today is not the same as N20,000 in the past. How much is N20,000 in dollars today? The fares have to increase to compensate for that. “

I know in our market; one or two airlines may want to undercut each other. To me, it’s an error. You undercut others today and you get market shares and in two months’ time, you struggle to maintain the airplanes. “

Yes, passenger apathy is going to happen. The more the increase in fares, the more the reduction in demand, but there are those that will continue to fly either be­cause of insecurity or utility. De­mand will definitely be poor. Is the journey absolutely necessary? Is it something I can do virtually?” Mbanuzuo said.

Besides, Mr. Kingsley Ezenwa, the Spokesman of Dana Air, also said that the airline had placed an embargo on employment at least for now.

He also said that the man­agement had taken a decision to slightly increase staff salaries to cushion the effect on the part of its workers, while other avenues are still being explored to assist staff where necessary.

Ezenwa further emphasised that airlines review rates occa­sionally largely due to cost of op­erations, Jet A1, and forex stability. (Daily Independent)