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Airlines Hike Fares By 100%

by on December 7, 2020
 

By Seun Adeuyi

Tickets rates in local airfares have doubled in a week, rising fears that one of the most expensive pricing regimes may be upon the aviation industry.

Operators blamed the spike on an exchange rate that hit N500 to $1 at the black market last week which has seen an average one-hour economy class seat of N33, 000 rise to N75, 000 over the counter of some airlines. Its average return trip variant also climbed to N121, 000 from about N60, 000 a week ago.

Aviation stakeholders said it was one of the highest price leaps in years, warning that the last has not been seen since airlines only deployed the spike to cover basic costs, and not to make profit.

In the same vein, foreign airlines have also been caught in the forex tangle, as over $200 million of accumulated ticket fares sold in the last couple of weeks have lately been stuck in Nigeria due to constraints at the Central Bank of Nigeria (CBN).

However, stakeholders said unless the Federal Government bailed out the local industry and avail a special forex window for local and foreign operators, airfares might continue to spike and become unbearable for the travelling public in the festive season. In the interim, they have advised travellers to make their travel bookings ahead of time to get fairer deal.

Akin Ogunnubi, a travel agent told the Guardian that indications of fare hike had been palpable in the last two weeks, but only went haywire last Thursday, when aviation unions picketed Arik Air.

Ogunnubi said, “Arik has the second highest traffic after Air Peace. Picketing such an airline means serious disruption across the network. On Thursday and Friday, people searched for tickets at all costs. So, today’s flights that used to go for about N40, 000 on the counter went to N50, 000, N60, 000 and N70, 000; yet travellers were still seeking desperately. I think this is bound to happen, where airlines have reduced their itineraries because of the COVID-19 effects. We have limited flights for a lot of business travellers.”

The effects of COVID-19 notwithstanding, the recent spike in naira-to-dollar rate has also exposed local airlines to more financial needs. Except ticket sales and workers’ salaries, everything else in aviation is denominated in dollars.

The Guardian quoted the Chief operation officer of one of the local carriers as saying that the major worry was the high cost of maintenance.

His words, “You do the maths. At N500 to $1, a C-check is now N1 billion; just for one aircraft! And that is one component of other obligations. So, if you have N33, 000 tickets now selling for N70, 000, you cannot really blame the airlines, but the economy and its handlers. All the airlines that are lucky to have a couple of planes in operation have reduced their frequencies and routes just to be able to cut losses. Since the government has refused to help us, we have to spread the cost across the traffic available. We feel for our customers, but survival is paramount.”

Capt. John Ojikutu (rtd), former commandant of the Lagos Airport and aviation security consultant, noted that airlines might, for once, be charging the right fares that are commensurate with economic realities.

He recalled that from the 1990s to date, exchange rates had spiked several times without airlines changing ticket fares. According to him, it was no surprise that the airlines continued to struggle, owing service providers and regulatory agencies deductions of five per cent Ticket Sales Charge (TSC) and Passenger Services Charge (PSC), just to stay afloat.

Ojikutu said, “Rather than these airlines applying or charging appropriate fares for their flights, they target public money to make up for losses. They cannot be charging $100 (N3, 800/N4, 000) when exchange rate was N40/$ in 1990, and still be charging less than N40, 000 today when dollar is N500/$.

“It does not make economic sense today when all aircraft parts and even fuel is imported as against the local availability in the 80s/90s. The Nigerian Civil Aviation Authority (NCAA) can regulate but there is no problem with the increase if dollar sells for N500. Airfare to places of one hour flight distance can and should not be less than $100 or N50, 000.”

Bankole Bernard, Travel specialist and Chairman of the Airlines Joint Passenger Committee of the International Air Transport Association (IATA), observed that it was most disappointing that the industry was fast becoming lawless, with no form of engagement between the operators and regulators.

Bernard said that the entire sector still had low patronage of about 30 per cent, causing airlines to run at a loss. This has been made worse by the fact that the exchange rate has lately gone up from N380 to N490/$, with airlines pushed to the black market to source for dollars to meet aviation obligations.

He said “We all know that aviation is essential service and central to commerce. How come no one has deemed it fit to engage the airline operators and push their case before the CBN to give them a special FX window? That is what I find strange in this matter. This is a very difficult time for all and I shudder to imagine where we all will be by the next quarter.”

While explaining that forex scarcity was already affecting foreign airlines with as much as $200 million already stuck in Nigeria, he added that the implication might be foreign airlines selling tickets in dollars, both for the inability to repatriate funds and likelihood of naira devaluation.

Olumide Ohunayo, Industry analyst and member of the Aviation Safety Round Table Initiative (ASRTI), said no one could really blame the airlines for the spike, but the government that refused bailout to the airlines when it mattered the most.

According to him, there was a need to create a special FX window for the scheduled operators alone, coupled with the swift roll out of pandemic stimulus for the operators to reduce pressure on liquidity.

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