JET A1 crisis: Operators fear industry collapse and job losses

GhanaNaija| July 31| JET A1 crisis: Operators fear industry collapse and job losses:

The persistent rise in the cost of aviation fuel, known as jet A1, is beginning to cause apprehension in the minds of stakeholders in the industry as they express fears that the sector may collapse and there may be huge job losses if the rising cost is left unchecked.

As of Friday, reports indicated that Jet A1 fuel had risen from about N300 per litre in February to about N1,000 per litre, causing a significant increase in the cost of tickets.

Aviation Round Table, which is a body of professionals in the sector, said more airlines might be forced to halt operations, in addition to the two domestic airlines not in operation at the moment. Aero Contractors on July 18 announced the suspension of its operations, citing the impact of the challenging operating environment on its daily operations, while the Nigerian Civil Aviation Authority on July 20 suspended the operations of Dana

In an interview with one of our correspondents, a former Managing Director of the Nigerian Airspace Management Agency and Chief Executive Officer, TopBrass Aviation Company Limited, Capt. Roland Iyayi said the government must work towards reviving the refineries for the local production of JetA1. He added that government should consider supporting airlines in aviation fuel pricing in the short term.

He pointed out that many people were no longer travelling by air due to the hike in the price of tickets. This, he said, posed a great danger to the survival of airlines and the aviation industry.

Iyayi added, “The key to the success of any airline is affordability. If fares are unaffordable, what you will end up having will be empty flights. Now, when you have empty flights, it will become a double whammy. At this point, how do you manage the sustainability of the airline?

“So, ultimately what we will have will be more airline failures. And if more airlines fail, it means that capacity will reduce and when this happens you will get very high fares. That is essentially what we are looking at now and it is a very precarious situation for the industry.

“This means there is imminent danger in the entire industry and it is bound to spiral out of control if something is not done urgently. So if the government considers aviation as a critical asset, I would expect it to intervene in JetA1 pricing.”

Also, the Assistant General Secretary of the Aviation Round Table, Mr Olumide Ohunayo, noted that the sector had been severely hit by the fuel crisis due to its dependence on importation and the high foreign exchange rate.

In an interview with Sunday PUNCH, he added, “The Russia-Ukraine war has increased the average cost of fuel and all forms of gas productions, and this is exacerbated for Nigeria because of the weakening naira to the dollar. That has increased the pain on the airline and even the supplier. What we have is that one airline is grounded voluntarily and the other involuntarily.

“If things do not return to normal, other airlines may also be grounded. That is where we are going. It is funny that the government is telling us now, through the senate committee, that some of the aviation fuel is being exported to neighbouring countries and sold there.

“Though it is deregulated and the government does not subsidise it, why would they not be able to monitor the distribution that they have to move to neighbouring countries? Something is wrong. We need to tighten control on it.”

He urged the government to look at the port charges and taxes on aviation fuel and see if it could be suspended temporarily, pending when the price returns to normalcy. He added that it was risky to continue waiting for Dangote Refinery to start operations, noting that there must be a way to address the problem without delay.”

Ticket hits N150,000

Meanwhile, the cost of an economy ticket for an hour flight on domestic routes has increased by about 400 per cent in less than five months. It rose from about N30,000 in February 2022 to about N150,000 as of Saturday. This has been tied to the high cost of aviation fuel.

Although the latest cost varied among various airlines, findings showed that the few surviving domestic carriers had raised the price of air tickets to match the rise in the cost of aviation fuel.

As of 9am on Saturday, it was observed that the airfare for the 12.45 pm flight to Lagos from Abuja on Nigeria’s largest commercial airline, Air Peace, was put at N150,000, while that of 5.35 pm went for N100,000.

For MaxAir, the 7.20 am Sunday flight ticket from Kano to Lagos went for N130,000, while Lagos-bound flight tickets from Abuja on Saturday were sold at N90,000.

The rates, however, differed on some other routes, as Ibom Air’s 6 pm flight ticket on Saturday from Abuja to Uyo, for instance, went for N86,000.

Airline operators justified the jump in airfares, attributing it to the hike in aviation fuel, which accounted for about 60 per cent of the cost of operations of an aircraft.

This, according to them, had also caused lamentations among air travellers and led to a drop in the passenger volume lately, as they expressed fears of more airlines’ failures and a possible collapse of the industry if nothing was done urgently to salvage the situation.

Iyayi analysed how a commercial aircraft consumes fuel and what operators spend on fueling their airplanes for an hour flight.

He told one of our correspondents that most carriers in Nigeria were currently struggling to survive.

He said, “It is possible for aviation fuel to cause a jump in the cost of air tickets and the reason is very simple. Fuel as a component of the operation is about 40 to 60 per cent of the cost of operating an aircraft. So when you take a flight that will last an hour, for instance, a Boeing 737, the fuel it burns is about 2.5 tonnes an hour.

“If you translate that into litres, you’re talking of 104,000 litres. At the current rate of fuel being N1,000/litre, what that essentially means is that an airline must sell tickets to cover the cost of fuel, which will be approximately N4.5m for that particular flight.

“So at N4.5m, if you are selling at N100,000 you will need to sell 45 seats to even cover that cost alone. That is not talking about the maintenance reserves, crew cost, insurance and all other factors that you need to consider for your cost of operations to be covered. Therefore, if you look at it from the perspective of just fuel, what you have are airlines struggling to even cover their cost. There is no margin left.”

He said if the charges to be paid to the various agencies and regulators were added, the fate of the airlines could best be imagined.

He added, “You need to also know that five per cent of whatever revenue they make goes to the NCAA. Essentially, we are saying that even before an airline starts operations, it is already struggling. Hence, airlines cannot continue to sustain losses for all the other agencies and service providers to thrive in the industry. This has been the situation in the last decades.

“The truth is that airlines are operating in the most difficult and hostile environment in the Nigerian landscape.”

Also commenting on the situation, another major operator in the domestic air transport business berated the Central Bank of Nigeria for failing in stabilising the naira against the dollar.

“If you were buying fuel at N200/litre and all of a sudden you start buying it at N900 to N1000/litre due to the crash in your local currency, will you be happy with your Central Bank?” the operator, who spoke anonymously due to the sensitive nature of the matter, asked.

The airline operator added, “If the system gets better, then the cost of tickets would drop. But for now, that’s what you get if you must fly a safe aircraft. The CBN, the Federal Government and the Petroleum Resources Ministry must answer questions and tell us how they want to help address this concern.”

The umbrella organisation for the country’s domestic carriers, Airline Operators of Nigeria, had attributed the crisis in the sector to the high cost of JetA1 and the difficulty in accessing foreign exchange required for the business.

Another aviation expert and President, the Association of Foreign Airlines and Representatives in Nigeria, Kingsley Nwokeoma, said there were fears that another domestic carrier might suspend operations soon.

He added, “Of course, we saw Aero’s coming and it happened. We also saw what happened to Dana. The question is who’s next? Apparently, when we have issues and everybody is trying to work around staying afloat, there is the tendency that safety might be compromised.

“From last year to this year, we have been having this price increase in airfares, moving from N30,000-plus to over N50,000 and now about N100,000. Now, who is going to fly?

“The flying public will have to look for alternatives. So the government needs to sit down with the carriers if we are to still have a domestic aviation sector because the average man can’t afford these tickets. That’s the truth.”

He, however, stated that the price hike in air tickets was justifiable, as the major component in the air transportation business had also skyrocketed in cost.

The AFARN president added, “Aviation fuel is the major component. So, if you don’t have fuel, you can’t fly. The fuel price is going astronomically high and that means it will reflect on the tickets. So it’s a serious situation that we have here, just like Allen Onyema (Chairman, Air Peace) said during the Nigeria Aviation Conference.”

Nwokeoma added, “He (Onyema) said it might get to a point where we would not even have carriers flying, because if you are spending all your money on buying fuel, then what of the other components like maintenance, payment of salaries, training, etc.

“So it’s the situation that we have here and it might degenerate if the government does not sit down with these carriers and find the solution on how to manage this crisis, for we are not close to a crisis. We are in crisis already.”

Nwokeoma observed that though the government had been meeting with airlines on some of those issues, such meetings had yet to yield the desired results.

However, amid these challenges, the NCAA promised to ensure that the air transportation business remained safe.

“It is our core mandate to ensure that the aviation sector is safe and that is what we’ve been doing and will continue to do,” the spokesperson for the NCAA, Sam Adurogboye, told one of our correspondents.

A senior official at the Federal Ministry of Aviation stated that the aviation minister had made it clear that there was no immediate solution to the crisis in the sector though efforts were being made to address the challenges.

Passengers groan

Meanwhile, air passengers have been lamenting over the disruption to flight schedules in the last few days on account of the crisis in the sector. Visits by our correspondents to the domestic wing of the Murtala Muhammed International Airport Lagos and that of the Nnamdi Azikiwe International Airport in Abuja, observed huge crowds in the terminals, with many lamenting the postponement or outright cancellation of their flights.

Job loss looms

There are fears that the suspension of operations by Aero and Dana and the growing uncertainty in the sector may put about 8,000 jobs on the line. Some aviation analysts told Sunday PUNCH that it would be almost impossible for an airline that was no longer working to continue to pay salaries and retain its staff strength. Indications have therefore emerged that the troubled domestic airline industry may succumb to job losses.

This came amid an ongoing investigation of the financial health of some local carriers believed to be in crisis by the NCAA.

Findings show that unless the crisis abates, over 8,000 domestic airline jobs may be on the line.

According to industry analysts, a significant number of jobs may be lost in the event that one, two or three carriers go under.

Findings show that Aero currently has 730 employees, while Dana has over 820. Air Peace has over 3,500 workers while Arik Air has over 1,100 employees. The number of workers engaged by Max Air, Overland Airways, Azman Airlines and Ibom Air and Green Africa Airways has been put at over 3,000.

A former Managing Director, Associated Airlines, Alex Nwuba, said, “The crisis currently affecting the domestic airline industry may lead to the industry’s collapse if the government fails to tackle the issues.

“Also, some airline jobs may be lost if some of the carriers fail to survive this crisis. This is a major problem in our hands. The foreign exchange scarcity, JetA1 exorbitant prices, high taxes, among others are issues that may make the industry collapse or the sector succumb to major job losses.”

Nwuba, who is the President, the Aircraft Owners and Pilots Association of Nigeria, explained that the skyrocketing price of aviation fuel had negatively impacted on the costs of other components in the airline business.

He said, “Clearly, the costs in this business have completely gone out of control. Therefore what is an airline going to do? It has two choices: first, the airline is going to increase its revenues by increasing its charges to cover those costs or to ask themselves, can we continue in business because we are simply heading down the hill, which is what Aero has done.

“The second case is, while still contemplating that decision and already in a slide, the government says to a particular airline that ‘we do not think you can continue given these factors, so we will suspend your operation,’ as in the case of Dana Air.

“So, if the airlines go out of business or reduce their operations, they would have to also start to manage their costs and one of the ways in which they manage cost is to say we will lay off staff because that is one component of cost.

“This also has an adverse effect on the economy. If productivity is down, it is not just the airline that suffers, the GDP and all of the elements that make for economic growth are diminished. One person’s job loss is not that individual’s job loss. It is a loss to the family and the environment. Basically, the effect is not on the airlines but on the entire economy in view of the fact that we already have unemployment in very high numbers.”

Operators stated that currently in the domestic aviation space, the functional airlines were now few, including Air Peace, Ibom Air, Azman, Green Africa Airlines, Arik Air, Max Air, among others.

Emirates slashes flights to Nigeria over withheld $85m

Meanwhile, Emirates Airlines has said it will reduce its flights to Nigeria from August 15, due to its failure to repatriate the $85m it generated from the sale of ticket sales in the country.

The airline said it would be forced to reduce weekly flights from Dubai to Lagos from 11 to seven. It said it was constrained to take the action.

These were contained in its July 22 letter to the Minister of Aviation, Hadi Sirika, and signed by Sheik Majid Al Mualla, the DSVP International Affairs.

The letter explained that as of July 2022, Emirates had $85m of funds awaiting repatriation due to the non-availability of dollars in Nigeria and that the figure had been rising by more than $10m every month, as the ongoing operational costs of the airline’s 11 weekly flights to Lagos and five to Abuja continue to accumulate.

“We simply cannot continue to operate at the current level in the face of mounting losses, especially in the challenging post-COVID-19 climate. Emirates did try to stem the losses by proposing to pay for fuel in Nigeria in naira, which would have at least reduced one element of our ongoing costs, however, this request was denied by the supplier. This means that not only are Emirates’ revenues accumulating, but we also have to send hard currency into Nigeria to sustain our own operations. Meanwhile, our revenues are out of reach and not even earning credit interest,” the letter added.

The mega carrier said the funds were urgently needed to meet its operational costs and maintain the commercial viability of its services to Nigeria.