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Explainer: How naira depreciation is slashing airways’ income

Airways in Nigeria are grappling with a number of challenges, together with sky-high gasoline costs and absence of overseas trade, which they should purchase gasoline and spare components, keep their plane and generally pay for abroad coaching, amongst others.

BusinessDay’s findings present that when airways apply for {dollars} on the Buyers & Exporters foreign exchange window, it takes them between six to 10 weeks to get {dollars}, forcing a few of them to purchase on the parallel market or floor their plane pending when they can purchase at N440 to a greenback.

Airways are sometimes then pressured to purchase {dollars} at N770 to a greenback within the parallel market, simply to make sure they don’t have plane on the bottom.

For airways that can’t afford the black-market charge, they floor their plane over prices of upkeep or unavailable spare components. With fewer plane to hold out their operations, airways can solely function fewer routes and restricted turnaround operations.

Airline operators say this takes a toll on their operations and revenue margins, that are decided by the variety of flights they function.

“For the airline enterprise, the extra plans, the merrier for them. When there aren’t any plans on the bottom to satisfy surplus demand, the airline shall be dropping. No airline needs their plane on the bottom. It would impression their revenue margins as a result of so long as the enterprise is working, there are payments to pay to service suppliers, whether or not or not the airplane is working,” Olumide Ohunayo, an aviation analyst, advised BusinessDay.

Ohunayo mentioned whereas the airways are in search of foreign exchange, gasoline costs have continued to extend uncontrollably, impacting their revenue margins.

Ohunayo mentioned presently, the funds for overseas airways aren’t being remitted, placing strain on the naira tickets on the worldwide route.

He careworn the necessity for the federal government to handle the foreign exchange disaster within the nation and mitigate the continued rise in gasoline costs.

Obi Mbanuzuo, chief industrial officer of Inexperienced Africa, advised BusinessDay that whereas airways repair costs of tickets after contemplating variables akin to price of operation, degree of competitors, every particular person airline’s technique and the way a lot the market will pay, an airline shall be working at a loss if most of its plans are grounded due to foreign exchange scarcity.

Mbanuzuo mentioned if airways must pay extra for upkeep and spare components on account of the naira depreciation, it additionally means their revenue margins can be affected.

BusinessDay’s findings present that aviation gasoline at present accounts for about 45 p.c of working price; labor, 17 p.c; plane hire and possession, 8.5 p.c; non-aircraft rents and possession, 7 p.c; skilled companies, 4.5 p.c; touchdown charges, 2 p.c; meals and beverage, 1.5 p.c; upkeep supplies, 13 p.c, and transport associated, 1.5 p.c.

It was additionally gathered that over 50 p.c of those working prices are incurred in {dollars}.

Ibrahim Mshelia, proprietor of West Hyperlink Airways Nigeria and Mish Aviation Flying College, mentioned the autumn within the naira impacts the quantity airways purchase {dollars} to satisfy their obligations, and ticket costs must be adjusted upwards.

“Plane lease charge is often one p.c of the sale worth of the plane. That is often normal. So the charges are mainly inside the similar vary. Our drawback right here shouldn’t be actually a rise in lease leases however issue being skilled by the falling naira and shortage of the foreign exchange,” Mshelia mentioned.

He mentioned the shortage of the foreign exchange is a major problem for the business as all the things airways use to function, from the plane to crew coaching and retraining, is all dollar-based as a result of they’re imported.

“So the excessive naira trade worth to the greenback and shortage is an actual challenge. Components and upkeep undoubtedly have a share of the issues,” he mentioned.

Learn additionally: Airfares could hit N200,000 for Christmas as airways file full load issue

BusinessDay’s findings present that airways pay between $800,000 and $1m for scheduled plane upkeep outdoors Nigeria each 18 months.

Whereas upkeep prices haven’t elevated, airways have seen the naira-to-dollar trade charge transfer from N280 per greenback two years in the past to over N750/$1. This suggests that airways can be paying nearly triple what they paid for plane upkeep two years in the past on account of the trade charge. This additionally impacts plane leasing and leases.

It price about $3,000 to function a B737 plane on a one-hour flight when aviation gasoline was lower than N100 per liter about three years in the past. When the aviation gasoline elevated to N200 per liter, airways operated a B737 plane at a value of about $6,000.

BusinessDay’s calculations present that with the present trade charge and improve in aviation gasoline which at present prices about N800 per litre, airways function a B737 plane for over triple that quantity.

The typical gasoline consumption on a Lagos-Abuja flight takes not less than 8,000 litres, and at N800/litre, airways can be paying N6.4 million for gasoline alone, aside from taxes, employees fee, and repair costs, amongst others.

Which means for airways to understand the price of operations on a B737 plane carrying a median of N200 passengers, the airline must cost a median of N60,000 for every passenger on a one-way flight.

For airways that cost above N60,000 on tickets, a number of the realized income are sometimes transformed to {dollars} and used for different working bills.

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