Nigeria’s major carrier, Arik Air said high cost and scarcity of aviation fuel, inability to access FX are the major setbacks of its operation in Nigeria as it turned 10 years.
The Managing Director of the airline, Chris Ndulue explained that its daily demand of aviation fuel, known as Jet A1 is about 500, 000 litres and this is difficult to source due to the fact that the product is imported and urged government to do whatever is possible to refine the product locally.
Ndulue said the high demand of the dollar by the aviation industry is partly caused by the fact that aviation fuel is imported, adding that because Jet A1 contributes about 40 percent of the cost of airline operation, when the product is refined locally it would reduce the pressure on dollar demand and also reduce the cost of operation.
“Last one year has been challenging for the airline industry and for the nation’s economy. But it is more pervasive in the aviation industry because it is dollar dependent. 40 percent of operation cost is spent on fuel because it is import dependent and while the cost of fuel is low elsewhere because of the general low price of oil in the world, it is high in Nigeria. We urge government to do something about this,” Ndulue said.
He said that the airline intends to expand its operation farther in West and Central Africa, in Asia, including Middle East and South America, but noted that the airline is cautious about expansion because of the recession, so it would approach the programme cautiously.
“Next phase of our growth will be dependent on intercontinental routes and expansion in West and Central Africa. We will announce this later. We have to have a cautious approach to expansion because of the realities of the recession. Part of the impact of the recession is that expansion has to slow down, so we approach it with caution,” he said.
The Arik Air Managing Director said that safety and security are the hallmark of the airline’s operation and that it would continue to maintain the high standard into the future, adding that the airline’s fleet would continue to be serviced by Lufthansa Technic.
“We are doing maintenance with Lufthansa Technic and we have some Nigerians who are under training with them but we are partnering with the company over a long period. We still have subsisting contract with them for the next three years,” Ndulue also said.
In his speech, the Chairman of the company, Joseph Arumemi-Ikhide urged government to support domestic airlines, stressing that if not that Arik and Medview are operating to London the foreign carriers on that route would have blackmailed the Nigerian government by stopping their operation and insisting that government paid them all the monies from ticket sales, which they have not been able to repatriate.
“ So I call on government to support all the Nigerian carriers because these are Nigerian businesses that employed Nigerians and if they continue to do well they will continue to employ more Nigerians. The dollar would have risen to N800 per dollar if not for the fact that Mediview and Arik are operating international routes, especially to London. If government encourages more Nigerian airlines to operate international routes it will be good to our economy. So it does not pay Nigeria in an way when it favours foreign carriers to Nigerian airlines,” the Arik Chairman said.
Airline Profitability in Q3 Unchanged, Says IATA
The International Air Transport Association (IATA) has announced that surveys it carried out have indicated that projections on profitability of airlines have remained unchanged.
“When surveyed in early-October as part of our quarterly business confidence survey, airline CFOs (Chief Finance Officers) and heads of cargo reported that profitability was unchanged in Q3 2016 compared to the same period a year ago;
The results from October’s survey also showed that industry heads continue to expect very little change in profits over the next 12 months, consistent with signs that the industry profitability cycle may have peaked,” IATA said.
On the demand side, the world body said the responses were consistent with the modest moderation in passenger growth seen during most of this year to date, and were in line with an improvement in conditions for air cargo since early-2016, adding that expectations for volume growth over the year ahead remain positive for both the passenger and cargo businesses.
“The majority of respondents reported an annual decrease in operating costs in Q3 2016, helped in some cases by the recovery of currencies against the US dollar. But given that oil and jet fuel prices have trended slowly higher since bottoming-out in early-2016, most respondents expect input costs to increase over the next 12 months,” IATA said.
It noted that the outlook for input costs contrasts with expectations for yields and points to a more challenging profitability environment, adding that in a reflection of strong competition and the subdued economic backdrop, over 90 percent of respondents expect passenger yields to remain unchanged or to fall further in the year ahead. On the freight side, ongoing increases in freight capacity are expected to continue to weigh on freight yields over the coming 12 months.
IATA observed that airline employment activity increased for the seventh consecutive quarter in Q3 2016, butut respondents were more cautious about expectations for employment over the next 12 months than they have been in recent surveys.
“When surveyed in early-October, airline CFOs and heads of cargo reported that profitability was unchanged in Q3 2016 compared to the same period a year ago. The results were evenly balanced, with 42 percent of respondents reporting an increase in profits and 42 percent reporting a decrease. The spread of responses reflects the business environment becoming more challenging in the second half of 2016, with soft economic conditions, fuel prices trending slowly higher and unit revenues still under pressure. In general, financial performance is holding up best in North America, but is under more pressure elsewhere, including in Europe where terrorism impacts have weighed on operations,” IATA said.
