Economic woes: Nigeria’s aviation sector faces imminent collapse

…as passenger load factor falls below industry’s break-even level

A major slump in local airlines Passenger Load Factor (PLF) has plunged the Nigerian aviation sector into a severe revenue crisis, the worst since the COVID-19 pandemic period, Business Hallmark findings have revealed. According to Wikipedia.org, Passenger Load Factor, or simply load factor, is a metric used to measure the capacity utilization of public transport services like airlines, passenger trains, and intercity bus services.

It is generally used to assess how efficiently a transport provider fills seats and generates fare revenue.

Faced with soaring operational costs, including an increase in the pump price of aviation fuel, forex-induced inflation in the prices of maintenance parts, multiple taxation, and many other challenges, airlines’ managements had resorted to raising airfares to absorb and cover operational expenses.

Also, as part of strategies to increase revenue, domestic airlines had last year increased the number of flight seats on their aircraft to allow for more passengers.

The National Bureau of Statistics (NBS) in its latest 2024 Transport Fare Watch released in June, put the average fare paid by air passengers for specified routes single journey at N89,432.43 in May 2024, showing an increase of 0.27%, while compared to the previous month (April 2024). On a year-on-year basis, the fare rose by 19.32% from N74,948.78 in May 2023. The report for June is still being awaited.

However, checks by BH from Monday, July 8 to Friday, July 12, 2024, showed that the average airfare for a single trip from Abuja to Lagos was around N175,000. The same situation applies on other routes, with a one-way Lagos – Kano ticket selling for as much as N195,275.

In some instances, flight tickets bought 24-48 hours prior to departure go for as much as N200,000. For instance, an Abuja-bound air passenger, who spoke to BH at the local wing of the Murtala Mohammed Airport, General Aviation Terminal (GAT), Saheed Ariyo, claimed he bought a ticket for N191,000 to fly an early morning Air Peace scheduled flight to the Nnamdi Azikiwe Airport in Abuja. Other passengers, who agreed to speak on the exorbitant air fares, said they paid between N189,700 to N203,000 for the same trip on different airlines.

The decision by airline owners to constantly review upward the prices of their tickets, our correspondent learnt, has prompted many Nigerians to adopt several cost-saving measures, including cutting down on travel frequencies and embracing cheaper travel options, leading to low patronage for airlines.

Some of the newly embraced travel options by Nigerians, BH findings revealed, include traveling by road and rail. It was reliably gathered that many companies and individuals had in the last one year cut down on air travel to save costs.

Speaking recently to our correspondent in Lagos, an employee of a leading traveling agency in Ikeja, Lagos, said its management decided to convey members of staff to its annual retreat held in Akure by road.

“Our chairman is from Ondo State and he normally takes the company’s yearly retreat to Akure to promote his home state.

“Last year, he struggled to convey the over 100 participants to Akure by air, paying N140,000 on each participant’s return ticket. Air tickets alone cost the company about N16 million to ferry her workers to and from Akure. In all, over N25 million was spent on the retreat.

“This year, however, the management decided to award the ferrying of staff to a popular transport company, which took the workers to Akure and back to Lagos at the end of the 3-day event.

“I learned it cost the company about N5.2 million for the two-way trip. The sum of N40,000 each was paid for the 110 passengers, totaling N4.4million, while the balance of N800,000 was for the 20 mobile policemen that escorted the workers to Akure and back”, the source, who did not want his identity revealed, confided in our correspondent.

Several other companies, institutions and government agencies, it was learnt, are also adopting ingenious means of circumventing the rising costs of flying. A branch manager of an insurance company based in Lagos, who demanded to be identified only by his first name, Chuka, told our correspondent that his firm decided to use the train to convey selected staff to its biannual workshop, which was held in Ibadan recently.

According to him, the feasibility of using train to convey staff to Ibadan was discussed at the firm’s planning committee’s meeting.

“A sub committee was then set up to work our the modalities. The committee met with the management of the Nigerian Railway Service (NRC), which agreed to release two coaches to convey our members to and from Ibadan at a much reduced price of 30%, when compared to what it would have cost the comply to fly”, Chuka enthused.

Apart from embracing alternative means of transportation, many Nigerians, both individuals and businesses, have also cut down on journeys, limiting it to the most essential ones. Also last, a retired army general, who wanted to visit a bereaved relation in the East, canceled the trip, when he learned that it would cost over a million naira for a return flight covering him and his wife. He had to send a younger sibling by road.

While Nigerians are savouring the advantages of adopting other means of transportation apart from air travel and are daily embracing them, airlines on the other hand, are counting their losses, as fewer passengers mean lower revenue for them.

The development, some worried airline operators told our correspondent, could soon lead to the shutdown of operations if not urgently addressed.

“Planes have to fly regardless of how many tickets are sold. Therefore, empty seats mean lost revenue.

“If passenger load factor (PLF) falls below a certain level, airlines lose revenue. If the problem persists, they could eventually go out of business.

“On the other hand, raising the PLF is like getting free money as extra seat sales guarantees a boost to profits. However, the reverse is what we (airlines) are experiencing.

“Most airlines have lost a large chunk of their passengers, thereby forcing them to reduce the number of trips they make daily.

“As a result, we now incur huge losses in the form of mandatory fees like salaries and allowances of workers, operating license fees, irrevocably payments on leased aircraft, parking fees, aircraft maintenance costs, and others”, a top executive of a struggling local airline confessed to BH.

Findings revealed that capacity has dropped by 70 per cent, as the biggest carrier, Air Peace, that hitherto operated about 100 flights a day, has reduced its operations to about 36 flights, while some airports that receive four flights daily now receive one flight or none.

For instance, Rano Airlines, which started commercial operations in 2023 with five Embraer aircraft with a capacity of 50 passengers per plane, now has only one aircraft still operating, a source in the aviation industry confided in BH.

Other sources disclosed that the unutilized aircraft have been taken over by the leasing company that gave them out to Rano Airline owned by Kano-born billionaire, Abdullahi Rano.

This newspaper also learned that apart from trips to Abuja and Lagos, which have been reduced to about half, domestic airlines now operate only one flight to major cities across the country, resulting in the underutilization of airports.

This has resulted in the closure of many routes with low traffic and no aircraft to patronize them. As a result of low bookings, flight delays have become regular occurrences with airlines moving forward schedules while waiting for elusive passengers to fill up their aircraft.

Many Nigerians affected by flight delays have come forward to share their ugly experiences while waiting to board their flights. A Port Harcourt-bound passenger from MMA2, who spoke to our reporter at the weekend, said he purchased a one-way ticket for the sum of N242,000 so that he can travel to the Garden City.

“I needed to be in Port Harcourt on Friday for a business meeting, so my secretary began the process of booking online on Monday.

“However, for three days, we were not able to get a ticket. On Wednesday evening, I decided to dispatch my personal assistant to the airport to look at the possibility of securing one for me.

“He came back in the evening with the information that he met an airline personnel, who advised that I should proceed directly to the airport on Thursday, my planned trip date, to get a ticket.

“On the D-Day, I went to the airline’s counter at the airport as instructed. At the booking booth I was directed to, I met a ticketing agent, who politely told me that all seats to Port Harcourt are fully booked, but that she can be of help.

“She then directed me to a staff of a government agency at the airport, who offered to get me a one-way ticket to Port Harcourt for N300,000.

“After a lot of haggling, we agreed at a reduced price of N242,000 instead of the normal N165 to N170,000. I have to pay up since there’s no other means of getting on the Port Harcourt bound plane”, the passenger, who begged for anonymity, disclosed.

BH reliably gathered that due to the scarcity of tickets owing to the reduction in scheduled flights to only one or two trips by airlines, the volume of demands for seats has outstripped the number of available seats.

Capitalizing on the scarcity, airline workers, it was learnt, have resorted to pre-booking tickets at normal rates, which they then sell to desperate Nigerians at a premium.

“That’s why you can hardly book tickets again on airline websites unless you start the process early. But if you wait until two days before your trip, I can say with confidence that your chances of getting a ticket at the normal rate are very slim or non-existent”, the source declared.

In an effort to beat the drastic decline in patronage, embattled airlines have entered into a pact amongst themselves, where passengers on sparsely filled planes are transferred to aircraft with the most filled-up seats going to the same destination.

Confirming the development, the Chief Operating Officer (COO) of United Nigeria Airlines, Mazi Osita Okonkwo, blamed it on the economic crisis the nation is currently facing and its negative effects on the aviation industry.

“Currently, aviation fuel has increased to N1,300 per liter or even more. Forex is over N1,500 for one dollar. So, if we are leasing aircraft, how do we pay for the aircraft, having paid for spare parts? In fact, the minimum cost of airfare should be $100.

“So, I don’t even see how you can fly for less than N150,000 and you will make profit. Anybody, who is telling you that he is making it is not telling you the truth. Once the cash runs out, you will start seeing operators parking their aircraft and some have done that already.

“Today, we had our other operators telling us they wanted to transfer their passengers to our aircraft because it does not make sense to fly 50 passengers in a 150-seat capacity aircraft. People are burning cash”, Okonkwo lamented.

Also speaking, the Chief Executive Officer of Geena Travels and Tours Ltd, Ndukwe Ginika Ogechi, blamed the low turnout of passengers on local destinations on the high costs of tickets.

“The aircraft on local destinations are barely full these days because people cannot afford the fares, yet these airlines have refused to reduce fares. I am not even sure they make a profit anymore as a result of low patronage.

“What these airlines do now is that they intentionally delay flights when they have few passengers on an aircraft. They can delay for an hour or two to enable them to merge passengers, who are supposed to be on the next flight with the aircraft on the ground.

“For instance, an airline that has a 12 pm flight but has just 50 passengers on a 200-seater aircraft may decide to delay the flight to 2 pm to enable passengers on 2 pm flight to join the 12 pm passengers, so they can have a fuller flight”, Ginika explained.