Wheels up but still waiting for take-off
Today we turn our attention to Nigeria’s aviation sector. Trends within the industry are often regarded as a sound private consumption indicator. Following the recent exit from recession (as seen in the Q2 national accounts), air transport grew by just 0.1% y/y. The sector has suffered from relatively low patronage due to softer demand. However, business travel continues to drive air passenger traffic across the country.
- For domestic travelers, ticket fares doubled earlier in the year and have remained high. Passengers could then secure a return trip ticket for US$85 on the Lagos-Abuja route. However, the cost has now risen as high as US$175 on the current domestic providers (Arik Air and Air Peace). We expect even higher prices over the next month as we approach the festive season.
- High operational costs lie behind the increased ticket fares. To give one example, aviation fuel accounts for about 40% of operational costs. Industry sources indicate that the price of aviation fuel currently stands at N265/l.
- For international travel, fx sourcing issues had a severe negative effect on airline operators as they could not repatriate funds. Nigeria became less attractive for operators and a few airlines reduced the frequency of their flights. However, the CBN has managed to reduce the blocked funds to US$175m from the initial US$600m according to IATA.
· Nigeria’s aviation industry has the potential to become a pan-African hub similar to Kenya. However, the infrastructural deficit within the industry will not permit. The three major international airports in the country are undergoing renovation and expansion.