PHILLIP ISAKPA IN LONDON & SADE WILLIAMS IN LAGOS
Airline passengers have been given the strongest hints yet to brace up as flying is set to become more expensive, Business a.m. can report today from a raft of statements and policy that have emerged in recent times from the United Kingdom and Nigeria.
In the UK, Luis Gallego, chief executive officer of International Airlines Group (IAG), the owner of British Airways, Aer Lingus, Iberia, LEVEL, and Vueling, said rising airfares could become even more expensive, noting that the need for sustainable aviation fuel (SAF) could become a key factor in significantly increasing ticket prices.
Domestically in Nigeria, ticket prices have risen significantly owing to different dynamics within the local economy which have seen inflation hit 34.19 percent in June, the tanking of the local currency (naira), rise in the cost of aviation fuel, as well as rises in the general costs of operations of Nigerian airlines.
Now, airlines’ cost rises are set to escalate even higher following last Friday’s policy hint by the Nigerian Airspace Management Authority (NAMA) that it plans to increase air navigational charges by as high as 800 percent from September 1.
When the planned increases come into effect ticket prices are primed to hit the roof as they automatically reflect the new charges by MAMA with passengers likely to pay higher than the N150,000 to N200,000 that are the current cost of a one way economy ticket.
Umar Ahmed Farouk, managing director, NAMA, revealed the proposed navigational price increases in a keynote presentation during the 28th annual conference of the League of Airports and Aviation Correspondents (LAAC) in Lagos.
He said: “The new unit rate/minimum charge for en-route is N18,000 from N2,000 per flight while the new unit rate/minimum charge for Terminal Navigation charge (TCN domestic) is N54,000 from N6,000 per flight with effect from the 1st of September, 2024.
“Also, the extension of hours of service is to be reviewed from N50,000 to N450,000 per extension to enable the Agency recover the cost of diesel and other logistics during the period of extension,” Farouk added.
In Farnborough, United Kingdom, International Airlines Group’s Gallego, in an interview he granted at the Farnborough Airshow’s Airline Leader Summit 2024, said: “Flying is going to be much more expensive. As a result, all of us are trying to talk to the [UK] government to make some plans to improve the efficiency of our airlines through transformations and innovation. In the end, what we want is to offer our customers the lowest price.”
Gallego explained that the UK and Europe in general have few sustainable aviation fuel (SAF) plants, noting that there has been a lack of investment in such plants in the region because of the need for a certainty mechanism for revenue, which has led to importation of most SAF from the United States.
On its part, IAG disclosed that as of December 31, 2023, it had made $1 billion in total investment in sustainable aviation fuel with 86 percent of the amount representing future commitments based on assumed energy prices.
“We are importing SAF from the United States because we want to comply with the objectives that we established in the past. For example, in the case of IAG, we said that in 2030, we are going to use 10% of SAF in our flights. So for that, we need SAF,” the IAG chief executive officer said.
He further stated that the sustainable aviation fuel (SAF) that is available presently is very expensive, and disclosed that IAG, which owns British Airways, Aer Lingus, Iberia, LEVEL, and Vueling, has a standing agreement with the carbon transformation company Twelve to secure one-third of third-generation SAF for 10 percent of the amount needed by 2030 for the airline group.
The last few years have seen legacy and low-cost airlines raise their ticket prices across Europe making flying more expensive, but bets are now on that this might not be the end of increasing ticket prices.
In Nigeria, speaking to the conference’s main theme, “Aviation Survivability amidst a Challenging Macro-Economic Environment”, NAMA’s Farouk lamented that his agency’s navigational charges have remained the same since June 2008, despite the astronomical increase in the prices of tickets, diesel and others, adding that “If NAMA is to survive and continue to guarantee safety and efficiency in the airspace it must ‘breathe properly’ by aligning its charges with current reality.”
According to him the largest percentage of the agency’s revenue comes from en-route navigation charges (domestic and international flights) and terminal navigation charges (domestic and international flights), noting that as a service provider and in accordance with international best practices, NAMA does not make profit.
For 2023, Farouk said, NAMA had an expenditure of about N21 billion in personnel costs alone and spent over N12 billion in capital costs and over N10 billion in overhead costs, noting that these were funded from fees and charges without any federal government budgetary allocation.
“NAMA has been charging as low as N11,000 per flight when a one-way domestic ticket cost only N16,000. While ticket prices today have gone up astronomically to as high as between N150,000 and N200,000 for a one way economy ticket owing to the prevailing economic circumstances, NAMA’s navigational charges have remained the same since June 2008,” Farouk explained.
He also disclosed that NAMA charges N50,000 for every hour that it has extended services beyond the stipulated hours of service at aerodromes that do not have 24 hours service, and noted that in 2008 a litre of diesel was sold at around N113, but that today it is well over N1,400 per litre, which represents over 1,000 percent increase making the current charges unsustainable.
“Currently, our unit rate for international flights for service provision is about $70, domestic flights are charged 6,000 naira. While NAMA recognises the difficult economic environment aviation operates in Nigeria, it is equally a part of the ecosystem,” the NAMA chief executive said.
Sustainability is yet to gain much prominence in aviation discourse in Nigeria, especially in relation to net-zero carbon emissions, but the country often follows developments shaping the industry globally even when it arrives late to the table. Sustainable aviation fuel for the industry has been a major topic since concerns about climate change and carbon emission took hold on the world.
British Airways owner, IAG, says it has mapped out a sustainability strategy especially with the aviation industry pledging to achieve net-zero carbon emissions by 2050.
The pledge was made following a resolution committing member airlines of the International Air Transport Association at the 77th IATA annual general meeting in Boston, United States, on 4 October 2021 to achieve net-zero carbon emissions from their operations.
IAG sustainability strategy was laid out in 2019 with key actions to meet these goals revolving around fleet renewal; SAF usage; carbon offsets and removals; as well as supplier engagement and innovations.
It said aircraft renewal and the use of sustainable aviation fuel will play the biggest roles in achieving net-zero carbon emissions by 2050. With new-generation aircraft consuming between 15 percent and 40 percent less fuel than their old-generation predecessors, IAG plans to invest €12 billion ($13 billion) in new aircraft from 2023 to 2030, which will result in 178 new generation aircraft in its fleet. It is estimated to currently operate a combined fleet of 664 aircraft.
