Govt must address multiple taxation to save aviation industry- Aero Contractor CEO
Onome Amuge
Ado Sanusi, MD/CEO, Aero Contractors Company of Nigeria Ltd
The onset of November signals the approach of the holiday season, but the domestic aviation industry in Nigeria is facing a challenging time, with high airfares putting a damper on holiday travel.
In contrast to previous years when travel agencies enjoyed high patronage during this period, the skyrocketing cost of domestic air travel has put a damper on holiday travel plans.
The high cost of air travel has forced many Nigerians to abandon the skies in favour of traveling by road, despite the risks and prolonged travel times associated with ground transportation.
Statistics indicate that the number of passengers choosing air travel has been steadily declining due to the exorbitant cost of airfares. The situation has negatively impacted the earnings of domestic airlines, raising concerns among industry stakeholders.
These concerns were further highlighted by the recent Transport Fare Watch released by the National Bureau of Statistics (NBS).
The NBS reported that the average airfare for specified routes in Nigeria rose by 0.80 percent from N123,593.45 in August 2024 to N124,693.40 in September 2024.
In comparison to the previous year, the airfare has increased by 57.81 percent from N79,013.48 in September 2023.
A closer analysis of the NBS data showed that airfares varied across different states in Nigeria.
The Federal Capital Territory (Abuja) had the highest airfare at N129,600, closely followed by Anambra and Oyo, with average airfares of N129,045 and N128,928, respectively.
At the other end of the spectrum, Zamfara recorded the lowest airfare average at N96,969, followed by Ekiti at N120,555.37 and Kano at N121,626.57.
On a regional basis, the South-West geopolitical zone had the highest average airfare among the six zones in Nigeria during September 2024. The average airfare in the South-West region stood at N126,013.30, representing a 1.81 percent increase from the previous month and a 59.82 percent rise from September 2023.
The South-East geopolitical zone recorded an average airfare of N125,881.64 in September 2024, representing a 60.95 percent increase from September 2023 and a 0.19 percent monthly increase from August 2024.
On the other hand, the North-West geopolitical zone recorded the lowest average airfare, with an average fare of N120,731.25 in September 2024, representing a 1.01 percent monthly increase and a 52.59 percent increase from September 2023.
The NBS report indicated that various factors have contributed to the upward trend in air travel costs across Nigeria.
A comparison of domestic airfares by Business a.m. has revealed a substantial increase in ticket prices over the past year.
For instance, a one-way economy class ticket from Lagos to Abuja on popular airlines such as Air Peace, Ibom Air, Green Africa, and ValueJet, which cost between N50,000 to N65,000 in the past year, now ranges from N130,000 to N220,000, depending on the airline and travel date or time.
According to analysts, increased demand, currency fluctuations, rising fuel prices, and seasonal variations have all played a role in the rise of airfares. In addition, limited infrastructure upgrades and the high cost of living are seen to have further exacerbated the situation, leading to decreased disposable income for many Nigerians and a resulting decline in air travel.
The sharp increase in airfares has also been attributed to a range of factors, including a shortage of aircraft and a decrease in flight frequency.
Reports indicate that more than half of the domestic airline fleet is grounded or stranded in maintenance facilities abroad, resulting in a reduction in flight capacity.
With fewer aircraft in operation, airlines have been forced to reduce their flight frequencies to match their reduced capacity. This situation has compounded the difficulties already faced by the aviation industry, with airlines struggling to maintain profitability and remain financially viable.
Jeffrey Okougha, a prospective passenger who was scheduled to fly with Air Peace from Lagos to Abuja, expressed his concerns about the high cost of air travel and urged the federal government to address the issue.
Speaking with Business a.m., Okougha called on the need for the government to simplify regulatory processes, which he believes are contributing to the high cost of airfares. He urged the government to work closely with the airlines and other stakeholders to identify and implement solutions that will make air travel more affordable for Nigerians.
Okougha also stressed that reducing operational costs for airlines is essential to achieving sustainable and competitive airfares for passengers.
He also called for closer collaboration between airlines, travel agencies, and government bodies to develop strategies that would balance affordability and service quality.
Ado Sanusi, managing director and CEO of Aero Contractors of Nigeria Ltd.,in a recent interview, identified multiple taxation as one of the key challenges facing the aviation industry in the country.
Sanusi noted that unless the issue of multiple taxation is addressed, the aviation industry will continue to struggle to operate efficiently.
“The federal government must have a deliberate policy to protect the aviation industry and to allow it to grow organically, so that it can be sustainable, and all those impediments that cost the growth and sustainability should be removed by policy making, and sometimes by waivers of taxes and making the environment sustainable for business,” he said.
The former director general of the Nigerian Airspace Management Agency (NAMA)
pointed out that the aviation industry in Nigeria faces a unique challenge due to the heavy reliance on dollar-denominated transactions.
According to him, the vast majority of expenses in the aviation industry are denominated in dollars, including lease rentals, repairs, consumables, and other essential components of airline operation. He emphasised that even though some expenses, such as salaries for pilots and mechanics, are paid in Naira, the industry’s heavy reliance on dollar-denominated transactions creates a unique set of challenges.
Sanusi further explained the impact of currency fluctuations on the aviation industry, highlighting the losses incurred by airlines due to the Naira’s volatility against the dollar.
The Aero Contractors chief noted that when an aircraft is taken outside the country for maintenance, the cost of maintenance in dollars can increase substantially if the Naira depreciates against the dollar during the maintenance period.
The increase in maintenance cost, he explained, can lead to substantial losses for the airline, as they are forced to pay more Naira to cover the same maintenance bill in dollars.
Sanusi made it clear that he does not believe in the concept of subsidies and that the government should focus on creating a conducive environment for businesses to thrive.
He highlighted the impact of a weak economy on the aviation industry, with high interest rates and inflation directly affecting the industry.
According to Sanusi, a stable economy would lead to stable prices for commodities, including airfares. He added that the root of the problem lies in the economy and that efforts should be made to address the underlying issues in order to create a sustainable aviation industry.
“So the main thing is not subsidy, but getting the right policies in place to make sure airlines thrive. For instance, give us a policy of cancelling this double taxation that most airlines are saddled with because they are paying a lot of taxes to the federal government. They are expected to pay taxes to the parastatals and the parastatals are struggling. The airlines are struggling, which makes it a vicious cycle,” he pointed out.
Sanusi argued that the current practice of taxing airlines to fund aviation parastatals has not been effective in improving the industry’s infrastructure or services.
He stated that the practice has been tried for many years without any significant improvement, and suggested that the government should find alternative sources of funding for aviation parastatals rather than relying on airline taxes.
Sanusi advocated for a reduction in the tax burden on airlines, emphasising that a tax break will help the airlines to become more financially stable and ultimately improve the overall performance of the industry.
The Aero Contractors CEO underscored the need for a more rational and cost-based approach to taxation in the aviation industry, where taxes should reflect the financial health of the airlines.
He also underscored the importance of domesticating insurance in the aviation industry, explaining that this will help reduce the insurance costs borne by airlines.
Sanusi stressed the importance of policy changes by the federal government to support the growth and stability of the aviation industry.
According to him, if the federal government can introduce policies that reduce taxation, remove customs duties, localise insurance, and encourage leasing companies to operate in Nigeria, this would provide a much-needed boost to the industry. This, in turn, would help the airlines thrive, and lead to more affordable airfare pricing and a sustainable aviation sector in Nigeria.
