President of the Airlines Operators of Nigeria (AON), Professor Obiora Okonkwo, has said Nigerian airlines are absorbing a significant portion of rising operating costs to keep airfares within reach of passengers, warning that passing the full burden to travellers could hurt both the industry and the wider economy.
Okonkwo, who spoke during an interview session at the League of Airport and Aviation Correspondents (LAAC) conference in Lagos, said the cost of operating airlines had risen sharply in recent months, with operators facing pressures that could not simply be transferred to passengers.
He said the aviation business had never operated as a straightforward cash-and-credit business, noting that airlines had to manage their revenues across different fare categories and payment arrangements.
According to him, airlines also had to contend with seasonal fluctuations in demand, particularly during periods when passenger traffic traditionally falls.
“Look at the cost of tickets today. As an aviation reporter, you should know the components, the cost component of every ticket”, Okonkwo said.
He explained that airlines could sell seats on the same flight at different fares as part of the industry’s yield-management system, with higher fares helping to compensate for seats sold at lower rates and, ultimately, unoccupied seats.
Airlines do not keep entire ticket price
Okonkwo stressed that the headline price paid by a passenger does not represent the amount retained by the airline after taxes, charges and other components are deducted.
“For every yield any Nigerian airline is making today, that you buy a ticket for N350,000 to one destination, that’s not the cost of the ticket for us. At the end of the day, we don’t get more than N150,000″, he said.
He said yield management remained essential to the survival of airlines because operators had to balance lower, mid-range and higher fares while also accounting for seats that eventually remained unsold.
“That’s the rule. That’s the way it’s done. It’s a formula that is standard”, he said.
Okonkwo also maintained that airfares in Nigeria remained relatively low compared with many other markets, despite the operating challenges confronting local airlines.
AON sought temporary relief
The AON president recalled that airline operators had raised concerns about mounting cost pressures as far back as February and March, warning that the situation would have a significant impact on operators.
He said the association had advocated temporary measures that would enable airlines to withstand the pressure rather than immediately passing the full cost to passengers.
According to him, the Federal Government subsequently granted a 30 per cent waiver on legacy debts, while discussions were expected to continue on other outstanding issues.
Okonkwo said the anticipated meeting between airline operators and President Bola Ahmed Tinubu to address some of the industry’s concerns had yet to take place.
He argued that immediately transferring all the additional costs to passengers would create a bigger burden for consumers and ultimately affect the economy.
“The only alternative is to apply all these effects from day one on our passengers. And when you do that, the country, the government and the people will suffer more”, he said.
Capacity expansion signals sector growth
Commenting on the recent increase in airline capacity and the addition of more seats across Nigerian routes, Okonkwo said the development should be viewed as a sign of growing investor confidence in the aviation sector.
He congratulated Nigerian airline operators for continuing to expand despite the difficult operating environment, saying the increased capacity could translate into wider route coverage, more frequencies and improved services for passengers.
According to him, some government policies and greater stability in the currency market over the past year had also helped to create improved investor confidence.
“We have had stable currency in the last one year and this has gone a long way in creating some investor confidence”, he said.
Okonkwo said increased investment in aviation would enable airlines to serve more destinations and increase frequencies on existing routes, with benefits extending beyond passengers to the national economy.
“It will benefit both the passengers, the nation and the sector at large”, he said.