Indications emerged on Sunday that domestic airlines were planning to raise airfares following a recent increase in aircraft leasing cost and insurance premiums by foreign-based operators.
International aircraft lessors recently classified Nigeria among “high-risk nations” in terms of doing business.
The total cost of leasing an aircraft, like the popular Boeing 737 Classis series used by domestic airlines in Nigeria, has increased by over 60 per cent, rising from the monthly lease rental of $120,000 to $200,000.
Airlines sources, who spoke under condition of anonymity, said the only option left for the operators was to “adjust their airfares to the prevailing costs of operation” caused by the upward review of the cost of leasing an aircraft by leasing and insurance companies abroad.
Although domestic airlines have yet to conclude by how much they are likely to raise their fares, sources close to the airline chiefs said the planned increase might be about 30 per cent.
The development, it was gathered, would raise economy fares for a one-hour flight to between N37,000 and N42,000, from the current average of N28,000 and N33,000 depending on the airline.
The proposed increase, which is still being examined critically by airline operators in view of the recent adverse effect of the Dana Air crash of June 3 on the flying public, is however being slated for implementation soon, sources close to the development told our correspondent on Sunday.
The development is coming on the heels of a recent increase in domestic airfares by airline operators by 20 per cent, from between N23,000 and N27,000 to between N28,000 and N33,000.
IRS Airlines, for instance, raised its fares from N25,000 to N30,000, while the largest domestic operator raised its fares from N27,000 to N33,000.
Aerocontractors Airlines is, nevertheless, still offering fares that are a bit cheaper for passengers who book and pay online.
Meanwhile, industry experts have said that the proposed increase in fares as a result of the rise in the cost of leasing airplanes by Nigerian operators is expected.
Reacting to the classification of Nigeria as a “high risk nation” to do business, aviation and aircraft insurance expert, Mr. Edward Young, said it “will become almost impossible for Nigerian airline operators to have airplanes leased into the country.”
Young, who is also the Chief Executive Officer of ED Aviation Consult, said the development might also signal the end of commercial aircraft in Nigeria’s airspace.
He said the prevailing insecurity in the nation as a result of the activities of the members of the Islamic sect, Boko Haram, and the volatile operating environment in the nation’s aviation sector might have been responsible for the recent classification.
“The development will lead to increase in airfares no doubt because airline operators have to match their fares with costs of operation. Airlines have been complaining of high airport and navigational charges.
“They have been complaining of high price of aviation fuel; foreign airlines now go to neighbouring countries to ferry fuel. With this latest development, airfare increase is imminent,” he added.
“The Nigerian government needs to wake up. It goes beyond setting up committees to examine airlines health. It goes beyond making policies that will not help domestic airlines such as setting 15 or 22 years as the minimum age of aircraft that could fly in the country. The government needs to act like its foreign counterparts by creating enabling environment for airlines to grow through facilitating access to single-digit interest rates; reducing airport taxes and making policies that help them to grow,” Young said.
Aviation expert and Head, Research and Statistics, Zenith Aviation, Mr. Olumide Odunayo, said the recent classification would worsen the problems of Nigerian airlines.
He said, “It increases costs of operation, which will reflect in high fares, scare foreign investors and commercial partners. When airports are not certified, agencies not insured and there are policies detrimental to competitive growth of local carriers or investors, you will undermine investor confidence in the economic and safety permutations.”
Major aircraft leasing firms are General Electric Capital Aviation Services, International Lease Finance Corporation, Cab Tree and Aercap, among others.
A major aircraft insurance firm in the world is Lyolds.
The primary competitor to GECAS is ILFC, but other companies, such as Aviation Capital Group, AerCap, Babcock, Brown Aircraft Management and RBS Aviation Capital are also active in the industry.
GECAS is the largest aircraft lessor in the world by fleet size, according to the 2005 Air-finance Journal Operating Lessor Survey.
GECAS is responsible for the leasing of aircraft and associated equipment to airlines. The firm buys aircraft from manufacturers, like Airbus and Boeing and leases them to airlines on three to five-year leases, usually on dry lease contracts. It also buys aircraft from airlines and leases them to others.