By James Onipe
There is no doubt the aviation industry creates benefits to consumers and the economy by enabling the economic flow of goods and services, investments and speedy connections between cities among another boon.
According to a report published by International Air Transport Association (IATA) in June 2019 on the Value of Aviation in Nigeria, airlines and its supply chain including spending by foreign tourists are estimated to support US $1.7 billion of GDP. This account for 0.4 per cent of the country’s GDP. This sector is one of the drivers of economic growth.
The aviation industry worldwide is one of the hard-hit by the coronavirus pandemic. Hundreds of flights have been cancelled especially by international carriers. Some dramatically slashed flights because of the plunge in air travel demand. Nearly all airlines in Nigeria had announced a total suspension of revenue flights before the government announced the closure of airports in March. The longer the situation remains the more negative prospect it holds for the industry.
IATA expects global revenue loss of $29.3 billion of which it says Nigeria may lose $424 million as of March 2020. Aside from the damaging effect on the economy, airlines will see a sharp decline in the number of travellers when operations resume. This is because of decreased business activities within the country and international travel restrictions currently in force as the world battles the pandemic.
Passenger load factors (the airline term for the numbers of passengers on a flight which is the proportion of seats that are occupied) depends hugely on passenger traffic from inbound international flights which domestic airlines, in turn, distribute around the country.
To aggravate the situation, social distancing will take its toll and how that plays out on a commercial flight is not fully understood yet. This forecasted plunge in air travels portends a huge financial challenge for airlines as it mars revenue generation substantially.
What is the effect of poor load factor on these airlines? Airline economics are very complex. Most airlines in Nigeria charge fares which are purely for travels with little or no charges on other ancillary elements such as food, drinks or checked-in bag to a certain amount of weight. On the average, if an aircraft has 120 seats, 90 of those seats must be filled to break-even on a flight. This is not a one-size-fits-all as there are other conditions to satisfy.
Airlines are not going to see anything close to that performance in the coming days. What this means is that majority of flights are going to be conducted at a deficit. Many flights will require direct financial input aside from the standard cost of operation. Airlines are going to have difficulties paying leases and salaries, a situation which IATA says threatens over 90, 000 Aviation jobs locally. This is the reason many airlines will bleed to their demise if left to navigate these challenges without government intervention.
Some airlines around the world are already receiving intervention from their government. For instance, the united states had announced a $2 trillion Coronavirus bill last month, of this, $58 billion is expected to prop up the aviation industry. some percentage of these funds will go in as a grant while some will be received as loans. This support will keep airlines afloat. Airlines who benefit must keep flying with the proposed minimum service level according to the terms.
The Nigerian government must act quickly by setting up intervention funds for the Nigerian aviation industry to stay afloat as they will struggle with having to fly nearly empty planes in the coming days. This will prevent involuntary furlough of workers through a period of low air travel demand and save many jobs. The government must come up with a policy framework that dictates service obligations to participating airlines. Implementation must be tracked and monitored until all terms are met and recovery assured.
(James Onipe is an Airline Captain in Nigeria)