Domestic airlines cut fares below base price as weak demand, costly aviation fuel and bird strikes squeeze profitability and operations

Despite the increase of base fare to N200, 000 for one hour flight by domestic airlines due to the high price of aviation fuel, low demand has forced them to sell tickets below their base ticket price because many who hitherto travelled by air now shun the airports.

This was disclosed by the Chief Commercial Officer, United Nigeria Airlines, Adedayo Olawuyi, during an interactive session with the League of Airport and Aviation Correspondents (LAAC) in Lagos on Thursday .

Olawuyi said that despite the reopening of the Strait of Hormuz following a memorandum of understanding (MoU) between the United States and Iran, the price of aviation fuel, known as Jet A1, is yet to come down.

Although it is projected that such changes will come after three months at the global level, but two days ago, Dangote Petroleum Refinery reduced its gantry price for aviation turbine kerosene (Jet A1) to N1, 450 per litre from N1, 550 per litre following trends in the international energy market.

In reaction to price reduction, airlines now buy jet fuel at about N1, 700 per litre, which is relatively high, knowing that in February before the Middle East crisis, aviation fuel was N900 per litre.

Olawuyi explained that local market conditions have detached from global crude drops, forcing domestic carriers to rely on revenue management strategies just to remain solvent.

According to him, the current fuel regime is unsustainable when measured against current domestic ticket prices. While operational realities forced fuel prices to surge from N900 to N3,300 per litre earlier during the peak of global maritime disruptions, base airfares failed to hold due to consumer purchasing limits.

“The truth is, it’s not sustainable for us. Even when we paid up to N3,300 per litre, ticket prices did not grow by 300 percent, or even 100 percent in that case. We are still selling tickets for N120,000. Our prices went up, but they have been balanced out strictly by demand and sales dynamics.

“Everyone is trying to use advanced revenue management principles to extract the best yield possible, but market forces are aggressively in play.”

Olawuyi noted that while the broader domestic market appears to be experiencing a seat capacity constriction, with fewer total seats in active deployment today than in previous years; United Nigeria Airlines has bucked the trend by consistently adding capacity.

The Chief Commercial Officer lamented that bird strikes have severe disruptive impact in the operations of the airline.

By its aircraft acquisition and number of passengers it airlifts, United Nigeria Airlines has officially scaled to become Nigeria’s second-largest carrier. It carries an average of 120, 000 to 130, 000 passengers monthly. But the airline’s operations suffer hiccups due to bird strike which force the operator to ground some of its aircraft.

“We had a week in May where, for four consecutive days, we suffered bird strikes. Every single day for four days, we lost an airplane to a bird strike.

“The impacts vary, sometimes the radome (nose of the aircraft) is destroyed, other times objects go directly into the engine. When you lose four aircraft out of a fleet of nine in a row, the commercial fallout is massive,” he explained.

Olawuyi gave details of the severe immediate financial and brand penalties associated with these strikes to include instant revenue loss, operational penalties and long-term churn risk.

The airline urged the Federal Airports Authority of Nigeria (FAAN) to install advanced wildlife deterrence systems to manage bird migration seasons safely, warning that the industry cannot afford to wait for a major calamity before the issue is resolved.

On the airline’s operations, Olawuyi stated that future long-haul and regional expansion will favour a flexible asset strategy to mitigate capital expenditure risks.

“If you look at the global airline industry, roughly 50 percent of aircraft are leased and 50 percent are owned. We are adopting this open approach. If we decide to launch long-haul routes, we won’t just shell out $200 million upfront to purchase an Airbus A330 without proof of concept. We will dry-lease first to test the market, see if the concept works, and manage our financial capacity intelligently.”

Olawuyi also observed that that existing airport infrastructure needs expansion to meet the growing number of passenger movement, especially at the busy Lagos and Abuja airports.

“When you go there early in the morning between 6:00 AM and 8:00 AM, there are days it takes 15 minutes just to taxi out because five or six aircraft are juggling for the same restricted apron space.

“Limitation of resources is a major challenge. New airlines are coming up every day—whether it’s Kali, Caliphate, or Abuja—and everybody is fighting for the exact same infrastructure,” he added. (Arise News)