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Wheels Up But Still Waiting For Take-off; Business Travelers Continue to Drive Air Passenger Traffic

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Friday, November 17, 2017 /8:48AM /FBNQuest Research 

Today we turn our attention to Nigeria’s aviation sector. Trends within the industry are often regarded as a sound private consumption indicator. Following the recent exit from recession (as seen in the Q2 national accounts), air transport grew by just 0.1% y/y. The sector has suffered from relatively low patronage due to softer demand. However, business travel continues to drive air passenger traffic across the country.   

For domestic travelers, ticket fares doubled earlier in the year and have remained high. Passengers could then secure a return trip ticket for US$85 on the Lagos-Abuja route. However, the cost has now risen as high as US$175 on the current domestic providers (Arik Air and Air Peace). We expect even higher prices over the next month as we approach the festive season. 

High operational costs lie behind the increased ticket fares. To give one example, aviation fuel accounts for about 40% of operational costs. Industry sources indicate that the price of aviation fuel currently stands at N265/l. 

For international travel, fx sourcing issues had a severe negative effect on airline operators as they could not repatriate funds. Nigeria became less attractive for operators and a few airlines reduced the frequency of their flights. However, the CBN has managed to reduce the blocked funds to US$175m from the initial US$600m according to IATA.   

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Nigeria’s aviation industry has the potential to become a pan-African hub similar to Kenya. However, the infrastructural deficit within the industry will not permit. The three major international airports in the country are undergoing renovation and expansion. 

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