Airlines Move to Address High Airfares, Call for Downward Review of Taxes on Flight Tickets

Airlines Move to Address High Airfares, Call for Downward Review of Taxes on Flight Tickets

Chinedu Eze

Airlines operators have called on the aviation agencies like the Nigeria Civil Aviation Authority (NCAA) and the Federal Airports Authority of Nigeria (FAAN) to review the charges on tickets in order to bring down airfares, which according to them, has skyrocketed.

The operators said due to increase in the cost of aviation fuel, which is about 60 per cent of their operational cost, airfares have gone up in recent times. They therefore called on government agencies to review downwards the charges the airlines pay, which is about 15 per cent of the cost of flight ticket, insisting that airfares will be relatively high if airlines are to sustain their operations.

One hour flight, from Lagos to Abuja, for example, cost from N90, 000 to N150, 000, depending on when the passenger bought the ticket and which airline he chose to fly with.

THISDAY learnt that when the low season set in by early February, minimum cost of one hour flight went down to N60, 000 but with the increase in the price of aviation fuel, from N700/N800 per litre, to N1500 per litre about a month ago, the price of ticket had to reflect on the cost of aviation fuel and total cost of operation, hence the increase in fares.

The President/CEO of Topbrass Aviation Limited and senior member of Airline Operators of Nigeria (AON), Captain Roland Iyayi, said the review of taxes charged on ticket became pertinent because the cost of other variables fluctuates according to market forces, adding that what has remained constant are the aviation charges which had recently been reviewed upwards.

He frowned at the fact that since the past 40 years some of these charges were introduced, government has not thought about scrapping them to help the airlines, whose cost of operation is rising everyday due to the diminishing economy, as the exchange rate between the Naira and the dollar is ever on the rise.

Iyayi argued that if the agency like NCAA said that it earns revenue for recovery and not to make profit, it should reduce the burden on airlines, warning that if drastic action is not taken to save the airlines, they would go under in the face of outrageous cost of aviation fuel and other costs, including maintenance, insurance, spares and others.

Insisting that the charges are paid by passengers, he remarked that whoever pays the taxes will be paying at high rate because it is built on the ticket, which means that they contribute to the sum total of what passengers pay to travel and if the sum total of ticket cost is high, it would discourage many potential air travellers from travelling by air.

“It must be understood that when a ticket price is increased by a factor, there is a concurrent reduction in demand. That suppression of demand and consequent revenue loss is borne solely by the airlines. Whilst this is not an advocacy for abolishing the funding of the industry, it is a call for the immediate review of same for the growth of the industry. The position being advocated is for a review of the current structure to take cognizance of enhanced industry competition. Rather than the current ad volarem (percentile) structure, the industry should consider the adoption and introduction of a flat rate system as presently done by FAAN for its Passenger Service Charge (PSC). If done, airlines would then be able to unbundle their fares based on their business models and compete more on fares rather than capacity, thereby engendering affordability and growth,” Iyayi explained.

THISDAY learnt that Nigerian travellers pay 5 per cent ticket sales charge (TSC) and 5 per cent cargo sales charge (CSC) through the airlines. In addition to TSC and CSC, the Nigerian Airspace Management Agency (NAMA) collects from the domestic airlines navigational and terminal charges. Also, the Federal Airports Authority of Nigeria (FAAN) collects from the airlines passenger service charge (PSC) in addition to landing and parking charges and from both the domestic and international airlines, FAAN collects fuel surcharge of N300 per litre (this amount may have increased).

Iyayi regretted that the current structure that sustains the charges has evolved into a destructive competition mode in the industry, “and that explains why only four airports in the country account for over 80 per cent of the total traffic in the country.”

He noted the reason why the 5% Ticket Sales Charge, Charter Sales Charge and Cargo Sales Charge were introduced 40 years ago may not have continued to subsist, regretting that government had not revisited or even reviewed them to determine their continued relevance and applicability in the present structure of the industry.

“For a bit of context, aviation used to be subsumed into the Ministry of Transport as the Civil Aviation Department (CAD) in Marina then. The Federal Civil Aviation Authority (FCAA) had what is now the NCAA, FAAN and NAMA under one umbrella. At some point, the funding for the CAD was going to be cut, necessitating the sourcing of ‘other’ revenue streams for sustenance. The FCAA then under Dr. Harold Olusegun Demuren came up with the plan and introduced the 5% TSC on all airline ticket sales at the time for sustenance and survival. At that time, we had barely two million passengers annually in the country.

“Fast forward four decades later, the FCAA has been unbundled resulting in the creation of the NCAA, FAAN and NAMA as separate entities. We now have approximately 12 million passengers travelling across the entire aviation ecosystem annually. These government agencies besides the 5 per cent TSC still charge separate fees for various services provided to the stakeholders especially the airlines. The quantum of this 5% TSC has grown astronomically over the past decades without any commensurate increase in the quality of services or infrastructure provided for the sector. Meanwhile, the establishment Acts for these agencies of government specifically categorizes them as “Not-For-Profit” or simply put for cost recovery,” Iyayi said.

Further explaining the increase in airfares, former Chief Commercial Officer, Project Director, Green Africa Airways and currently Associate Partner, Aviation Partners Africa, United Kingdom, Obi Mbanuzuo, said fares have gone up because costs have also gone up.

“Fares have gone up because costs have gone up, and fares will continue to rise until there is an equilibrium between demand and supply. When demand reduces, airlines can either reduce fares or reduce operation to ensure positive outcomes. That is a discussion between consumer and provider!” he said.

The operators also stated that airline revenues have plunged precariously between January and now.

“It’s a leading indicator that severe travel fatigue has set in, just alerting all of us to this reality. Maybe we need to experience the potential consequences of this for everyone to understand that it is the airlines that drive nearly all revenue in the industry. I’m talking 95 per cent (except for the small revenue of General Aviation which cannot keep the industry’s lights on). Without the airlines, every associated business will collapse,” the operators warned.

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