The aviation industry has experienced recent high-impact changes in the past eight (8) months than in the last three (3) decades. Historical figures, future trends, predictions, and estimations have been brought to a halt as a result of the novel coronavirus.
The industry has been hit severely as the full recovery in the industry has been estimated to be slow and may take up to about three years to perform in line with past trends. Although the industry rate of change is expected to reduce, industry stakeholders are expected to adapt to the recent disruption as it affects the current operating environment. According to the International Air Transport Association (IATA), 2020 will be the worst year in history for airlines globally as over 25 million aviation jobs and 100 million travel, and tourism jobs across the globe are at risk.
Other outcomes from the current economic situation affecting the global airline industry are highlighted below:
- Order cancellations of about 60 new aircraft stored at Airbus with no buyers insight
- In the heat of the pandemic, over 217 countries and territories worldwide imposed travel restrictions
- Over 5000+ aircraft were grounded worldwide
- Airlines entered business rescue and bailouts as revenue losses increased as a result of movement restrictions and grounded airplanes
- 2020 airlines’ passenger revenue is estimated to drop by 55% which is about $314 billion from 2019 recorded figures
- The industry is expected to lose about $252 billion in 2020
The Nigerian Economy and the Impact of the Disruption
In 2018, Nigeria’s aviation sector contributed nearly ₦150 billion to the Gross Domestic Product (GDP). The figure rose by 33 per cent to almost ₦200 billion in 2019. According to a 2020 report by the National Bureau of Statistics (NBS), Nigeria’s aviation sector recorded the fastest growth in activities compared to other transportation sub-sectors in the fourth quarter of 2019. However, with the advent of COVID-19 in 2020, alongside the closure of borders, restriction of movements and closure of all the airports within the country, activities within the sector suffered a sharp decline.
The crippling effect of the lockdown resulted in a massive loss of revenue suffered by the airlines and efforts to cut cost led to many downsizing efforts across board. In the heat of the pandemic, over 120 domestic aircraft nationwide were grounded, leaving operators with no income but recurrent expenses. According to Nigeria’s Minister of Aviation, Hadi Sirika, the sector has been losing ₦21 billion monthly since the outbreak of COVID-19. Also, the International Air Transport Association (“IATA”) projected that Nigeria’s aviation industry would have 3.5 million fewer passengers, resulting in a $0.76 billion revenue loss, risking 91,380 jobs and $0.65 billion in contribution to Nigeria’s economy.
Near Term Trend
Near term trends and impacts that would likely affect the industry include:
- Arrival and Departure Delays: Longer processing, boarding, and wait time to accommodate health screening for passengers, as well as luggage sanitisation resulting in arrival and departure delays.
- Increase in Air Travel Fares: To break even, operators would likely need to increase airfares. However, raising airfares will further weaken demand, and many smaller operators may be rendered obsolete.
- The Rapid Adoption of Automation (Technology): Increased automation to allow less interaction with airport personnel at checkpoints.
- A Decline in Revenue Generation: The nationwide lockdown, closure of borders, flight movement restrictions and the trickle of passenger traffic recorded after flight resumption all contributed to the decrease in revenue generated by airline operators. Airline operators are to weather this period by embarking on new ways to attract passengers to increase traffic and revenue.
- Changes in Operation Processes: In adherence to the post-lockdown guidelines, airlines have been required to change their processes, especially as it relates to their customers. The more optimised the process, the greater the impact realised
- Breach of Contractual Agreements Between Operators: Fallouts from non-operational period in the industry resulted in the cessation of revenue generated and breach of contractual agreements between operators, especially financial-based agreements.
- High Cost of Servicing for Abandoned Equipment and Airplanes: Grounded aircraft and abandoned equipment would result in substantial operational and financial losses for all operators within the industry.
- Credit Repayment and Insurance: Increase in foreign exchange rates and the absence of commercial operational activities would result in difficulties in credit repayment and insurance servicing for industry operators.
The Future of Aviation in Nigeria: Trends That May Reshape the Airline Industry
According to a recent survey conducted by Phillips Consulting (pcl.), the following insights were gathered, viz:
- 66% of our survey respondents say they will cut down flights to essentials
- 72% of respondents say they will prefer virtual to physical meetings going forward
- Initial travellers would be young people, family related travellers and then businesspeople
- Increase in health and safety standards at airport terminals
- Reduced physical interactions between passengers and airline/airport personnel
Expectations from our survey respondents revealed that passengers would value aircraft punctuality and timely departure, uncompromised safety standards, improved aircraft conditions, improved communications with staff, as well as a downward review of airfares.
Conclusion
As Nigeria lifts its ban on interstate travel, the operation of local commercial flights and international flights, require the intervention of the government to save the industry from going bankrupt. Furthermore, critical policies should also be implemented and enforced to ensure operators abide by global best practices. In light of this, key actors in the sector must explore innovative ways of restoring customer-confidence in air travel, which appears to be at an all-time low. Doing so would aid in the immediate economic recovery of air transport and will likely trail the wider economic recovery of the Nation.
Written by:
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| David E. Onochie
Senior Analyst |
Nnenna Eke
Assistant Consultant |
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