Increasing tariffs and charges as of struggling economy
Capt. Ado Sanusi, a one-time Managing Director of the Nigerian Airspace Management Agency (NAMA) and presently the Chief Executive Officer (CEO), Aero Contractors, in this interview with OLUSEGUN KOIKI, speaks on the recently suspended terminal charges by NAMA, airline sub-sector challenges and others. Excerpts:
Sir, just recently, the management of the Nigerian Airspace Management Agency (NAMA), announced the increase in the terminal navigational charges for the country’s aviation industry, even though it was suspended 72hrs later, as the former Managing Director of the agency, what do you say?
As the Managing Director of the Nigerian Airspace Management Agency (NAMA) then, when we started these terminal navigational charges, we did it solely on cost recovery.
This means we were putting an Instrument Landing System (ILS) in a particular place and the airlines will use it.
We planned to use it over the period of about four to five years. For instance, let’s say we spent about $2 million to $3 million to put the ILS and spread it over the period, then, we will look at the number of flights and incorporate a slight increase in the terminal navigational charges.
When the ILS is paid, we usually don’t increase the price again or we will reduce the price if we have not put another ILS again in other places to pay the price. So, all what we were doing at that time was on a cost recovery basis.
Having said that, we also at that time, approached the World Bank – NAMA and the Federal Airports Authority of Nigeria (FAAN), to see how we could do a staff audit and make sure that we had very lean organisations and ensured that we were very efficient staff-wise and we were not carrying a lot of unnecessary staff.
And the World Bank assisted us in that regard and we did staff audit and they were also instrumental in getting us packages for the staff that we were going to right size.
The problem I can see is that NAMA probably cannot fund its budget because of its costs. So, they have to look somewhere else to fund the budget like they have done.
On the other hand, they are now taxing the airlines. Now, any high pricing will reduce the number of air travelling because customers might seek alternatives and a more affordable means. This can result in decreased patronage of the airlines.
Additionally, it could lead to an increase in flight cancellation because airlines will not fly until they have a full house.
Overtime, it may also affect the overall reputation and trust of the aviation market, causing long-term customer dissatisfaction, which is what we already have now.
Airlines will face significantly higher operating costs, which could force them to increase ticket prices and this may lead to a further sharp decline in passenger numbers.
Passengers will have to travel only when they want to because the cost of air travel will be so high and it’s only for those that can afford it.
Besides, smaller airlines – carriers with just one or two aircraft and the ones with very tight profit margins, might struggle to stay in business because this may lead to bankruptcy among the airlines.
We are already operating at a very tight profit margin. So, any increase in our cost will eat up the profit and then this will lead to bankruptcy.
Now, as an airline operator, do you think the position of NAMA on the high costs of its operations for the planned increase was genuine?
Well, as time goes on, I think NAMA was supposed to be moving from diesel generators to solar power and other alternative costs to reduce their costs.
NAMA should be run as a business – they should be mindful of their costs. I do understand, of course, Engr. Farouk Umar, the Managing Director of NAMA, was right when he mentioned that the cost of diesel has increased, the cost of operation has increased, but there is what is called ‘know your customer affordability.’
I cannot now, as an airline operator, increase the cost of a ticket to N500,000 from Lagos to Abuja.
Part of the excuses given by NAMA was that between 2008 and 2024, airline operators have increased airfares from N16,000 to N200,000, while its navigational charges have remained the same within the period, can you say these increase in airfares by the airlines was justified?
For instance, when Aero Contractors was doing promo then at N5,000 or so for a one-way ticket, how much was a dollar to naira? What was the price for Jet A1? Those are the main drivers of ticket price – Jet A1 price and dollars.
Our economy is struggling and when economies are struggling, it is not the right time to increase taxes.
This is the time to cut taxes so that you can give relief to businesses. This is necessary so that businesses can thrive. This is the basic knowledge of how the ecosystem works in this environment. If the economy was thriving and the airlines were moving very well, then, you can increase charges as much as you can.
But, at a time airlines are struggling; Dana Air is out of service, Azman Air is equally out of service and all other airlines are struggling to survive, then you now increase the taxes, you are putting the final nail on the coffin. I think there is time for everything.
Sir, if the terminal navigational charges as proposed by NAMA had stayed, what do you think would have been the fate of the indigenous airlines?
If these charges had stayed as they were increased by NAMA, it might have led to some of the airlines operating on very tight margins to go bankrupt.
Secondly, if it was not well-managed, it might have eventually led to high prices of tickets, which would have caused a damage to the economy – the same economy that we are trying to recover, this would have reduced travels, including business travel, while the economic activities will also reduce.
As a former Managing Director of NAMA and now the CEO of Aero Contractors, how do you think this can be permanently addressed?
NAMA is in dire need of funding its budget and as a stakeholder, I think what the NAMA management should do, is to look inward, cut the costs of operations and maximise collection of the existing tariffs that we are doing.
Also, I think even if the management is going to increase taxes, it should be done moderately, not the proposed 800 per cent.
This doesn’t make sense to me. I think such an increase should be in a single digit and not double digits as announced by NAMA.
Also, we should look out of the box; NAMA has other sources of revenue that we can look at. Their source of revenue is not from the airlines alone. We are all in difficult times; the parastatals, airlines and other organisations.
So, we should not say because the parastatals have the upper hand of increasing charges unilaterally, we should be very careful when we increase taxes.
We might kill the airlines and when we kill the airlines, we might not even have the aviation industry again. What we did when I was at NAMA was to ensure cost recovery and not to fund a bogus agency.
