The airline industry, in common with all sectors outside the subsistence economy, has not escaped the downside from the slide in the oil price in Nigeria. Data on passenger numbers from the NBS (see chart) show y/y declines for both domestic and international movements at Lagos in H2 2015. For Abuja, in contrast, there were small increases for both categories. Cargo movements through Lagos, which dominates flows, fell by 3.3% y/y to 89.4 million kg. We expect the numbers for H1 2016 will be uniformly poor since the economy has moved into recession.
Cost-cutting will have reduced traffic. The FGN has taken a lead in this field and introduced a new travel policy to create an annual saving of N12bn. A number of airlines have withdrawn from the market in response to easing demand and the rocketing cost of aviation turbine kerosene (ATK) since the devaluation in mid-June.
IATA conservatively estimated the blocked funds of foreign carriers from ticket sales at the equivalent of US$600m in May. Even if they had all somehow been able to remit on the first day of the new regime on June 20, they would have taken a hit of about 40% on their fx purchases.
The local media has reported that Accra has replaced Lagos as the regional airline hub for sales of ATK and for overnight stays by cabin crews. The airlines in Ghana and the local regulators took a strategic decision to cut the retail price of ATK by 20%. We would expect Lagos to regain its hub status once normality is restored in the Nigerian macroeconomy.
