Nigeria: Analyst Predicts Weak Growth for Airlines

26 February 2021

Industry consultant and CEO of Aglo Limited, Tayo Ojuri has predicted that Nigerian airlines would record weak profit in 2021, due to the weakness of the marco-economy.

Ojuri said this in a telephone interview with THISDAY.

He identified three factors that would hinder the ability of the airlines to post healthy profit.

One of the factors he said was low government spending, which he said could reduce cash in circulation, predicting that less number of people would travel by air.

With low passenger traffic, the airlines would not enjoy high load factor so they won't break even in most of their routes, he forecasted.

Another factor identified by Ojuri was exchange rate, saying airlines would find it difficult to fund their operations, acquire spares, carry out training, which require dollars payment because they are done overseas.

The aviation consultant also expected that the devastating effect of the coronavirus pandemic would still drastically affect airline operations globally.

He noted that as long as air travel is still low in other parts of the world, domestic operations would correspondingly be low because international flight operations feed domestic service, as about 70 per cent of the passenger traffic on domestic destinations come from international traffic.

"COVID-19 is still not gone. The only people who are travelling now are people who travel for business. People don't travel for leisure and tourism, which means that passenger traffic is low.

"International travel feed domestic operations. In the next two quarters travel won't pick up. England, for example, is opening up in May.

"About 70 per cent of domestic passenger traffic comes from outside and these are businessmen who come to the country and use domestic airlines to travel to places. So if they are not able to come it will affect domestic passenger traffic,"Ojuri said.

Ojuri's prediction was in tandem with projections made by the International Air Transport Association (IATA), which stated that globally that the airlines would remain cash negative in 2021.

The latest new analysis released by IATA estimated that the airline industry was expected to remain cash negative throughout 2021, but previous analysis (November 2020) had indicated that airlines would turn cash positive in the fourth quarter of 2021.

The global body identified some factors as responsible for the new development and it includes weak start for 2021, noting that it is already clear that the first half of 2021 would be worse than earlier anticipated.

"This is because governments have tightened travel restrictions in response to new COVID-19 variants. Forward bookings for summer (July-August) are currently 78 per cent below levels in February 2019 (comparisons to 2020 are distorted owing to COVID-19 impacts)," IATA said.

However, IATA expressed optimism that from this lower starting point for the year, an optimistic scenario would see travel restrictions gradually lifted once the vulnerable populations in developed economies have been vaccinated, but only in time to facilitate tepid demand over the peak summer travel season in the northern hemisphere.

"In this case 2021 demand would be 38 per cent of 2019 levels. Airlines would burn through $75 billion of cash over the year. But cash burn of $7 billion in the fourth quarter would be significantly improved from an anticipated $33 billion cash burn in the first quarter," the body said.

"With governments having tightening border restrictions, 2021 is shaping up to be a much tougher year than previously expected.

"Our best-case scenario sees airlines burning through $75 billion in cash this year. And it could be as bad as $95 billion. "More emergency relief from governments will be needed. A functioning airline industry can eventually energize the economic recovery from COVID-19. But that won't happen if there are massive failures before the crisis ends.

"If governments are unable to open their borders, we will need them to open their wallets with financial relief to keep airlines viable," said IATA's Director General and CEO, Alexandre de Juniac.

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