Domestic airlines ponder fare increase

Business News of Tuesday, 23 June 2015

Source: B&FT

Antrak Starbow AWALibrary Photo

Domestic airline operators are considering increasing air fares as the continuous depreciation of the local currency threatens their survival.

“We have not increased fares as at now, but the way things are going we need to increase fares to survive in the business,” Mr. James Eric Antwi, Chief Executive Officer of Starbow told the B&FT.

“Over 85 percent of our operations are dollar-based. All the spare-parts we order from abroad are dollar-based — cost of aviation fuel, insurance and spare-parts are now very high. We also pay duties on the spare-parts we import. We have spoken about this for government to waive the tax, but we are still paying.

“Assuming you pay insurance of US$200,000 per quarter, which was about GH¢600,000 when the US dollar to cedi was US$1 to GH¢3. Now with the US dollar to cedi being US$1 to GH¢4.2 you have to pay about GH¢840,000 per quarter. All these factors make our operations very expensive, and if we want to maintain and sustain our operations then we need to increase the fares.”

The depreciation of the local currency by more than 40 percent over the last 17 months has hit businesses hard, with investment advisory firm InvestCorp warning that without ‘broad-based solutions’ that strengthen private sector competitiveness as well as investment and capital protection, most businesses will go down the sinkhole.

Since January 2014 the cedi has lost 43.8 percent of its value to the US dollar, despite a raft of measures introduced by the central bank and an International Monetary Fund programme to stem the tide.

Last year the cedi lost about 31 percent of its value after a string of poor performances, largely in the first half of the year. The slide prompted the central bank to introduce forex restrictions which market players accused of being counterproductive.

Domestic airlines, notwithstanding the slide in the local currency, had to absorb the exchange losses that were estimated to be about US$2million per operator.

“Last year the airlines were very slow in reacting to the cedi depreciation and lost a lot of money in foreign exchange losses. In as much as we want to react, we cannot pass all of it to passengers. But if things continue the way they are, we will have to increase it to stay in business,” said Mr. Apiigy Afenu, Chief Operating Officer of AWA.

There are currently two airlines — Starbow and Africa World Airlines — offering domestic flights from Accra to Kumasi, Tamale, and Takoradi. The operators have had to increase their flight frequencies to these three destination following the suspension of Antrak’s operations for three months.

Antrak Air, a wholly-owned indigenous domestic operator, has suspended its operations for the next three months following challenges with its wet lease arrangement with Swift Air, a Spanish airliner, for the use of the latter’s two ATR 72-500 turbo-prop aircraft.

Foreign exchange losses are believed to have increased the cost of operations for the airline, forcing it to ditch the wet-lease agreement. A wet lease is an arrangement whereby one airline provides an aircraft, complete crew, maintenance, and insurance to another airline that pays by hours operated in dollars.