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Air Transport Grew by 50.7% in Q1 2022 – Coronation Merchant Bank

Air transport grew by 50.7% y/y in Q1 ’22 compared to the contraction of -11.8% recorded in Q1 ’21.

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Omicron

The latest national accounts released by the National Bureau of Statistics (NBS) show the continuous recovery of the air transport sector from the adverse effects of the COVID19 pandemic. Air transport grew by 50.7% y/y in Q1 ’22 compared to the contraction of -11.8% recorded in Q1 ’21.

This was the second fastest-growing segment in Q1 ’22, following rail transport (124.5% y/y). We note that this is from a low base.

Given that the sector was one of the most impacted sectors during the pandemic, the easing of COVID19-related restrictions globally has contributed to its recovery. The current geopolitical crisis is weighing heavily on domestic airline operators. The Russia-Ukraine crisis has led to a surge in oil prices globally (Russia controls c.10% of the global oil supply).

This has been transmitted through higher energy, oil and gas prices, worsening the already elevated inflation in advanced and emerging economies. Following the US ban on Russian oil imports, oil prices surged above USD100 per barrel to hit their highest level since 2008. As at end-May ’22, Brent crude stood at USD122.8/b.

In Nigeria, aviation fuel is a deregulated product and as such, its price is dependent on movements in global oil price and the foreign exchange rate among others. Aviation fuel has increased from N190/litre in 2021 to N700/litre in May ‘22. The surge is placing pressure on operational costs. Based on our channel checks, aviation fuel accounted for 40% of operating cost in 2021. However, this has now risen to 95% of total operational cost.

This increase in operating cost has resulted in upticks in ticket fares across airline operators within the country and has also led to a significant decline in the frequency of domestic flights.

Based on data from the NBS “Transport Fare Watch” series, the average airfare for select routes (one-way) increased by 52.4% y/y from N36,409 (USD87) recorded in April ’21 to N55,501 (USD132) in April ’22. On a m/m basis, it rose by 18.6% from N46,810 (USD112) recorded in March ’22 to N55,501 (USD132) in April ’22.

On a zonal basis, North-Central recorded the highest average airfare (N57,552) for select routes (one-way) in April ‘22, followed by North-East (N56,800), South-South (N55,586), North-West (N54,760), South-West (N54,338), and South-East (N53,402).

To put the current strain in perspective, in May ‘22, the Airline Operators of Nigeria (AON) announced a shutdown of operations within the industry due to the price surge in aviation fuel (Jet-A1) and uptick in other operating costs. However, following discussions with government officials, AON suspended its plan to shut down operations.

Coronation Merchant Bank understand that the NNPC agreed to supply Jet A1 to marketers nominated by airline operators for three months and at a fixed price of N480/litre. However, the airlines are to apply for aviation fuel import licenses so they can import directly to reduce reliance on NNPC.

The potential impact of a prolonged Russia-Ukraine crisis is likely to stretch the current challenges for domestic airlines. Furthermore, there are limits to the cost that can be passed on to the consumers, given that inflationary pressure continuously weighs heavy on consumer pockets.

The subsidy route seems unsustainable as the FGN is currently grappling with costs associated with the ongoing fuel subsidy (PMS). Forward thinking solutions would include innovative mechanisms that can optimise operations and accommodate rising operating costs within the aviation industry.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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