Friday, September 16, 2016

Arik Air still profitable despite harsh operating terrain

A recession, combined with a shortage of dollars, high costs and scarce fuel supplies have created the perfect storm for the Nigerian Airline Industry. Major international airlines including United Airlines and Spanish carrier Iberia have halted operations in Africa’s most populous Nation. Arik Air recently temporarily halted operations for a day but have since resumed.

 Johnson Arumemi-Ikhide, chairman of Arik Group, told CNNMoney that the shutdown, which left hundreds of passengers stranded, came after the airline's insurance expired. The company had to scramble to get chartered planes for its passengers on Tuesday, and then scheduled additional flights on Wednesday to get operations back to normal. Arumemi-Ikhide dismissed reports that the company was experiencing financial difficulties.

"Arik is profitable. It's not as profitable as the hard work we put in, but we made around $6 million to $7 million [last year]. When you look at our assets, cash and everything, we are positive. The issue of bankruptcy doesn't come to mind at all."

But Arumemi-Ikhide said Nigeria's capital controls, which restrict the flow of U.S. dollars within the country, hurts airlines. Essentially, some sectors have easier, cheaper access to dollars than the airlines. This has forced Arik to buy dollars through unofficial channels at a higher exchange rate.
Profits in the notoriously tough airline industry are "thin" partly due to expensive fuel prices and scarce supplies, said Arumemi-Ikhide. 

Additionally, poor infrastructure is an issue: Many runways are in bad repair, and it can be difficult for passengers to reach airports in the evenings. "There's a need for the government to address some of the issues if they want the industry to survive," he said. "All the airlines are struggling."
Nonetheless, Arumemi-Ikhide said his company had a strong line of credit and was on track for an initial public offering in 15 months. 

Nigeria's oil-dependent economy has been struggling as oil prices have plunged, with GDP falling by more than 2% in the second quarter. This marked the second consecutive quarter of economic contraction, which put the country firmly in a recession.

Source: CNNMoney

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