Domestic airlines under threat Fares up 40% in 5 months

Ghana’s local aviation industry risks collapsing following upward adjustments in fares.

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Hon. Dzifa Ativor play

Hon. Dzifa Ativor

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Ghana’s local aviation industry risks collapsing following upward adjustments in fares.

The imposition of the 17.5 percent Value Added Tax (VAT) on all domestic air fares by the Ghana Revenue Authority (GRA) could frustrate the aviation industry players as some passengers have indicated their intention to travel by road.

The passengers who spoke to Business Finder at the Kotoka International Airport (KIA) are calling for a downward review of fares in protest against the VAT levy.

According to the travellers, the excessive increase would impact negatively on their businesses.

“I’m compelled to cut down on my trips to Kumasi and Takoradi due to the hike in the fares because I now have to pay about GH¢600 for a trip to Kumasi and back,” lamented John Addo, a business man.

Another passenger who chose to speak on condition of anonymity said he would now have to advise himself when travelling, adding that, “I would now go by road if my trip is not too urgent.”

Checks conducted by this paper revealed that for the Accra –Kumasi and Accra-Takoradi routes, Starbow now charges a minimum of Gh¢285 up from Gh¢245.

The fares for Africa World Airlines (AWA) for the same routes have increased from a minimum of Gh¢245 to Gh¢288.

For Accra to Tamale Starbow charges GH?345 up from Gh¢295 while AWA takes Gh¢347 up from about Gh¢300.

The minimum fare from Accra to Kumasi for both Starbow and AWA in February this year was Gh¢200. This was increased to Gh¢245 before July 1 when the VAT took effect and now is pegged at Gh¢285 for Starbow and Gh¢88 for AWA.

This means airfares have from the beginning of this year till now gone up by over 40 percent.

The 17.5 per cent VAT on fee-based financial services in accordance with the Value Added Tax Act, Act 870, which was deferred last year, commenced from January 5, this year.

The GRA suspended the implementation of the tax to engage in further stakeholder consultations.

Even though industry experts agree that taxes are significant for the nation’s development, they warn that “we don’t pay taxes to destroy businesses.”

They contend that the hike in air fares will reduce passenger throughput and further dampen interest in the patronage of domestic flights.

High fares are a function of cost of operation and such cost is not even wholly within the control of the airlines, one expert told this paper.

The domestic aviation industry in Ghana before 2013 saw tremendous growth in terms of passenger uplift and airline activity but the prospects have been waning due to what experts have described as a “hostile business environment.”

Operators who left the shores of Ghana attributed their departure to the expensive nature of operating in the country.

So an industry which hitherto could boast of four Airlines, Antrak Air, Starbow Airline, Africa World Airlines (AWA) and Fly540, now has only two (AWA and Starbow) operating.

The latest exit of Antrak Air has compelled industry experts to call for government’s intervention to save the industry from complete collapse.

CEO of privately owned Ghanaian Airline, Goldstar Airlines, Mr Eric Bannerman maintains that the direct intervention of the state will encourage local operators and would-be-operators to favourably compete with the foreign airlines.

It is interesting to note that Fly540 which exited the industry last year has recently indicated its return, but just at the time when air fares are up.

As it stands, if fares do not get any lower than they are now travellers may have to look for alternatives, possibly switch to road transport with its attendant inconveniences.

Passengers who travel by road from Accra to Kumasi spend approximately five hours while those from Accra to Tamale take about 11 hours. Travelling from Accra to Takoradi also takes five hours.

It will be recalled that domestic operators last year blamed the harsh economic conditions in the country for their increasing operational costs.

The costs which included ground handling charges and cost of aviation fuel were largely to blame for the sharp increase in the fares.

The operators lamented that fares could have been higher if the entire cost of operations were passed on to passengers.

The free fall of the cedi in the first two-quarters of 2015, has undoubtedly impacted negatively on the fortunes of the industry.

Fares are charged in cedis but payments for the lease of aircraft, spare parts are paid either in Euro or Dollars creating a situation where the operators have to contend with forex losses.

Additionally, the high cost of operations of the airlines have been occasioned by huge import duties on equipment including spare parts and technical expertise that have to be imported from overseas by way of expatriate pilots and engineers.

"Where a big chunk of our costs are dollar denominated - our pilots are paid in dollars , spare parts are purchased in dollars, fuel is referenced in dollars, doing business is very frustrating," a source at one of the airlines said.

It is instructive to note that not a single operator within the industry has a significant number of aircraft in their fleet.

The maximum they have is three aircraft and not all of them are even able to operate across all the routes.

Source: Th Finder

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