ART Advisory Note 6A/26: Integrated Framework for Regulatory Fee Basis and Automated Collection*

 

Current Structural Challenges and Industry Positions

 

The ongoing impasse between the civil aviation authority and domestic carriers under the Airline Operators of Nigeria (AON) exposes deep structural flaws in the administration of the 5% Ticket Sales Charge (TSC). Industry participants argue that the current ad valorem percentage model transforms airlines into unpaid tax collectors, forcing them to absorb commercial merchant processing fees (historically 1.5% to 2.5%) on funds that do not belong to them.

 

This ART Advisory notes that these regulatory funds are commingled with operational revenues at the moment of booking, airlines face intense liquidity temptation.

 

In an environment characterized by low single-digit margins and strict cash-before-service demands for Jet A1 aviation fuel and immediate maintenance deadlines, commingled cash is frequently absorbed into daily survival costs.

 

This creates a retrospective accounting nightmare, leading to multi-billion-naira debt backlogs, endless reconciliation disputes, and disruptive “no-pay, no-service” regulatory standoffs.

 

Furthermore, the core complaint around the collection process itself centers on the administrative friction of manual filing and delayed billing, which pits the regulator against carriers during routine audits.

 

From a policy perspective, operators frequently cite International Civil Aviation Organization (ICAO) Doc. 9082 to challenge the fee’s legitimacy. They rightly point out that charging a percentage violates the core ICAO principle of cost-relation: a business-class passenger and an economy passenger on the same flight consume the exact same safety infrastructure and air navigation services, yet they are assessed vastly different fees based on their fare tier.

 

This converts a justifiable cost-recovery charge into an illegal turnover tax on gross earnings—a systemic failure this ART Advisory Note is designed to correct.

 

*Current Pricing Exploitations: Surcharges and Ad Valorem Minimization*

 

Under the legacy five percent ad valorem system, the regulator’s revenue is fundamentally compromised by the structural malleability of modern airline ticketing. Because the statutory five percent levy is calculated strictly against the “base fare,” airlines have perfected the art of unbundling ticket prices to minimize their regulatory exposure.

When macroeconomic pressures—such as aviation fuel (Jet A1) volatility or foreign exchange scarcity—force ticket prices upward, airlines do not increase the base fare.

 

Instead, they freeze the base fare at a nominal rate and layer on massive, fluctuating “Fuel Surcharges,” “Currency Adjustment Charges,” or “Ancillary Service Fees” (extending to baggage, seat selection, and check-in fees). Because these surcharges are legally classified as cost-recovery mechanisms rather than base passenger revenue, they are excluded from the five percent TSC calculation.

 

The regulator is left collecting five percent of a deflated nominal base fare instead of five percent of the true economic cost paid by the passenger. This deliberate unbundling creates an artificial revenue drain for the regulator, while making retrospective auditing an administrative battlefield of definitions, disputes, and delayed filings.

 

*The Proposed Integrated Approach*

 

To permanently decouple airlines from the tax custody loop while maximizing regulatory revenue, this ART Advisory Note establishes a two-pronged structural pivot: migrating to a uniform flat-rate passenger charge and hardwiring automated split-payment architecture into the point of sale.

 

First, under the suggestions proferred in this ART Advisory Note, the statutory basis of the fee must shift from a variable 5% to a fixed naira amount per domestic segment and a dollar-equivalent for international flights.

 

This flat-rate basis establishes safety regulation as a quantifiable, constant utility fee, immediately satisfying ICAO’s non-discrimination and cost-relation mandates.

 

Second, as a core technical solution proferred by this ART Advisory Note,  the fee becomes a predictable constant which  can be seamlessly embedded into financial switching networks via split-payment Application Programming Interfaces (APIs). Under this framework, the moment a passenger completes a digital purchase on an airline’s website, mobile app, or a Global Distribution System (GDS), the payment gateway executes a real-time financial split at the exact millisecond of transaction authorization.

 

The split-payment engine automatically sweeps the fixed regulatory fee directly into the central bank’s Treasury Single Account (TSA), while routing the pure base fare to the carrier’s operational account.

 

To maintain system integrity across cash channels, this ART Advisory Note requires independent travel agents to operate via pre-funded digital wallets where the flat fee is instantly deducted upon booking.

 

For physical terminal walk-ins, this ART Advisory Note maintains  that cash-accepting smart kiosks or dedicated bank desks will process the flat regulatory charge independently, issuing a digital token that the airline counter must scan to authorize the final boarding pass.

 

*Impact on Efficiency and Revenue Stabilization*

 

Unifying a flat-rate statutory basis with an automated split-settlement infrastructure delivers immediate operational efficiency and capital optimization across the entire aviation value chain, fully realizing the strategic objectives of this ART Advisory Note.

 

For the regulator, this model completely eradicates collection leakage, dynamic fare undervaluing, and the massive administrative cost of chasing historical carrier debts.

 

A flat-rate fee is completely immune to ticket restructuring or unbundling. Whether an airline sells a ticket with an artificially low base fare and heavy surcharges, or compresses its margins during a seasonal promotional fare war, the regulatory unit cost per seat remains completely unchanged. By pegging revenue exclusively to passenger volume rather than fluctuating airline turnover, the regulator’s cash flow stabilizes.

 

The civil aviation authority can forecast its annual capital expenditure and safety oversight budgets with mathematical precision based on projected industry passenger numbers, completely insulated from the financial maneuvers, pricing games, or accounting vulnerabilities of individual commercial airlines.

 

For the airlines, the impact of this ART Advisory Note becomes visible in improved cash flow health and reduced friction. Carriers are entirely relieved of the administrative and transaction fee burdens associated with collecting regulatory monies, and they no longer risk severe regulatory penalties or operational groundings due to accumulated debt.

 

By extracting airlines from the cash-custody loop at the point of sale, this integrated framework replaces a legacy system of defensive regulation and financial vulnerability with an optimized, automated ecosystem where safety oversight and commercial aviation capacity can scale sustainably under strict ART Advisory Note protocols

 

A comprehensive report will be forwarded to the appropriate government agencies.

 

Thanks for your cooperation.

 

Signed

 

Air Commodore. Ademola Onitiju, (Rtd), President Aviation Safety Round Table Initiative (ASRTI