Business

Jet A1 surge deals blow on fragile Nigerian airlines

The flurry of price increases may further stress the balance sheets of airlines that are making desperate efforts to stay afloat, writes WOLE SHADARE

 

Tough time

 

The past two weeks had been hectic for Nigerian airlines and travelers. The scarcity of aviation fuel, otherwise known as Jet A1, had put the domestic aviation industry in total disarray.

 

Not only in Nigeria are airlines and passengers groaning over the spike in Jet A1, but global jet fuel prices have also surged to near 14-year highs in line with crude oil’s surge on supply shortfall worries, slamming air carriers and travellers with steep cost increases just as air travel was starting to recover from COVID-19 restrictions.

The race for crude has jacked up prices for refined products that will be affected if crude supplies tighten.

Aside from the scarcity of Jet A1, the astronomic increase of over 300 per cent makes it unsustainable for airlines to continue to operate at full capacity.

Travelling by air is not going to be cheap from now onwards. With the inflation across countries, most people have shallower pockets, less disposable income,” a UK-based travel expert told New Telegraph.
High operational cost

Considering that the cost of fuel accounts for about 40 per cent of the operational cost of most airlines, the colossal rise in the price of the product by over 300 per cent within one year in Nigeria has equally increased the operational cost astronomically.

In the light of this, airlines’ feasibility studies and financial projections are greatly threatened, thereby putting the airlines in a dangerous and difficult financial position.

Despite all these, the airlines can’t further increase ticket prices in order not to discourage their customers that have been seriously stretched due to the economic hard time facing them and their disposable income seriously reduced or erased. For most of them now, the alternative means of travel is going by road, their major competitor.

It should be put on record, however, that road transport uses premium motor spirit (PMS) also known as petrol, which is highly supported or assisted by the

 

Federal Government.

Airlines, on the other hand, don’t have such foreign exchange support or availability from government with regards    to helping make Jet Fuel available to airlines or at an affordable price.

Comparison

With the above scenario, not a few are of the view that with aviation fuel skyrocketing to a new high of over N600 or a little less, depending on the venue of purchase, aviation fuel costs more in Nigeria and other oil-producing countries than their counterparts that do not produce oil.

For instance, in Nigeria, despite the seeming stability in the lifting of aviation fuel across the country before now and the deregulation of the commodity, JET-A1 has hit an all-time high of N550 and N600 per litre.

The skyrocketing price of JET-A1 in Nigeria has added more to the pains of airlines, which use about 35 per cent or 40 per cent of their revenues for fuelling aircraft.

Aviation fuel is central to the operations of an airline, as it constitutes between 35 per cent to 40 per cent of an airline’s cost. The price of the commodity – laden with taxes – in the West African sub-region, is the highest in Africa.

While the specialised fuel is sold for about $3.886 cents per gallon ($1.033 per litre in Nigeria), $3.00 in Benin, and $$2.707 cents per gallon in Cameroon, it is sold for close to $2.707 cents in Ghana, which also produces oil. In Luanda,

Angola (also an oil-producing country), it costs $$2.707 per gallon; Libreville $3.05 per gallon; Khartoum, Sudan $2.707 per gallon and Equatorial Guinea $2.707 per gallon.

Jet fuel prices in some African capitals are double the global average and it is posing a threat to its aviation sector development.

The high cost of jet fuel in Africa compared to other regions due to distribution inefficiencies and infrastructure constraints, has held back the development of airlines and fare reduction.

As a result of the high fuel price, ticket prices are relatively high. If the fuel price comes down and costs of operations reduce, airlines are likely to bring down their fares.

Global average

Today, fuel prices globally average $2.3. In Africa, it ranges between $2 and $3.77. In some places, more than twice what it is globally.

Rising jet fuel prices are likely to cause airfares to increase this year based on current trends, as airlines grapple with higher operating costs, according to the global industry association, the International Air Transport Association (IATA).

The Director-General of IATA, Willie Walsh, said given that fuel “represents the single biggest element of an airline’s cost base,” high prices “will be a factor playing into fares later in the year,” Walsh explains, if they remain elevated.
Seeking urgent solution

At a meeting called by the House of Representatives in Abuja last week Thursday, operators said with the price of aviation fuel increasing from N190 to N670 per litre, they might be forced to suspend flights nationwide.

In his presentation, the Director-General of Nigerian Civil Aviation Authority (NCAA), Capt. Musa Nuhu, noted that the motion was correct about the developments in  the aviation sector, adding that the spike in the cost of aviation had increased the cost of operations of airlines.

Nuhu said: “Fuel is to be about 30 per cent. As of today, it has gone to about 50 per cent under the cost of operations. For me, as the regulator of the industry, this is of significant concern for me, not only for the inconveniences caused to the traveling public in terms of flight delays and cancellations.

“It is also a significant safety concern to us because if airlines cannot have enough financial margin to comply with all the mandatory requirements, then it is something that we really may have to look at.

The Executive Director (Distribution Systems, Storage and Retailing Infrastructure), Nigeria Midstream and Downstream Regulatory Authority, Ogbogu Ukoha, however, denied the scarcity of aviation fuel.

Ukoha said aviation fuel was a deregulated product, while those who supplied it were licensed.

“In our schedule for the last three months, we have about 28 marketers who are bringing in ATK (aviation fuel) in the last three months, because the licenses have 90 days validity,” he stated.

Huge volume to last three months

The NMDRA official added: “I can also confirm to this august gathering that from our records, we have sufficiency; we also monitor the vessels as they come in to discharge. So, we are in a first-hand position to state the volume that we have in the country.”

Regarding the request by airline operators to bring down the price to N200 per litre, the Group Managing Director, Nigerian National Petroleum Company Limited, Mele Kyari, said that was practically impossible, saying: “It is not possible because the landing cost of jet A1 now is N480 per litre,” adding that except “if we are going to subsidise it, the price cannot come down to N200.”

Last line

With the damaging impact of soaring oil prices and in light of jet fuel supply crisis, not a few believe that airline operators should seriously consider establishing some type of jet fuel reserve. Many European countries have taken similar measures to ensure an adequate supply of fuel.

 

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