Aviation fuel hike: The way out

The Airline Operators of Nigeria (AON), the body representing domestic airlines in the country, on Friday announced that airline services would  shut down on Monday, May 9 citing the skyrocketing price of aviation fuel known as Jet A1, which climbed to N700 per litre. This would be over a 600 per cent increase from N197 […]

The Airline Operators of Nigeria (AON), the body representing domestic airlines in the country, on Friday announced that airline services would  shut down on Monday, May 9 citing the skyrocketing price of aviation fuel known as Jet A1, which climbed to N700 per litre. This would be over a 600 per cent increase from N197 the same product was sold in 2021.

In a statement signed by its President, Alhaji Abdulmunaf Sarina, the association said overtime, aviation fuel price (JetA1) has risen from N190 per litre to its current price of N700 per litre adding that no airline in the world could absorb this kind of sudden shock from such an astronomical rise over a short period.

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“While aviation fuel worldwide is said to cost about 40 per cent of an airline’s operating cost globally, the present hike has shot up Nigeria’s operating cost to about 95 per cent.

“In the face of this, airlines have engaged the federal government, the National Assembly, NNPC and oil marketers with the view to bringing the cost of JetA1 down, which has currently made the unit cost per seat for a one hour flight in Nigeria to an average of N120,000. The latter cannot be fully passed to passengers who are already experiencing a lot of difficulties.”

The statement, which  sent shockwaves across the country,came at a time the aviation unions are also threatening to go on strike over the non-implementation of the conditions of service by three aviation agencies.

However, soon after some of the members had sent messages to their passengers announcing the cancellation of their flights, a new development emerged as six airlines announced that they were pulling out of the planned strike.

Ibom Air started the withdrawal when it announced that it could not suspend its operations because it has obligations to various clients who could suffer without operation. They were later joined by  Dana Air, Arik, Aero, Green Africa and Overland.

Findings by Daily Trust revealed that the association was further pressed to abandon its action following interventions by the Minister of Aviation, Senator Hadi Sirika, the House of Representatives and the Presidency.

Daily Trust reports that the crisis over aviation fuel has persisted over time. Being a critical component of safe flight operations, it was glaring that any disruption in the supply chain or a hike in price would add to the cost of operation by airlines in addition to disrupting flight schedules.

Since Nigeria does not import aviation fuel, the airliners are at the mercy of those who import the refined product and the marketers, who also argued that the increase in foreign exchange coupled with the cost of bridging the product has added to the cost.

The House of Representatives had in March intervened when the airline operators cried out over the skyrocketing cost of the product and summoned the Group Managing Director of the Nigerian National Petroleum Company (NNPC) Limited, Mr. Mele Kyari. At the meeting, it was agreed that the fuel would be sold at N500 per litre for three days.  There were follow-up meetings by the airlines and the fuel marketers spearheaded by the NNPC after.

But this did not resolve the crisis as the price of fuel rather than going down has continued to skyrocket.

But a fuel marketer in a chat with our correspondent blamed the hike on an increase in the international price of crude oil.

He said, “If that (crude oil price) has not reduced and if the cost of forex has not reduced, then the price of aviation fuel cannot come down.

“What we did at the meeting we had with the airline operators in Abuja was to show them how we arrived at our price and they agreed that we are going to be using an average of platts for one month to calculate the price.

“When we use that to calculate the platts-based price, we now add our own margin. So, if marketer A’s margin is N40 plus platts and marketer B says he can still sell it and make profit at N30, any airline can go and meet market B,” he said.

Sources told our correspondent that after the meetings, the fuel was sold for N500 for three days as agreed by the House of Representatives and after that, the price kept fluctuating until it crossed the N700 mark.

What option for operators?   

Experts say except the federal government subsidises the cost of Jet A1, the only solution is for airlines to increase ticket prices since airfares have been liberalised and operators can sell tickets at the dictate of the market.

However, operators insist air tickets would be grossly unaffordable as a one-hour ticket could cost as much as N120, 000 for a return flight.

A member of the AON, Alhaji Shehu Wada told Daily Trust that a return ticket to Abuja could cost up to N250,000 going by the increase in the price of aviation fuel.

He also said contrary to the insinuation in some quarters, the operators are not asking for a bailout but the government should do something about Jet A1 racketeering, adding that the operators had been weathering the storm out of patriotism.

He said, “If we are to use market forces to sell the tickets, a return ticket to Abuja could be around N250,000. This definitely will have a multiplier effect on other sectors. If you are the CEO of a company and you need to attend meetings twice in Abuja or Lagos, the cost of your company’s operation will go up. It will have a ripple effect.

“We are not asking for a bailout. We are just looking at what is affecting our operation negatively. We are not making profit. We are indebted to banks. Government should just do something about this Jet A1 racketeering. If we increase a one-way ticket to N120, 000  it will inflict pain on the masses.”

Fuel marketers speak  

Fuel marketers under the aegis of the Major Oil Marketers Association of Nigeria (MOMAN) while empathising with the operators said the situation is global.

Chairman of the association, Olumide Adeosun, in a statement, however, denied that the fuel is sold at N700.

“Aviation fuel (Jet A1), like other petroleum products used in Nigeria, is not produced in the  country and is subject to international price movements, which are currently suffering the twin shock of increased post-pandemic demand and the ongoing sanctions against Russia, a large producer of petroleum products.

“These shocks have seen international trading premiums, costs of vessel freight and other transport costs skyrocket to worrying levels. Separately, international traders are exploiting the situation by selling only to the highest bidders.   With respect to aviation fuel, verifiable prices in West Africa range from $1.25 per litre in Ghana to as high as $1.51 per litre in Liberia and even then, the product remains scarce across the sub-region. Due to the intervention of NNPC over the last several weeks, aviation fuel is landed into marine terminal tanks in Nigeria at between N480 and N500 per litre depending on the logistics efficiency of the operator. Due to the high costs of specific handling of Jet A1 (special transport and continuous filtration), the product is sold on the tarmac at Ikeja (our benchmark), between N540 and N550 per litre and across other airports at between N570 and N580 per litre.”

An aviation analyst and former Managing Director of Aero Contractors, Capt. Ado Sanusi tasked the federal government to design policies that will allow airlines to operate profitably and smoothly.

“The FG should bring policies that will bring about a better operating environment for the airlines, especially the foreign exchange should be made available to the airlines.

“Stability of the price of Jet A1 should be made. It is very simple to do that. There are so many ways you can get the stability of Jet A1 price. The easiest is for the federal government to bring the [Jet A1] cargo in and this is not going to be forever. When the federal government brings the cargo in, they allocate it to the marketers to sell only to domestic airlines.

“The moment we start refining the product in Nigeria, there would be the stability of the pricing. And when there is the stability of pricing, the cost to the airlines are known.”