Aviation Industry risks collapse as aviation fuel hits N400/litre

• Aviation Fuel price increased over 100% in one year from N190/litre
• Air travellers to pay more
• Local airlines groan over spike in operating expenses
• Nigeria’s domestic airline business may go into extinction, says Okonkwo
• FEC okays N12b for procurement of plane bridges
• African airlines lost $8.6b in 2021 to COVID-19 travel restrictions

These are not the best of times for many Nigerians going by the rising costs of goods and services, just as local airlines, yesterday, raised the alarm over a massive spike in price of aviation fuel currently selling at N400/litre in some airports nationwide across the country.

The operators said the ‘unbearable’ spike has made efficient air transport and affordable airfares unsustainable without either government’s intervention or upward review in ticket prices.

If the trend continues, air travellers may have to pay more on the already expensive air ticket regime in the country.

Aviation fuel, also known as Jet A1 accounts for between 30 to 40 per cent of operational costs in aviation. Being a deregulated product that is exclusively controlled by suppliers, the price has consistently been fluctuating along with Naira to Dollar exchange rate.

The Guardian learnt that the fuel, which costs about N340/litre in December, has risen to N400 in the South and as much as N450/litre in some parts of the North, creating scarcity at the ramp and attendant flight delays in the last one week.

Chairman of United Nigeria Airline, Dr. Obiora Okonkwo, yesterday, said it was regrettable that the fuel that sold for N190/litre exactly a year ago when the airline began operations had increased more than 100 per cent.

According to him, the twin effects of the high rise in the price of aviation fuel coupled with the lackadaisical attitude of the Federal Government towards fluctuation in the exchange rate, are factors that can render aviation, which he explains contributes four per cent to Nigeria’s Gross Domestic (GDP), irrelevant.

Okonkwo said it was difficult to find any aviation operator survive on such instability, a reason all operators are worried.

Okonkwo, who spoke to reporters at the Murtala Muhammed Airport (MMA), Lagos, said the current base fare charged by many of the airlines was no longer sustainable; an indication that airfare may rise on domestic routes to cushion the effects of the cost of aviation fuel.

He said: “Aviation fuel alone takes about 30 per cent of the entire revenue. Yet, for every ticket you sell, you have five per cent in Ticket Sales Charge (TSC) going directly to the Nigerian Civil Aviation Authority (NCAA). From the ticket, you also pay the Federal Airports Authority of Nigeria (FAAN) and the Nigerian Airspace Management Agency (NAMA) among other charges. What remains?” he queried.

On the effect of the fluctuating forex market, he said: “About a year ago, it was N340 to a dollar, but today, it is between N450 and N570, especially if you are sourcing from the other market.

“However, despite the fall in naira, the base fare for a ticket is still between N21,000 and N23,000. Aviation fuel could easily become about 30 to 40 per cent of your cost of operations. 99 per cent of aviation components are done in foreign exchange denominations. A ticket was about N2,000 in the year 2000, which was about $100 then, but look at the situation today.”

To save the carriers from their dire situation, Obiorah said there is a need for special funding for the sector that heavily supports the economy.

“The cost of maintenance has spiked, salaries paid to staff have increased, all costs have increased but tickets have not increased that much compared to the cost of operations. Operators are looking for solutions to many of these things. We can’t talk about safety without looking at rising costs.”

He warned that Jet A1 cost might even rise to N500 per litre before March 2022. And there will definitely be adjustments in the ticket price to bridge the cost, otherwise “the aviation industry will collapse.

“Airline business is the livewire of the entire aviation value chain. If airlines don’t fly or the airlines are in comatose, NAMA, NCAA and FAAN will not get the required revenue to run their operations.”

On flight delays and cancellations, Okonkwo attributed this to operational and safety reasons, which could be weather and insufficient infrastructure at the nation’s airports.

Chief Operating Officer of CITA Petroleum, a major marketer in aviation fuel, Olasimbo Betiku, had said that Nigeria is a “situational economy,” where pricing is heavily hinged on logistics cost elements.

Betiku said besides the dollar and liquidity constraints, transporting the product through poor infrastructure readily keeps the price comparatively high.

He explained that the product, like others, comes into the country through the Lagos ports. Intractable congestion at Apapa causes a delay in cargo clearance of between four and seven days, or more.

Stakeholders were unanimous in their concerns about Apapa delays, noting that for each idle day, an importer pays between $10,000 and $25,000 extra charter cost per vessel. At more efficient ports like Cotonou in Benin Republic where clearance takes between three to four hours, such add-on costs do not apply.

Next is the risk of conveying the product in trucks. Since the early 90s, moving aviation fuel from the Mosimi pipeline to Lagos airport has been abandoned for more expensive road transport. While the cost of transportation within Lagos is about N3 per litre, it is about N15 per litre travelling up North.