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Operators groan over high price of aviation fuel, operational cost

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Aviation sector

Airline operators have expressed concern over the high cost of operating in the country, citing among others the burden of aviation fuel that has left them disadvantaged among international carriers.

Aviation fuel, otherwise known as JetA1, currently accounts for between 35 to 40 per cent of the total operational cost of an average airline in the country.

And with equally high cost of routine maintenance, personnel, overhead, mandatory charges and taxes among others, the airlines are left with very lean bottom line and in some cases, indebted to regulators and ancillary service providers.

Chief Executive Officer of Med-View Airlines PLC, Muneer Bankole, recently lamented the heavy effect of aviation fuel on the total operating cost and profit margin of the airline in 2017.

Med-View’s audited annual reports and financial statements for the year ended December 31, 2017 reported operating cost increased to N30.9 billion from N21.8 billion in 2016.

In comparative terms, the fuel is one of the highest among oil producing companies in the world. For instance, the same content is sold for 20 cent (N61) in Saudi Arabia, even as United Arab Emirates has subsidised the price to a competitive average selling rate.

Chief Operating Officer of one of the airlines said it costs at least N800,000 to N1million to fuel a Boeing 737 aircraft on a frequency of two landings.

He said except the Lagos-Abuja-Lagos route, it is almost impossible to break even on other routes due to high cost of aviation fuel.

Marketers of the product have, however, blamed zero refining capacity, coupled with alleged multiple taxes and charges for the high cost of supply.

The Guardian learnt that besides the N2.50 the Federal Government charges on each litre of fuel, there are other sundry charges at various airports.

“The truth is that there are varying cost elements from the Federal Airport Authority of Nigeria (FAAN), in terms of ground rents, access permits for equipment, personal permits for fueling operations and fuel tax itself. All of these are heavy cost elements that are typical of our environment, making the cost higher compare to other African countries.

“It is really not the fault of marketers, but the fact that we have to import in the first place and then the issues of multiple charges that we have to push to the end-user,” a top marketer said on condition of anonymity.

Chief Operating Officer of CITA Petroleum Nigeria Limited, Olasimbo Betiku, added that the jet fuel problem in Nigeria is mainly that of supply.

According to him, “We have zero local refining capacity for the product and this is the number one cost-impacting factor. When supply and demand balance is impacted upon, price will increase for the balance to be established, in our elementary economics.

“Secondly, importation transactions for jet fuel are dollar-denominated. So, if dollar is scarce, it will definitely impact on our local cost. In addition, our global national infrastructural template; covering roads, ports and pipelines among others, is challenged. Our ports were built when our population was around 55 per cent of the present figure. So are roads and no pipelines to move the product.

“All the above extra financial commitments on logistics directly impact cost of the product here. In addition, our industry is dollar-denominated. If our local currency is weak to a dollar, we pay more than other countries with healthier currency to a dollar. This is a factor that will make consumers pay relatively more,” Betiku said.


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