Industry risks collapse as aviation fuel hits N400/litre
• 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.
An Anaviation fuel expert explained that Nigeria is a “situational economy,” where pricing is heavily hinged on logistics cost elements.
He 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 the 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.
Similarly, the Federal Government statutorily earns N2.50 fuel surcharge tax per litre. In addition are operators’ permits, ground rent for tank farms, and access permits for equipment into airports.
Experts said all of the cost elements, the majority of which are avoidable in a functional system, are passed on to consumers as the product price.
MEANWHILE, the Federal Executive Council (FEC) has approved a total sum of N12,097,215,800 for the procurement of bridges used by passengers to embark or disembark from planes. This is part of government’s efforts to boost the nation’s aviation sector.
Minister of Aviation, Hadi Sirika, who disclosed this to State House correspondents, yesterday, said most of the amount would go into replacement of the obsolete ones.
His words: “Today in council, a memo was presented by us in aviation and the amount of the contract awarded to Gulf of Africa International Limited for the purpose of replacing our aviation bridges was at a cost of N12,097,215,800.09.
“The contract is for a period of 12 months and it will include seven and half per cent value added tax. This contract is not only for supplying, but it’s also for installation and maintenance, including spare parts.
“This has been taken by Council and approved and to say that this is part of all that we’ve been doing to reactivate the failing infrastructure within the country and of course, Lagos being the major airport in the country.
“This will make passenger facilitation easier, safer and of course it will add value and create more efficiency within the system of that particular airport. This is also an ongoing programme for all of our failed airports.”
ACCORDING to an updated report by the African Airlines Association (Afraa), the COVID-19 pandemic hammered Africa’s aviation industry in 2021, resulting in an estimated $8.6 billion revenue loss.
While the figure is less than the $10.21 billion revenue loss recorded by the sector in 2020, it did mark a 49.8 per cent decline when compared to the revenue recorded by the sector prior to the pandemic in 2019.
The report blamed the revenue loss on the stringent travel restrictions placed by governments, in a bid to contain Coronavirus. While the restrictions were well-intentioned, they also inevitably made it impossible for African airlines to operate optimally.
As a matter of fact, the traffic volume from January through to December was 42.3 per cent less than what was recorded in 2019.
“Across Africa in general, passenger traffic volumes remain depressed due to the unilateral and uncoordinated travel health restrictions imposed by some governments, following the outbreak of the Omicron variant of COVID-19.
“Airline revenues have remained low with many operators battling with cash-flow issues. Full-year revenue loss for 2021 is estimated at $8.6 billion, equivalent to 49.8 per cent of the 2019 revenues,” said a part of the report.
The Afraa report further noted that the ongoing political upheaval in Ethiopia also contributed to the loss because traffic volumes into the Horn of Africa country contracted, particularly between November and December last year.
During the year under review, only three African airlines were able to continue with their international routes expansion, the report said.