Why Airlines Cannot Tame the Increasing Price of Aviation Fuel
Despite their campaigns and agitations, Nigerian domestic carriers have failed to influence the price of aviation fuel and now they are pitted against oil marketers, writes Chinedu Eze
In recent times, the aviation industry has provoked a lot of anxiety and worry in the minds of many Nigerians. Air travellers were aghast when the Airline Operators of Nigeria (AON) announced they would suspend flight operations on May 9, 2022, but eventually, that did not happen to the relief of many.
It is all about the price of aviation fuel, known as Jet A1. The airlines said that the prices ranged from N600 per litre to N700 per litre; depending on which part of the country an airline is buying the product. If an operator is buying the product in Maiduguri, he will pay N700 per litre, in Kano, N680 per litre, in Abuja, N650 per litre and in Lagos, N600 per litre.
But in a recent statement, oil marketers argued that they are not selling the product at N700 per litre. The marketers under the aegis of the Major Oil Marketers Association of Nigeria (MOMAN) denied reports that Aviation Turbine Kerosene (ATK), otherwise known as aviation fuel, was being sold at N700 per litre in some parts of the country.
The Executive Secretary of MOMAN, Clement Isong, explained that aviation fuel is sold by marketers at the rate of between N540 and N550 per litre at the tarmac at Lagos airports and N570 to N580 per litre at the farthest airport from Lagos. Isong also denied knowledge of aviation fuel selling at N700 per litre anywhere across the country and acknowledged that the Nigerian National Petroleum Company (NNPC) has intervened with the importation of the product.
Cheaper Aviation Fuel
MOMAN also argued that in West Africa, aviation fuel is cheapest in the sub-region. It also said in comparative terms, that the aviation industry was already benefitting from the government’s intervention when local prices are compared to West African regional prices, “despite the deregulated status of aviation fuel”. The marketers warned that the situation was not sustainable given the already humongous N4 trillion annual subsidy costs being borne by the country.
It explained that concerning aviation fuel, verifiable prices in West Africa ranged from $1.25 per litre in Ghana to as high as $1.51 per litre in Liberia, saying even then, the product has remained scarce across the sub-region.
MOMAN maintained that due to the intervention of NNPC over the last several weeks, aviation fuel was landed into marine terminal tanks in Nigeria at between N480 and N500 per litre, depending on the logistics efficiency of the operator.
It further explained that “due to 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.
“During this period of NNPC intervention, as NNPC uses the nominal Central Bank of Nigeria (CBN) exchange rate, no independent importer could import aviation fuel as it is unable to access foreign exchange at the same rate, leaving NNPC as the major importer of aviation fuel for now, even though the product is deregulated.”
However, the marketers admitted that those interventions were sometimes necessary to mitigate shocks and help the economy, the operating environment and the public to adjust to the new realities while efforts were being made and innovations introduced to optimise costs and increase efficiencies.
While noting that those interventions cannot be permanent, MOMAN expressed hope that the war in Ukraine should come to a speedy conclusion.
It also expressed the hope that the integration of products from the local refineries including the four NNPC refineries under rehabilitation, the Dangote Refinery under construction as well modular refineries into the supply chain, would mitigate the high costs being borne by the government and Nigerians.
However, aviation industry observers had argued that Nigeria has the passenger traffic and the number of aircraft so comparing it to other countries in West Africa was a weak argument. They also noted that as an oil producer, there should be some benefits the country’s citizens ought to have just by producing the product locally and lamented that it was a failure of government that Nigeria is not producing petroleum products locally. They also emphasised that premium motor spirit, which is petrol and diesel prices in other West African countries are cheaper than what obtains in Nigeria; so the marketers should not single out aviation fuel.
Also, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has said that crude oil theft in the Niger Delta region had made it difficult to grant foreign exchange to aviation operators, adding that CBN would not grant any concession to the airline operators because it would amount to giving subsidy (on the price of aviation fuel) to aviation operators.
But the airlines had said that contrary to what MOMAN was circulating, that they never requested subsidies and that they do not even support subsidies in any way. The CEO of Aero Contractors, Captain Abdullahi Mahmood, told THISDAY in a telephone interview that Nigerian carriers never demanded subsidies from the government but requested that government would review the pricing so that it would come down to the level that Nigerians would be able to travel by air.
He said that airlines do not want to pass the new cost of aviation fuel to the passengers because if they do, passengers would pay between N100, 000 to N150, 000 for one hour flight.
“We don’t want subsidy. We cried out because we are aware that government knows what to do when they have a crisis like this. We also know that if the government takes full charge of the importation the price of the product will be cheaper than what the marketer will bring. Airlines never asked for a subsidy. We are not asking for a reduction in the price of aviation fuel for our interest. We are doing so for passengers because if we push the cost to the customers, tickets will cost from N100,000 to N150,000.
The aviation industry is a critical sector. That is why the US government gives bailouts to airlines. All the airlines are privately owned, the government gives them bailout because of the critical role they play in the nation’s economy and the fact that they employ thousands of the citizens,” he said.
He recalled that in 2008, the US government gave a bailout to General Motors and other American vehicle manufacturing companies, which helped them to revamp their production and today they are doing better.
“There was no single airline that said, give us subsidy. We want the Nigerian travellers to pay less amount of money for tickets. Airlines generally make a marginal profit of two per cent even though establishing an airline is capital intensive. Aviation is the catalyst to any country’s economy and this is because of the movement of people, the economic driver. Even now how many people travel by air at N50,000 for one hour flight?
“We protested about the increase of the price of aviation fuel because we wanted to draw the attention of the government to look at how it can help. If we continue to increase the cost of tickets passengers will shun the airports. Airlines might be forced to shut down and the mortality rate of airlines in Nigeria will increase. Employees will lose their jobs and go into the already saturated labour market. That is not what the operators want. Many of them have invested so much in aviation. There is a crisis,” he said.
Mahmood said that what makes it more difficult was that the increase comes suddenly, accusing oil marketers of not giving prior notice before increasing the price of their product.
“There is no airline that will experience such a spike in the price of aviation fuel that will not be shocked. We buy high volumes of the product. Such a high price is very difficult because of the volume of litres we buy (Boeing 737 consumes 3409.57 litres of fuel for one hour flight). What we buy is sector fuel.
Flight flying from Lagos to Abuja, for example, will buy sector fuel. That is taking fuel that will take you to Abuja and extra fuel, which will enable you to hover and fly to an alternate airport to Abuja, which is Mallam Aminu Kano International Airport, Kano. So you cannot just buy any fuel that is taking you to Abuja. All these have to be taken into consideration,” the Aero Contractors CEO said.
The airlines and oil marketers seem to have reached a temporary amicable solution with the intervention of the federal government agencies, the National Assembly and others. But what will bring a permanent solution to this problem is the local refining of aviation fuel and other petroleum products.