Airlines May Face More Operational Challenges over Aviation Fuel Price Increase
Nigerian airline operators warned that they may face more hurdles, following the recent increase in the cost of aviation fuel from N900 to N1, 300 per litre.
The operators said air travellers were already complaining bitterly about the current airfare that is compelling many of them to seek for alternative means of transportation.
Airline operators said that if they dare increase fares in response to the increase in aviation price, passenger traffic would drastically drop and airlines would be flying empty, which will lead to heavy losses and bankruptcy.
A senior official of one of the major airlines told THISDAY that some Nigerian carriers may be forced to close operations because they cannot meet financial obligations in their operations.
He said that fares have relatively come down because of competition but with the increase in aviation fuel, inevitably fares would still go up, stressing that airlines that cannot carry the burden will definitely go down.
“Passengers’ number went down a lot in January, forcing airlines to reduce their fares to become competitive. The operating environment has become tougher. Jet fuel is N1200 in Lagos, but N1300 in Abuja,” he said.
The CEO of Cleanserve Energy, an oil marketing company, and former Managing Director of Arik Air, Chris Ndulue, told THISDAY that scarcity of aviation fuel resurfaced because those who import the product felt that soon the Dangote Refinery would start operation and the prices of the product will become lower, which will eliminate their profit margin because imported fuel would cost more than the product refined locally.
He said what exacerbated the situation was the fact that Naira has further depreciated; “so, importers of the product would expectedly sell at higher prices.”
“The importers did not want to import in January because of the expected local refining of aviation fuel which will bring the price down because there will be no port charges and no cost for moving the product with a vessel into the country. With the expectation that Nigeria will sell locally refined fuel products, the importers did not want to bring cargo because they created a situation that out of caution, nobody wanted to import the product, hence the current scarcity that has upped the price. This is not helped by further depreciation of the naira. This means that if you import you might lose your investment,” he said.
Ndulue also said the situation remained tricky because of the uncertainty created by prevalent situation where everyone is hoping that soon Nigeria will start refining its fuel. So, it is this undersupply that has caused the scarcity of the product, Ndulue said.
Another industry observer who spoke to THISDAY stated that before Buhari left office, Dangote Refinery was unveiled and there were promises that the company would start producing between August and December last year and this did not happen and no one is sure now when the refinery will start producing.
“However, there are indications that the refinery will not start operating soon so it is expected that some people will start importing the product, as there is uncertainty surrounding when the refinery to begin operations. With what they are doing with the supply of crude oil to Dangote and Dangote importing crude from the US, there is definitely uncertainty about the whole thing.
“So, importers may start importing to end the current scarcity of aviation fuel. There would not have been any problem with the devaluation of our currency if we are major exporters because it will bring down the prices of the goods we export. But it is not so. Japan, China devalued their currency because they are major exporters. But our own devaluation has brought hardship and high cost of imported fuel products. In fact, we have penchant for importing things. Now that we have local refinery, we obviously will stop importation, but Dangote is now importing crude oil from the US for refining. So, any point in time Nigeria is importing something. It is really ironical that Nigeria, which is a major producer of crude oil is importing crude from US to refine in its refinery,” he said.
A protocol officer at the airport told THISDAY that prices of tickets have not totally come down because the demand is still high since the roads are not safe due to kidnapping and other forms of insecurity.
He said the lowest fares still hover around N80, 000 to N90, 000 and still graduated to N125, N175 to N250, 000, “but when it goes to N175 you know you are paying for business class ticket and as long as the roads are bad with kidnapping on the increase, Nigerians who can afford it will still travel by air.
However, one of the airlines spokesman told THISDAY that while there is competition, which is driving down the fares, limited seats are also driving up the fares because many airlines are losing their aircraft to aircraft on ground (AOG), which has depleted available seats.