3 January 2013

Kenya: African Airlines to Buy Fuel Under Joint Deal

AFRICAN Airlines Association has picked 25 fuel suppliers for its second joint fuel purchase deal for the year 2013.

The 25 have stations at 104 locations in which most AFRAA members operate in, the association's deputy head of corporate finance and administration, Juliet Indetie has said. AFRAA did not however disclose the details of the firms that won the tender.

"We have partly completed the second tender and are in the process of issuing award letters," said Indetie.

AFRAA which is headquartered in Nairobi started the joint fuel purchase programme last year to increase the bargaining power of airlines to reduce their fuel costs and improve their revenues.

In the first tender, only nine out of the then 34 members of the association signed the deal to buy fuel jointly.

For the 2013 order, 14 airlines had signed the deal but Jetlink has pulled out temporarily due to stoppage of its operations because of financial woes.

Kenya Airways said in June after release of its full year results for the period ending March 2012 that it had saved an estimated $2 million (Sh171 million) as a result of discounts advanced under the deal.

Fuel accounts for nearly half of KQ's direct costs hence such deals could prove worthy to the airline which also holds fuel hedging contracts.

Indetie added that airlines will benefit from even bigger discounts in the second tender since the volume of fuel to be ordered will increase from the 660 million litres purchased for 2011/2012 to one billion litres for next year.

"We have got very very good deals this time round and we expect that airlines will save a lot more," said Indetie.

Fuel is one of the biggest operating cost drivers for regional airlines.

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