Nigeria: Airfares Rise On High Cost of Aviation Fuel

16 April 2021

Air travellers have been lamenting the outrageous airfares recently exacerbated by the high cost of aviation such that a one-way ticket last Sunday on a 55 minutes domestic flight went for about N120, 000.

This was higher than the peak fares during the Easter season, which cost was about N80, 000 for the same flight time.

The Chairman and CEO of United Nigeria Airlines, Obiora Okonkwo said on Wednesday that when his airline started operation on February 12, 2021, the price of aviation fuel was about N160 per litre but it has risen to over N250.

He noted that the airlines do not have alternative than to pass the cost to the passengers, which explained the spiral increase in airfares.

He regretted that the prices of the product could rise suddenly without opportunity for airlines to make projections and noted that aviation fuel constitutes 30 to 40 per cent of the total cost of production.

"Fuel price is of great concern to airline operators. When we started operations it was N160 per litre but now it is over N200 per litre. The product constitutes 30-40 per cent of the cost of operation. With this increase it is expected that ticket rate will also increase by 50 per cent. Airlines must have to recover the cost through tickets, cargo or courier.

"The rise was sudden and it is going to be severe for the industry. So the media should help to educate the public that for the aviation industry to be viable they must make adjustment to reflect the high prices of aviation fuel. For passenger to have relatively cheaper fares, they must have to book their flights early," Okonkwo said.

He also said due to the critical role air transport plays in the economy and security of the country, the airlines expect that there should be an intervention, so that the high cost of aviation fuel could be reviewed.

Former CEO of Aero Contractors, Captain Ado Sanusi, reiterated that cost of fuel constitutes 30-40 per cent of operational cost of airlines, saying that airlines would lose immensely from the increase in fuel cost because passengers had paid for tickets at the cost of old price of fuel but now they would be airlifted when airlines have paid higher for fuel.

"Airlines have sold tickets one month, two months ago at the cost of ticket reflecting the old price of aviation but they are now airlifting passengers at the new cost of aviation fuel, which means that they are incurring losses. This is because the increase is sudden so they do not have the time to adjust the prices.

"In Nigeria we do not do fuel hedging whereby airlines would buy fuel for six months at a particular price so by the time the increase of the price of aviation fuel will come they would have locked their prices.

"I hope that with the problems facing Nigerian airlines they will begin to hedge, as Dangote refinery comes on stream soon. So that regardless of the price fluctuations an airline can buy a million litres of fuel at a particular prices," Sanusi said.

Another challenge faced by airlines is that the price of the product fluctuates from airport to airport.

THISDAY learnt that the price of the product is cheaper in Lagos and most southern states, but relatively higher in most airports in the north.

A source that operates helicopter services in Lagos explained that the product is imported into Nigeria without any form of subsidy from the federal government because the product is fully deregulated and that is why airlines pay more for it.

"A litre is now N275 per litre and I can tell you there is a lot of fake fuel out there now. Any fuel you find is sold for N210 or N220 per litre is fake and this is dangerous for aviation. This is accident waiting to happen.

"The airlines are gradually increasing the air tickets. I just bought a return ticket on Enugu at N103, 000. The Abuja one-way ticket I bought last week was N76, 000. So, it is affecting air travel immensely. The airlines are already charging higher prices and the federal government is not doing anything about it," he said.

The source therefore suggested that the federal government should peg the price of aviation fuel, stressing that the airlines could only be helped through subsidy and not cash grant.

According to the source, the government could expunge the Value Added Tax (VAT) for operators, remarking that airlines in the country enjoyed nothing from the government unlike their counterparts in Europe, Middle East and Americas.

Also the Director of Research, Zenith Travels, Olumide Ohunayo explained that the sub-sector was deregulated, but noted that in order to cushion the effect of the high price, the federal government should repair the Nigeria National Petroleum Corporation (NNPC) underground pipe between Ejigbo and the Lagos airport.

He explained that for the airlines to benefit from the product's pricing, they either buy in bulk or edge, which he said required lump sum of money, adding that obviously the airlines would pass the cost to air passengers.

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