Despite FX Stability, Jet Fuel Supply, Domestic Airlines Face Shrinking Market
Chinedu Eze
In spite of the relative stability in foreign exchange and reliable supply of aviation fuel, Nigerian airlines still face shrinking market with progressive reduction of people who travel by air due to economic contraction, THISDAY investigation has revealed.
It was learnt that although the supply of aviation fuel is stable, the cost is still relatively high, as airlines argue that while airfares are considered high, they are not making profits because cost of ticket simply defrays their cost of operation.
But despite the reduction of the travelling public in the domestic market, Nigerian carriers are not effectively servicing many routes.
The Managing Director and CEO of Aero Contractors, Captain Ado Sanusi, attributed this to limited capacity.
Sanusi said that Nigerian carriers have overcome two major hurdles that dogged their service in the past, noting that foreign exchange is available; “unlike in the past and also aviation fuel supply is regular but comes at a high price.”
Sanusi attributed stability in jet fuel supply to the Dangote Refinery, saying that with domestic production of the product, Nigerian carriers no more face hiccups in the supply of one of the most critical components in airline operation.
At average fare of about N120, 000/N100, 000 for one hour flight, Sanusi said that the fares were not reflective of the market, arguing that it can be lower if there are more aircraft and availability of more seats and also if the airlines are servicing all the domestic routes.
He said some routes like Osubi, Akure, Ilorin, and Ibadan are being serviced but not effectively and there are other routes in the northern and south-eastern parts of the country that are not effectively serviced.
He pointed out that West and Central sub-regions in Africa were not effectively serviced by Nigerian carriers as the domestic airlines dominated the West Coast in the past.
“Aviation fuel prices have stabilised. They have stabilised to a particular price. It is better now than during the war in Iran. I think we are stable because of the Dangote Refinery and they are producing to meet our request and far beyond. So, the refinery can export what it wants to export and still meet the local needs. So, fuel prices have stabilised in the world market,” he said.
However, the Public Relations Officer of United Nigeria Airlines, Chibuike Uloka, told THISDAY that aviation fuel price remained very high at N2000 per litre and he frowned at the fact that airlines do not charge the right pricing for their operation.
He alleged that some airlines charge very low prices, prompting one to ask whether those airlines are actually charging fares in reflection of their cost of operation or they are using airline business to generate liquidity.
Uloka also accused oil marketers of creating artificial scarcity in order to sell their product at exorbitant prices, admitting that product supply has stabilised “if you are ready to pay their high prices.”
“There has been a lot of stability. Once you are willing to pay you can be supplied how many litres of the product that you want. But you have to compare the current price of about N2000 per litre to the N900 per litre sold before the Iran crisis started in February. Airfares are not reflecting the actual market price. This is why operators are always meeting to find out how they can survive the situation and that’s why when the unions come with their issues it becomes disheartening because these airlines are not making profits,” he said.
According to him, some airlines seem to ne sabotaging the industry by selling tickets at questionably low prices because of the way they are sourcing their funding, insisting that airlines who are sourcing their funding from the banks with the high interest rate of about 28 per cent cannot sell tickets at such low prices.
“These airlines just want cash flow. They don’t care about operating profitably because they pass the losses elsewhere. They sell tickets at N90, 000 to N95, 000 for one hour flight. You cannot even balance the book with that. But those who are really into airline business are struggling. No Nigerian airline is making profit; not even marginal profits,” he said.
Reacting to the alleged high cost of aviation fuel, the Chairman of Ndano Energy, Chris Ndulue, told THISDAY that “jet fuel is currently sold below N2000 per litre, and prices hover around N1, 600 to N1, 700 per litre.”
He said that Dangote Refinery brought stability in supply but wondered why Dangote was selling the product in Naira for about three months and later switched to selling in dollars after marketers had paid and secured letter of credit from banks at a cost and for one year.
According to him, now that Dangote has started selling jet fuel in dollars. He stated that marketers pay for the product in advance, “when they get the product, they sell to the airlines most of whom do not pay them. They would wait for a long time before the airlines would pay for the product.”
“We buy the product in dollars from Dangote Refinery, we incur some dollar expenses. You have to source for the dollar and the price is not stable. If you pay for fuel of $1 million, for example, Dangote will sell $750, 000 worth of the product to you and keep 25 per cent of that money as hold back fund because the prices can change between the time you paid for it and when you will be supplied the product. At the end, some of that money may be returned to you, but most often, not all of them,” he said.
.
