Temporary Relief Urged for Nigerian Airlines
Nigeria’s domestic airlines, represented by the Airlines of Nigeria (AON), have reached out to the Major Energy Merchants Association of Nigeria (MEMAN), requesting a reduction in the price of aviation fuel, commonly known as Jet A1, which they claim is priced at N3,300 per litre. The airlines expressed that they might contemplate suspending operations if no measures are taken to lower these costs, although this threat seems to have been retracted. In response, MEMAN has refuted the airlines’ claims about fuel pricing and clarified that a uniform selling price is not feasible, as it would violate antitrust regulations.
MEMAN asserts that the average cost of aviation fuel is about N1,000 lower than what the airlines are reporting. Additionally, they noted that the current situation is not unique to Nigeria, as global petroleum prices are surging due to ongoing conflicts involving the United States, Israel, and Iran. This sentiment is echoed by the head of the International Energy Agency (IEA), who recently warned that Europe may face severe fuel shortages in the coming weeks. A UK government representative has indicated they are actively working with fuel suppliers and airlines to manage this crisis.
This global challenge highlights the need for coordinated responses from authorities in various countries. To effectively tackle the high aviation fuel prices in Nigeria, MEMAN has recommended that airlines move away from spot pricing and instead pursue long-term contractual agreements with suppliers. This strategy, known as fuel hedging, allows airlines to purchase fuel in advance, shielding themselves against anticipated price surges. However, to implement this strategy successfully, airlines will require adequate storage facilities. Major carriers often use fuel hedging as a protective measure during periods of price volatility and shortages. Industry officials suggest that many marketers are reluctant to sell fuel to domestic airlines, and some are struggling with prompt payment.
The Dangote refinery is a significant source of gasoline, diesel, aviation fuel, and other refined products for Nigeria, and it also exports its products to West and Central Africa. Currently, distributors acquire aviation fuel from the Dangote refinery in dollars and resell it to airlines in naira. This transactional structure complicates matters, as shipping costs and other associated fees are also dollar-denominated. Consequently, the federal government has inadvertently allowed a scenario in which local marketers purchase domestically sourced fuel in dollars, yet sell it to airlines for naira. This situation underscores the urgent need for government intervention to address rising prices of aviation fuel and provide temporary relief for airlines during this challenging period.
The AON’s consideration of halting operations may be misguided, as the challenges plaguing the sector largely stem from external factors. What the airlines face is not solely a localized issue; however, effective government involvement is essential, akin to actions taken by other nations undergoing similar crises. Stakeholders are advocating for a moratorium on various charges within the industry to alleviate the financial burden. Without such measures, airlines may have no choice but to pass rising operational costs onto passengers, further distressing an already precarious market. Additionally, there is a call for the Federal Airports Authority of Nigeria (FAAN) and related agencies to lower surcharges and taxes on local carriers and tickets, particularly during this critical time.
It is imperative that all necessary actions are taken to ensure the viability of Nigeria’s aviation sector and prevent it from becoming dysfunctional.
