Explainer: How Aviation Fuel Price Hike Has Led To A Drastic Increase In Flight Fares

Over the weekend, there was a public outcry concerning the hike in the price of aviation fuel and our investigations have shown that the issue is linked to the current fuel scarcity problem in the country. Following the fuel scarcity that emerged earlier this month, there’s been a negative ripple effect in terms of fuel price hikes and in turn drastic increase in the price of transportation fares. The scarcity said to be caused by the adulterated fuel in circulation in the country has resulted in long queues of vehicles and cars in petrol stations and it’s no wonder that the problem has extended its tentacles into the aviation section. Just over a week ago, domestic airlines complained about how oil marketers have hiked up the price of aviation fuel to N400 per litre. Their lamentations seem to have gone unheeded as the price has currently increased to N420 per litre in Lagos and hovers between N430 and N450 in Abuja and some other Nothern states. Here’s an insight into how the aviation fuel (Jet A1) price hike will affect flight charges:

What is causing the aviation fuel price hike?

The root cause of the price hike in Jet A1 is the ongoing fuel scarcity in the country. There has been a continuous rise in fuel prices as fuel is being hoarded by oil marketers due to shortages. This has also resulted in inconsistent fuel supply at many airports, in turn, causing delays. This problem has given fuel marketers room to inflate aviation fuel prices as demand is high in airports. Airlines are constantly waiting for fuel supply at airports across Nigeria.

Experts have also pointed out that the drastic jump of the dollar exchange rate has also contributed to the current situation as it has caused problems for airlines when it comes to accessing foreign exchange.

When did this problem emerge?

Jet A1 price hike is something that has popped up in Nigeria from time to time and is nothing new but on February 12, 2021, something changed. Now the problem seems to have transformed into something of a spectacle within just a year. Between February 2021 and February 2022, aviation fuel price has kicked up from N190 to N420 per litre and is likely to increase to N500 per litre in some parts of the country in a few days. Simultaneously dollar exchange rate rose from N340 and is now about N570, creating another major problem as prices are currently subject to exchange rate till the country starts to locally refine the product. These two clashes within the time frame of a year have only resulted in major setbacks for airline industries. 

Nigerian Airline Operators have voiced out how the skyrocketing price of Jet A1 would result in a hike in the price of tickets in order to sustain their operations. The Airline Operators have relayed that they’ve found themselves between the proverbial ‘rock and a hard place’ as the price of aviation fuel alongside the exchange rate keeps climbing. Airlines depend on this for more than 90 per cent of aircraft services, that is, aircraft maintenance, training and leasing, acquisition of spares, insurance. These issues arising from the Jet A1 price and exchange rate has made it impossible for airlines to plan. Things are running by quite quickly and the window for authentic fiscal projections is becoming non-existent.  Airlines have hinted at a possible increase in fare in reaction to the ever-increasing cost of Jet. According to them, selling tickets at old prices while airlifting passengers at the current prices of aviation fuel will only incur huge losses on them.

What is the major effect of this price hike?

The Guardian reports that local airlines have kicked up fares by 63% as a reaction to a spike in the price of Jet A1 and the attendant cost of operation. This adjustment over the weekend pegged the minimum Economy Class ticket at around N50,000 for future flights, with travellers currently buying the same one-hour, one-way economy tickets at an average of N80,000 each. With the drastic upswing in the price of aviation fuel by more than 100% in the last year, the hike in base fares is to be expected since aviation fuel accounts for between 30 to 40% of the operating cost. Consequently, the average base fare cost of N30,000 has also spiked up to more than N50,000 across most commercial airlines, with operators expressing the move to be a commercial decision to survive the harsh economic realities. Defending the hike in ticket fares, an anonymous airline official told This Day that it had to be done to keep airlines in business. “We increase fare in reaction to the cost of aviation fuel, which is increasing daily without prior warning to airlines. We sell tickets at lower price but we airlift passengers at the new aviation fuel prices, which means we are incurring heavy losses. If we do not increase fares, many of us will not last three months. We are feeling the economic pinch together. We should put the blame where it should be and these are forex, aviation fuel, which is biggest reason for the hike.”

With the aviation fuel price hike and drastic increase in flight charges, Nigerians have one more issue to deal with.