What drives up the price of aviation fuel?
The operations controller of the Independent Petroleum Marketers Association of Nigeria, Mr. Mike Osatuyi, blamed the dramatic increase in the price of aviation on the ongoing Russian-Ukrainian crisis.
Speaking to the Punch newspaper, Osatuyi warned that further airfare hikes were expected in the coming weeks amid soaring jet fuel prices.
“The increase therefore goes hand in hand with the increase in the price of crude oil. By next week, don’t be surprised we’ll reach N700. The exchange rate today is N585 while the official rate is N416; and the government does not give foreign exchange allowance for the purchase of kerosene, diesel and aviation fuel”, he said.
Recall that Nigeria has generally been struggling with a fuel shortage problem since January. Initially, only motorists were affected. But recently, aviation fuel has also become scarce, which has further aggravated the situation in the aviation sector, even as some airlines have been forced to reschedule or cancel scheduled flights.
Is the lack of kerosene subsidies to blame?
According to Alexander Nwuba, President of the Aircraft Owners and Pilots Association of Nigeria, the price of aviation fuel keeps skyrocketing because the product is not subsidized. He argued that traders need to recoup their costs.
“The prices have to go up because it’s not subsidized by the government. So whoever imports must recoup the cost and make a small profit. The grant does not cover kerosene. Nigerians do not consume kerosene, they pay for it through plane tickets. Before the hike, airfares accounted for about 40-50% of airlines’ operating costs, which they pass on to consumers. Now that the price of jet fuel has nearly doubled, this means that jet fuel now accounts for up to 60-70% of airline operating costs. You still have further cost increases across the board. Handling fees have gone up at airports, and a number of other things have gone up. Naturally what happens is that the airlines will adjust their prices to operating costs in others to make a profit and they always complain about not making a profit,” said Nwuba.
Similarly, Centurion Aviation Security and Safety Consult CEO John Ojukutu argued that a liter of aviation fuel should not be sold for less than $1.2 (N500). His reason was that the product is imported and prices in other countries like the United States could be as high as $4 per litre.