Airlines, IATA Fret Over Rising Cost Of Crude Oil

• Fuel price up 60% in 11 months

The over 60 percent rise in the price of aviation fuel, otherwise known as JET A1, has continued to put airlines on the edge, just as the cost of operating a one-hour flight is equally rising and has made nonsense of average fares charged by airlines.

Many airlines have been voicing concerns about the impact of rising fuel costs – airlines’ largest operating cost item – on their financial recovery. Fourth-quarter 2021, according to forecast, tends to be a seasonally weaker quarter for airline passenger revenue as the fuel price increase represents an unwelcomed challenge.

This is not also helped by the astronomic increase in the price of crude oil, which oscillates between $80 and $82 per barrel. Each time the price of crude oil goes up, airlines are usually the first to feel the impact as aviation fuel price hits the rooftop.

To cushion the effect, airlines pass the cost to passengers by raising the cost of air tickets. The operators are in a dilemma as to the propriety of further raising fares, which could see a drop in passenger traffic as luxury buses are giving airline owners a run for their money amid glaring insecurity across the country. Many of the operators charge below $100 (N55,000) if travellers buy their tickets well ahead of their travel date.

But for tickets close to the date of travel, passengers can pay between N45,000 and N50,000 on Economy class, depending on the carrier.

Director of Engineering, Ibom Air, Lookman Animashaun, told Aviation Metric that the price of aviation fuel in Nigeria had been on the rise since January, explaining that in January this year, the commodity sold for N200 per liter.

He disclosed that the commodity was sold for N310 per liter as of Monday, a 60 percent increase in a space of eleven months.

His words: “Aviation fuel price keeps rising every month in Nigeria. It is never stable. We started with N200 per litre, but as of today, it went up to N310 per litre.

The average cost of an air ticket should be nothing less than $100, but if you look at the situation, no airline charges that, except when you do a late booking.”

Animashaun lamented that whenever oil prices go down in Nigeria, prices of commodities, tickets do not reflect in the reduction of oil, unlike in Europe and the United States where ticket prices go down whenever prices of crude oil go down.

He explained that international carriers do not feel the impact of skyrocketing JET A1 in Nigeria because the carriers carry enough fuel on their journey to the country and only top it up when necessary.

Average monthly jet fuel price and Brent crude oil price continued to climb higher in recent weeks and are currently well above pre-crisis 2019 levels. At the beginning of November, the price per barrel of jet fuel was at $96.1, +70 percent year-to-date.

The International Air Transport Association (IATA) in its Airlines Financial Monitor made available to Aviation Metric noted that the price increase has been driven by swiftly recovering demand as markets reopen around the world and economic activity restarts.

Meanwhile, supply has remained tight since an increase in OPEC+ production has been slow, while many airlines have been voicing concerns about the impact of rising fuel costs – airlines’ largest operating cost item – on their financial recovery.

Wole Shadare