Airlines to adjust fares over oil price surge
- Nigerian carriers’ in dilemma
- Perennial scarcity worries firms
The rise in the oil price is putting the squeeze on airline costs and is likely to lead to a rise in air fares, industry experts told Woleshadarenews.
The oil price, which typically accounts for around 30 percent of an airline’s costs, has risen 52 percent since May this year to around $76 a barrel.
Airlines are paying more for fuel, and passengers may soon pay more to fly.
A spike in fuel prices, generally airlines’ biggest cost after employee pay, is eating away at carriers’ profits.
Meanwhile, Nigerian airlines are groaning following slight increase in the price of aviation fuel which was confirmed by the Managing Director of Medview Airline, Alhaji Muneer Bankole when our correspondent spoke with him on phone.
Bankole said aviation fuel, otherwise known as Jet A1 costs N250 per litre in Lagos and N280 per litre in places like Yola, Sokoto and other areas in the North of the country.
Bankole disclosed that Jet A1 has risen to N250 per litre from N220 per litre from in less than two months he told reporters of the current price at a press briefing organised by the carrier in Lagos.
According to Bankole, “When (the fuel price) increases, the cost of air travel increases. So I do believe that consumers will pay more. Airlines are under a lot of pressure. Demand is recovering but rising fuel prices may short-circuit that.”
He stated that he does not expect those higher fares to hurt demand significantly, however.
The perennial shortage of aviation fuel has become a big clog in the wheel of domestic airlines as they find it difficult to operate smoothly like their counterparts.
The price of the product is critical to an airline and also considering the fact that fuel consumption amounts to about 30 percent of the cost of operation for an airline, there is need to quickly nip the problem in the bud.
Jet fuel is one of the largest single expenses that airlines face, the rise cost airlines billions of dollars more than last year.
Another operator who spoke under strict condition of anonymity said the rise in oil prices in recent months will pressure the profitability of airlines and will likely result in increased airfares in the coming months.
But the operators are in a dilemma over pressure to increase airfares which are before lowly priced.
Air fares in Nigeria are said to be among the lowest in the world for one hour flight which goes for around N20, 000 ($55) off peak period and between N25, 000 and N30, 000 ($83) at peak period.
The source said the operators are mindful of not arbitrarily raising air fares because of the fear of scaring people away from air travel, but noted that the carriers would need to raise fares ‘marginally’.
However, airlines said the higher oil price was proving financially damaging because fare increases had so far failed to keep pace with the oil price rise.
The Director-General of International Air Transport Association (IATA) Alexandre de Junaic said jet fuel prices are expected to rise to $84/barrel (+21.4 per cent) Fuel costs will account for 24.2 per cent of total operating costs (up from a revised 21.4 per cent in 2017).
Overall unit costs are forecast to rise 5.2 per cent this year, after a 1.2 per cent increase in 2017; a significant acceleration.
Rising costs are equally said to be putting this under pressure, with robust profitability needed to reward investors, strengthen balance sheets and fund the growth of aviation jobs and its social benefits.
Airlines in the Asia Pacific region have put in place hedging programs to help insulate the financial impact of an oil price rise.
Australia’s Qantas Airways Ltd, which hedges a substantial amount of its fuel requirements, expects its fuel bill will rise by $200 million ($158.82 million) this year.
The airline, however, has forecast it will report record-level first-half earnings of up to $950 million as it adds more fuel-efficient jets and cuts costs elsewhere in its business.
“Despite fuel prices being higher than last year, we are digesting fuel very well at the moment,” Qantas CEO Alan Joyce said.
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