- Nigerian carriers in limbo, Jet A1 rises to N320/litres
It has been a while ago since airlines have complained of oil prices, but that is about to change. Jet fuel prices are on the rise again, notably since May, and continuing to rise through June into the third quarter.
Meanwhile, the International Air Transport Association (IATA), the clearing house for more than 290 global airlines, has warned that oil prices will cast a shadow over the effects of the summer recovery. It stated this in its June 30, 2021 financial update.
Nigeria has begun to see a spike in the price of aviation fuel, otherwise known as Jet A1. The commodity has been rising steadily but got to an all time high of N320 per liter this week in the Northern parts of the country and N290 in the South.
The situation has put airlines in serious quagmire as to what air fares that are already considered too expensive should be.
An airline operator who spoke to Aviation Metric under condition of anonymity said the increase in the price of Jet- A1 which makes for close to 40 per cent of the running cost of an airline, will put additional burden on airlines that have been struggling to return to normal business after COVID-19 lockdown had halted their operations.
“We now buy a litre of aviation fuel at N290 in Lagos, but up in the North in places like Maiduguri, it is about N300 and N320. That is the unfortunate situation we have found ourselves,” he said.
He further stated that the price of the product is critical to an airline and also considering the fact that fuel consumption amounts to between 30 and 40 per cent of the cost of operation for an airline, stressing that there is a need to quickly find more reliable ways to ensure the supply and distribution of the product.
Lack of constant supply of aviation fuel, otherwise known as Jet A1, has been identified as the major cause of cost of the commodity in Nigeria, where Jet A1 Nigeria is ranked among countries with the highest price cost.
In Nigeria, despite the stability in the lifting of aviation fuel across the country and the deregulation of the commodity, JET A1 has continued to skyrocket outside Lagos to N320 per litre especially in places like Sokoto and Maiduguri.
A major aviation supply company in Nigeria, CITA noted that there are two major hindrances to aviation fuel supply to the airports in the country. One is the process of supply and the second is the price of the product.
Aviation fuel is central to the operations of an airline, as it constitutes between 35-40 per cent of an airline’s cost. The price of the commodity – laden with taxes – in the West African sub-region, is the highest in Africa.
While the specialised fuel is sold for about $2.30 cents per gallon in Nigeria, $2.30 in Benin and $1.94 cents per gallon in Cameroon, it is sold for close to $3.14 cents in Ghana, which also produces oil. In Luanda, Angola (also an oil producing country), it costs $3.75 per gallon; Libreville $2.05 per gallon; Khartoum, Sudan $2.44 per gallon.
It is only Equatorial Guinea that sells JET A1 for $0.46. Jet fuel prices in some African capitals are double the global average and it is posing a threat to its aviation sector development.
The high cost of jet fuel in Africa compared to other regions due to distribution inefficiencies and infrastructure constraints, has held back the development of airlines and fare reduction
The graphic from IATA’s jet fuel price monitor confirms that prices have been rising since October 2020, when in some areas the first signals of recovery from the COVID-19 crisis became evident.
Prices hit the bottom in March/April 2020, when worldwide traffic collapsed but they recovered around June after the first wave.
A further increase in price happened between October and March this year. Since then, crude oil has been going up as worldwide economic activity recovered. This trend has continued in June, with jet fuel prices even outpacing crude oil since May.
A fuel price index shows how jet fuel has become more expensive in the past year. Compared to an index of 100, fuel prices went up to 208.8 on June 4 and continued to climb to 217.6 on June 25.
The weaker dollar has also had an impact, with a barrel in US Dollars being more expensive than one in Euros. While this has been the trend since 2014, the price difference between the two has grown again since the start of 2021.
“Although steady vaccination roll-outs and falling COVID-19 cases in Europe and North America raise hopes for summer recovery, airlines will be challenged by rising fuel costs as the traffic resumes”, IATA’s financial monitor says. Fuel prices will become a significant factor again when airlines report their Q2 results later this month and will eat into their Q3 results even more.
With an average fuel price of $69.4 per barrel, IATA calculates fuel to have an impact of $43.2 billion on the airlines’ fuel bill this year. This is subject to changes if prices will further rise.
The International Energy Agency expects fuel prices to rise by six percent this year, with a return to pre-pandemic levels by late 2022.
The graphic shows that this would mean fuel prices would be around $75-80, so higher than the average calculated by IATA until now. Last December, the association expected jet fuel to cost $49.5 a barrel.
A few airlines like Rwandair have said that they have stopped hedging. In the current market with rising fuel prices, this will likely have a negative effect.
IATA’s financial monitor showed that combined airline losses in the first quarter of 2021 were almost on par with those of Q4 in 2020, or $17.9 billion.
For the whole of 2021, IATA maintains its outlook from April that airlines will suffer post-tax losses of $47.7 billion this year. Last year, the sector lost $126.4 billion.