Nigerian airlines on death throes

At times of surging fuel prices, one response by airlines has been to impose fuel surcharges on top of the base fares for flights. The sudden increase in the price of jet fuel has triggered the planned re-introduction of fuel surcharges by a number of airlines, writes, WOLE SHADARE

Sector in crisis

When faced with higher-than-anticipated costs or the imposition of excessive tax and other charges by the government, most airlines have two choices. They can either raise their prices, risking upsetting consumers and losing market share to cheaper competitors; or they can sacrifice profits to keep prices steady and retain market share. However, in recent times some airlines have found a third solution: the imposition of fuel surcharges.

A fuel surcharge is an additional fee or levies added to the price of a ticket, fare, transport load, or other transport-related items to recover fuel cost increases.

Typically, airlines do not charge for moderately priced fuel because this price is reflected in their overall cost calculations. Therefore, fuel surcharges are charges above the normal rate.

At first blush, fuel surcharges appear to be a transparent, mathematically determined way for airlines to recoup their expenses for the unexpectedly high price of oil. But as they spread across the Nigerian aviation industry, fuel surcharges increasingly appear to be an arbitrary way of raising prices while making customers believe that they are not paying more.

 

Nigerian airlines

The high cost of jet fuel leading to another call for the introduction of a 40 percent fuel surcharge would further make travelling by air not to be cheap from now onwards.

With the inflation across countries, most people have shallower pockets, and less disposable income,” a Nigerian-based jet fuel trader said.

Memory lane

Between 2004 and 2006, as the global oil price increased, British Airways and Virgin Atlantic imposed almost simultaneously passenger fuel surcharges on their flights to and from Nigeria, increasing the final cost of travel for passengers.

In May 2011 the NCAA caused an investigation into the simultaneous imposition of fuel surcharges by British Airways and Virgin Atlantic and found this to be unfair and deceptive and to constitute an unfair method of competition.

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Neither BA nor Virgin Atlantic could demonstrate that the fuel surcharge was a pure cost-recovery exercise, as the increases were lockstep in nature and did not reflect the equivalent rises in oil prices. The authority found that, essentially, the fuel surcharges imposed were fare increases.

 

Nigerian airlines

A committee on aeronautical, non-aeronautical, and passenger charges in Nigeria, set up by the Minister of Aviation exposed how airlines exploit passengers and defraud the government.

For example, the committee analysed the calculation basis for passenger tickets for four domestic airlines: Arik, Dana, Medview, and First Nation. The analysis showed that amounts ranging from 40% to 65% of the airfare were hidden as fuel surcharges. The methods of calculating these fuel surcharges were unknown to both passengers and the government.

The high cost of jet fuel has worsened air travel and the recovery purported to have been made after the COVID-19 pandemic has been described as a ruse.

Planned flight disruptions

Nigerian airlines, under the aegis of Airline Operators of Nigeria (AON), say there will be major disruptions of flights due to scarcity of aviation fuel, also known as JET-A1.

Obiora Okonkwo, spokesperson, AON, said this in a statement released on Friday.

This is the second announcement on the disruption of services over the scarcity of aviation fuel in three months.

In May, AON said the scarcity of fuel negatively impacted the seamless conduct of air transport operations and “would lead to flight rescheduling, and, or, cancellations”.

Nigerian airlines

The Nigerian aviation industry is in serious dire straits and the pattern of the problem is taking a similar shape to what is currently happening in the larger world where aviation scarcity and the high cost of the commodity are truly taking the joy out of air travel.

The country’s airlines are of the view that increasing airfares would be injurious to their operations as the current fares charged went up a few months ago are no longer sustainable and could not guarantee a return on investment.

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Turbulent times

The past few months had been very challenging for the aviation industry and the airline operators, in particular. High cost of maintenance, skyrocketing fuel prices, inflation, and forex scarcity resulting in high foreign exchange rates are amongst the major components of airline operations

To summarise the situation, the carriers are operating at a loss and are tinkering with introducing fuel surcharges to help them cushion the effects of the astronomical jet A1.

Sounding desperate and almost giving up, the carriers in a last-ditch effort to save their businesses cried out to the Nigerian Civil Aviation Authority (NCAA) for help. The carriers collectively sought the approval of the aviation regulatory agency to impose a 40 percent fuel surcharge as an ameliorative measure to cushion the effects of the continuous increase in the high price of Jet A1 on airline operations in the country.

 

Foreign airlines in flight

The introduction of a fuel surcharge would lead to another round of fare increases. The astronomic rise in prices of Jet fuel and the introduction of surcharges will inevitably translate to the high cost of flying.

The implication is that airfares would technically go up and beyond what an average passenger can afford.

Experts’ views

President, Aviation Safety Round Table (ASRT), Dr. Gabriel Olowo has urged the airlines to sell what they buy.

“This is my candid opinion to airlines, given these uncontrollable factors of production in the Airline Industry sector. Demand will definitely drop but much better than cutting corners and planning an accident.
If a trip fuel is 4000lts for 1 hour on jet ( LOS ABV) for example at N800 per litre which gives N3,200,000 and a load factor of 100 passengers, This means fuel cost per passenger is N32.000 and this is approximately 30% of the total cost. This will translate to N107.000 tariff for a one-way journey”.

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Olowo urged to intensify cooperation, collaboration, consolidation, and prune schedules to minimize perishable seats and maximize load factor, adding that the spirit of Spring Alliance must be strengthened.

“The sector must not negotiate an accident. NCAA is encouraged to be more vigilant to watch cutting corners”, he added.

Another aviation consultant, Dr. Alex Nwuba disclosed that aviation has failed because there is no vision driving it, describing the Ministry as is the enemy of the operator with the exclusive policy they make without knowledge of how things actually work in the place called reality.

His words, “The operators are enemies of themselves because they think competition is death; there is NO synergy, no strategy, no direction. It enters into global alliances,   regional alliances, and sub-regional alliances without a thought of its own position, as is, or should be. The fundamentals are left until crisis time and mice run loose in an aquarium full of cats”.

Global jet fuel prices have surged to near 14-year highs in line with crude oil’s surge on supply shortfall worries, slamming air carriers and travellers with steep cost increases just as air travel was starting to recover from COVID-19 restrictions.

Jet fuel prices in Europe and the United States have posted similar gains, leaving global carriers who have already been hammered by COVID-19 over the last two years to have to pass on higher costs via fuel surcharges and increased fares

In turn, fare hikes risk undermining an air travel recovery that has gained momentum as international border curbs ease.

Last line

The imposition of a fuel surcharge on passengers that is found to be excessive, unfair, exploitative, and unreasonable can be punished and remedied under the Civil Aviation Act, which sets down guidance for the NCAA

Wole Shadare