THE decision by the Federal Government to remove subsidy on petrol came to many as a bang.

For an aviation industry that is reeling under so many taxes, uncertainty, harsh business climate, this action would sure have serious impact on the sector. Agreed that aviation fuel, otherwise known as JET A1 had been deregulated, cost of operations which could double occasioned by the development could lead to adjustment in air fares to make up for lost revenue.

The fear stemmed from the impact the subsidy removal would have on service, products and possibility that air fares may increase.

Many predicated their fear on the fact the major oil marketers in Nigeria have formed a cartel, since the price of aviation fuel is not controlled by the government, they could also be forced to raise the price of the commodity to make sure that the price of JET A1 is not at par with the price of PMS.

JET A1 is sold for between N160 and N180 per on the place of purchase.

It is predicted that if the price of Jet A1 continues to be adjusted, air fare from Abuja to Lagos could be priced beyond N40, 000 before any airline can comfortably operate to recover marginal profit. It is almost coming to reality.

Early last year, precisely in January, the price of Jet A1, the dominant jet fuel used for most of the aircraft operating in Nigeria, was N111 per litre in Abuja. By the first week of March, the price had risen to N140 per litre.
On July 3, the major oil marketers in the country informed airline operators that the price of the same product was climbing in excess of N170 per litre. Therefore, in just over four months, the cost of buying Jet A1 increased by over 25 per cent without any sign of abatement.
It is interesting to note that aviation fuel gulps about 40 per cent of an airline’s revenue in a normal market where carriers can adjust ticket prices to balance their income.

Air passengers may initially resist the increase; there is the likelihood that they will adjust to the reality as there are no other safer and faster option of travelling within this country.

In Nigeria, where the Nigerian Civil Aviation Authority (NCAA) as opposed to market forces regulates a ticket price, many airlines find it extremely difficult to survive with the trend of fuel prices.

An airline source, who spoke to The Guardian on condition of anonymity, said even if the price of JET A1 remains the same, catering and other services affected by the astronomical increase in the price of Premium Motor Spirit (PMS) would make the hike in air fares inevitable.

The Assistant Secretary General of Airline Operators of Nigeria (AON), Alhaji Mohammed Tukur, said there would definitely be an adjustment in the price of air fares but was silent on what it would be.

Tukur noted that both the Nigerian Civil Aviation Authority and the Ministry of Aviation would find it difficult to prevail on the airlines on the issue, adding that the cost of doing their operations would be enormous on them.

Apart from the global economic meltdown that has affected airlines across the world, another round of hardship, occasioned by additional costs on the carriers could force them out of service.

Passing of the cost to travellers has implication as air travellers could be forced to shun air travel for a while.

Whichever way it goes, it would be a hard pill for the carriers to swallow, forcing them to adopt new measures for survival.

Government’s assistance to the carriers in terms of N200 billion bail out fund has not been encouraging as a result of the strong conditions attached to the loans.

Nigerian airlines incur tremendous charges.
These charges include landing and parking charges, fuel surcharge by the Federal Airports Authority of Nigeria (FAAN) and high cost of aviation fuel.
They also complain that the airlines pay huge amounts of money in foreign exchange for the maintenance of aircraft and purchase of aircraft spare parts, which can only be imported into the country. All these take place while they earn revenue in the country’s unstable currency – the naira.
In the past, operators enjoyed duty waiver on aircraft parts importation, but it had been scrapped in the last two years, hence the reintroduction of fees. They complain about double taxation on aircraft parts (Customs Duties and Value Added Tax), which they said had a huge toll on their finances.

Not long ago, the Nigeria Airspace Management Agency (NAMA) introduced Terminal and Navigational charges, which is the payment for the use of navigational aids at the airports by the airlines.
All these problems have resulted in a limping sector neck-deep in debt to aviation agencies and fuel marketers.

The next few weeks is very crucial for the industry. Since the country does not refine JET A1 or does not have a refinery to refine crude oil for local consumption, air travellers will continue to be at the mercy of oil marketers; a situation that could lead to astronomical rise in air tickets

-Guardian

Posted by admin on Jan 10 2012. Filed under Headlines, Oil Politics. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry