Aviation Fuel Franchise: How Nigeria Lost to Ghana, Gabon

January 5, 2017

Nigeria is losing on all fronts in the unfolding aviation fuel supply drama in the West African sub-region. Stakeholders however, say that despite its enormous hydrocarbon reserve as Africa’s number one producer, local and international airline operators seem to have found a new market for cheap aviation fuel in Ghana and other ECOWAS states to the detriment of Nigeria. At present, other locations supplying Jet A1 to airlines in the sub-region, according to reports, include Gabon, Liberia and Sierra Leone with many trooping to these countries to refuel.


For Nigeria’s domestic airlines, the scarcity of the product has kept airlines from fulfilling the statutory function of ferrying passengers to their destinations especially during Christmas and New Year.
Daily Sun investigations show that nearly 30 per cent of scheduled commercial flights were cancelled at various airports across the country, with 70 per cent rescheduled owing to the inability of airlines to source fuel internally to power their aircraft.


But Secretary General of the National Union of Air Transport Employees (NUATE), Mr. Olayinka Abioye, told Daily Sun at the Lagos airport that there has been rising incidences of assault on airline staff by frustrated passengers whenever flights are cancelled or delayed.


“Fuel supply crisis is getting worse and flight cancellations and delays have also risen that airline staff are now targets of assault by aggrieved passengers,” Abioye said.


Fuel accounts for almost 40 per cent of the overhead of airlines and many would always head for markets where it is sold cheap. “Almost all the foreign airlines operating into Nigeria now refuel outside this country once they load their passengers or cargo,” a senior official of one of the oil marketing firms at the Lagos airport told Daily Sun.


“They either go to Ghana or any of the neighbouring countries. The impact is not just restricted to the airlines as even oil marketers are losing as well. It is a worrisome development because as long as we are not selling the volume we ought  to sell, it is bound to affect our revenue and obligations to shareholders and staff,” said the official who wouldn’t want to be named. But unlike in the past when Nigeria had functional refineries producing Jet A1 to meet the needs of domestic and international airlines, the product today is 100 per cent imported. Available records show that between 2014 and 2016 Nigeria has witnessed a worst scarcity of the commodity than ever before as import of the product is subject to the vagaries of the foreign exchange market.


For instance, in 2016 alone, cost per litre of aviation fuel rose from N120 per litre to N175 and later to N250. In the northern part of the country, it could sell for as high as N270 per litre.


This shows that while aviation fuel is sold at between N250 and N270 in Nigeria, the product is sold at N110 per litre in Accra as the Ghanaian government deliberately crashed the price of the product by 20 per cent recently to woo airlines from Nigeria to Ghana. Who gains? It is the Ghanaian oil marketers and the banks, of course. Travel agents in Ghana are also reported to be smiling to the banks as several foreign airlines have since relocated their sales and ticketing offices to the country while their Nigerian counterparts continue to suffer losses.


The Ghanaian Airport Authority is also making money because each time an aircraft lands to pick up fuel, it pays landing or parking charges to Ghana. At present, some of the airlines lifting passengers in Nigeria and refuelling outside the country include, Delta Airlines, Arik Air, Medview, Emirates and South African Airlines. What these airlines enjoy is the fact that they have offices and ground staff at airports in these West African countries who facilitate the purchase of fuel with ease for them. The airlines, it should be noted, are already carrying out scheduled flight operations out of these airports and each shuttle to neighbouring countries to refuel comes with its own inconveniences to Nigerian passengers. An aircraft, which is supposed to have embarked on a straight flight from Lagos to Dubai or Lagos to Atlanta now gets to spend nearly half an hour on ground in Accra or Libreville just to get its tank refuelled, thereby causing a big disruption on the original planned departure and arrival for such Nigerian passengers.


Regional Manager, West and East Africa for South African Airways, Mr. Ohis Ehimaghe, who confirmed that the airline picks up passengers in Nigeria, but refuels in Ghana and Gabon, noted that the scarcity of the product in Nigeria had done incalculable damage to the airlines’ business plan.


“In the last two weeks, there has been total dryness of aviation fuel supply. We have to go to neighbouring countries, especially Ghana, to lift fuel. Ghana is running dry of the commodity too. Our Abuja flights have been flying to Libreville, Gabon, to lift fuel and this is an additional cost to our operations,” he added.


Managing Director/CEO of Medview Airlines, Muneer Bankole, also said the recent foray of the airline into Monrovia, Liberia and Freetown, Sierra Leone, from the Lagos airport would provide opportunity for the airline to refuel at a cheaper cost. “We bought fuel at N250 per litre in Nigeria and fuel is still about 58-70 cents in Freetown and that’s the gain for us when returning. So we take fuel as Freetown and is now a turnaround location for us where we top up the fuel,” he added.
 

The losers
 

There are seven local airlines whose financial fortunes would be deeply affected by what is happening in the aviation supply chain. These are Arik Air, First Nation, Azman Air, Aero Contractors, Dana Air and Air Peace. Industry sources say an estimated N200 million is lost daily by local airlines due to rescheduled and cancelled flights, a fallout of the fuel supply crisis in Nigeria.


Aviation fuel supplied to local airline has remained the highest in the world as it is still being imported at a high cost given the current exchange rate of the naira to the dollar.  And with most airlines carrying out routine maintenance as well as sourcing spare parts abroad, domestic airlines whose source of income remains the naira have been going through tough times matching incomes with expenditures mostly done at a much higher cost.


A top official of one of the local airlines told Daily Sun that the cost of operation for airline owners has risen “astronomically in the last one month” even as he expressed concern over returns for investors in the airline business by the close of the year.


It was learnt that passenger patronage had dropped by about 25 to 30 per cent with dire consequences on revenues of the airlines as well as the local travel agents that sell tickets for the airlines. A statutory 5 per cent taken from the amount sold from every single ticket in Nigeria is usually shared between the Nigerian Civil Aviation Authority (NCAA), Nigerian Meteorological Agency (NIMET), Accident and Investigation Bureau (AIB) and Nigerian Airspace Management Agency (NAMA).


That revenue, which is deployed to boost the equipment and manpower capabilities of these regulatory agencies is reported to have dropped drastically in recent weeks and raising fresh source of worry to the government following the low patronage of foreign airlines by Nigerian travellers. And the oil marketers in Nigeria are also losing millions of naira in revenue daily as the market now disappears and heads to neighbouring countries.
 

Immediate causes


Although aviation fuel has long been deregulated, the immediate cause of the ongoing acute fuel scarcity is linked to the inability of oil marketers to source forex to import. Last week, the naira exchanged at an all time high rate of about N484 to a dollar. Oil importers and marketers had warned, about the middle of March 2016, that the continuous depreciation of the naira and the scarcity of forex could do great harm to the importation of Jet A1 for the aviation sector, imploring the government to step in and make forex available to them. Sadly, that warning was not heeded.


Daily Sun, however, also learnt that aside the increasing inability of a lot of importers to open letters of credit due to inadequate availability of forex, a corresponding scarcity of household kerosene has also forced most importers of Jet A1 to downgrade the product and sell it as Dual Purpose Kerosene (DPK) as domestic fuel in homes at a price far higher than that sold to airline owners.
 

Airline owners’ response


Chairman of Airline Operators of Nigeria (AON), Capt. Nogie Meggison, who decried the inability of the Nigerian government to respond quickly to the fuel crisis situation noted that allowing Ghana to serve as fuel hub would hurt the Nigerian aviation industry severely. Meggison noted that soon international airlines may even start attracting Nigerian passengers to travel to Ghana to board international flights. Should that happen, Meggison said local carriers would lose terribly from connecting passengers from other airports within the country to Abuja, Enugu and Lagos airports where they usually link up with international flights to their final overseas destination.


“This new move (allowing Ghana serve as fuel hub) is condemnable because it will affect Nigeria adversely. When this is done, Nigerian airlines operations will be affected and it will end up shutting our economy. With Emirates’ move to Ghana alone, Transcorp has lost 18 crew members, engineers and logistics service providers that usually lodge there,” said Meggison.


He said most Nigerians now opt to go by road. “For most of them now, the alternative means of travelling is by road; our major competitor. and it should be put on record, however, that road transport uses petrol, which is highly supported or assisted by the Federal Government with exchange rate of N285 and available to marketers.


“Airlines, on the other hand, don’t have such foreign exchange support or availability from our government with regards to helping to make Jet A1 fuel available at affordable price,” he added.

 

This article was originally published on www.sunnewsonline.com

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