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FLIGHT RISK

The threat of an airline shutdown in Nigeria isn’t going away

Two passengers are attended to by two people at an airport
Reuters/Temilade Adelaja
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  • Alexander Onukwue
By Alexander Onukwue

West Africa correspondent

Published Last updated

For the second time this year, domestic airlines in Nigeria have threatened to shut down their operations, citing rising costs, only to back off after a few days.

The latest episode started on May 6. A statement supposedly signed by chief executives of 10 of Nigeria’s major airlines announced a plan to suspend flights indefinitely from May 9. Under the umbrella of Airline Operators of Nigeria (AON), the CEOs said they had been subsidizing flights for four months “despite the steady and astronomical hike” in the price of aviation fuel and other costs.

AON said the price of aviation fuel (JetA1) has risen from 190 naira per liter to N700 ($1.68), and that it could no longer absorb the costs. The group said rising fuel costs had increased the cost of an hour flight seat to N120,000 – a price that would be more than twice the current rate of N50,000 ($120).

The group put off the day once more after “numerous calls from the highest echelons of government with promises to urgently intervene in the crises,” according to a May 8 statement. But the global and evolving nature of jet fuel price increases means this threat may not be the last.

Jet fuel is becoming more expensive 

Jet fuel prices are at record levels, data from the International Air Transport Association (IATA) shows. One barrel is reportedly selling for $175 per barrel this month, the highest in the last seven years, compared to $75 in May 2021 or barely $15 two years ago. The recovery of air travel post-pandemic could be responsible for the ongoing price increases.

“For most of the past two years, with planes grounded around the world, jet fuel has been the most unwanted product an oil refinery could make,” Javier Blas, a former Financial Times commodities editor, wrote in a Bloomberg opinion piece last month. “But as the Western world rediscovers air travel, it’s rapidly becoming one of the most-prized commodities.”

Refineries may not automatically ramp up jet fuel production given increasing demand for diesel caused by supply shortages due to Russia’s war with Ukraine. As a result, of high demand and low jet fuel supply, prices will rise. In Brazil, the state-owned oil company Petrobras increased the price of jet fuel by 7% this month.

Nigeria does not produce its own jet fuel

Despite being an oil producing country, Nigeria imports refined crude oil products, including jet fuel, leaving it vulnerable to global shocks in supply. Nigeria’s ever-weakening naira against the dollar also makes imports increasingly expensive.

The airlines group canceled their plan to suspend flights “pending the outcome of hopefully fruitful engagement with government,” but it is not clear what the expected outcomes are.

The last time airlines threatened to down the tools in March, they called it off after jet fuel sellers pegged the price at N500 ($1.20) per liter. That proved to be a temporary band aid ripped off by the harsh reality of the market.

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