Exciting news for Nigerian airlines! Dangote Refinery is stepping in to supply aviation fuel, potentially slashing costs for airlines. This move comes as a relief after months of financial strain caused by high fuel prices.
Anticipated Cost Reduction of Aviation Fuel Prices
Reports suggest that aviation fuel prices could plummet below the current rates. Presently, it’s sold at around N1,450 to N1,500 per liter in Lagos, even higher in cities like Abuja and Port Harcourt, and up to N2,000 in Kano and Maiduguri. This significant cost reduction could be a game-changer for the industry.
Impact on Airlines
Aviation fuel constitutes a whopping 60% of domestic airlines’ operating expenses. High fuel costs have made it difficult for airlines to stay profitable, leading to decreased passenger numbers. Passengers, already burdened by high ticket prices, are likely to welcome any relief in fuel costs.
Stakeholders’ Perspectives
Chris Ndulue, CEO of Cleanserve Energy and former managing director of Arik Air, is optimistic about the future. He believes that once Dangote Refinery starts production, prices will see a notable drop. Ndulue hopes that Dangote will price the fuel competitively and in local currency, eliminating the need for costly imports and dollar transactions. This shift could ease pressure on the naira and simplify transactions for merchants. He expects Dangote’s distribution system to leverage existing infrastructure, ensuring smooth delivery from the refinery to the market.
He said:
“Dangote has not started producing aviation fuel; however, everybody is expecting that soon it will start. The cost is expected to be cheaper as he is producing locally. First, there will be a significant reduction in logistics costs, which will reduce the price, and Dangote will not sell in dollars but in naira.
Dangote’s Impact on Currency and Imports
Dangote’s supply of aviation fuel marks a significant shift for oil marketers. With local production, there’s no longer a need to source dollars for imports. This move is expected to alleviate pressure on the naira and reduce the country’s dependency on imports, potentially aiding in the naira’s recovery.
Airlines’ Negotiations with Dangote
Professor Obiora Okonkwo, speaking on behalf of the Airline Operators of Nigeria (AON), emphasized the importance of negotiating directly with Dangote for fuel supply. He highlighted the association’s intention to strike a deal with Dangote, bypassing traditional oil marketers. Okonkwo stressed that Nigerian airlines would cover the full cost of the product and anticipated that locally-produced fuel would be more cost-effective. He emphasized the need for cost reduction and expressed willingness to engage with Dangote to achieve this goal. Additionally, Okonkwo mentioned reports of vendors already depositing money for the product, indicating a readiness to transition to Dangote’s supply chain.
Nigerian Airlines Face Closure Risk Due to Soaring Aviation Fuel Costs
Reports indicate that Nigerian airlines are in danger of shutting down due to the escalating cost of aviation fuel, also known as Jet A1. Over the past two years, the price of aviation fuel has been steadily rising, compelling airlines to enhance their operations by raising ticket prices. The volatile nature of fuel prices has posed significant challenges for local carriers, with a staggering 109% price hike observed in less than eight months, particularly between July 2023 and February 2024. This situation underscores the urgent need for sustainable solutions to ensure the viability of domestic airlines.
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