Filed in Transportation, Travel & Recreation by on January 13, 2012

Air travellers groan under industrial action, soaring JET A1 price
Friday, 13 January 2012 00:00 WOLE SHADARE

THE protests against removal of fuel subsidy by government have led to the shut down of the country economically. The aviation industry was not spared. WOLE SHADARE writes that the airline industry is inextricably tied to the overall economy – even minor recessions result in reduced demand and increased sensitivity to prices for leisure as well as business travellers.

The airline industry in the economy of any country plays very important role and every economy in the world depend on fuel and it is generally seen as the live wire of any nation.

Today’s airlines face many new problems. The historical trends show the true story of what is happening in the airline industry. There are many factors that contribute to these problems and increase in fuel rates/cost is one of them.

Due to the fuel price surge, the cost of fuel accounts for 35 per cent of the cost of major business of airline companies.

The airline industry is always sensitive to price change and it has taken so many actions this time around.

Although, aviation fuel in Nigeria had long been deregulated, the astronomical rise in the price of Premium Motor Spirit (PMS) has consequently affected the price of aviation fuel, otherwise known as JET A1.

The airlines have equally signified their intention to adjust airfares to match the cost of JET A1, which has risen to between N175 and N200 per litre depending on the area of purchase. Many counseled that if ticket prices were raised at this time the passengers would be scare away. Several transportation companies also mention that the domestic transportation is stagnant recently, and it would be further overwhelmed if the airline raised price now.

Therefore under the present condition of fuel price surge, the airline should minimise the loss through management strengthening, cost lowering and efficiency, but not simply raise the price.

The airlines are in perilous financial condition. Many of them are on the verge of bankruptcy.

Carriers have reported over N10 billion in net losses since the strike started, Nigeria other allied and non-aeronautical businesses may have recorded another N10 billion losses.

Since the strike started on Monday, the airports, particularly the domestic wing of the Murtala Muhammed Airport is like a ghost town devoid of its boisterous nature.

A first time visitor would think that the country is at war, as major roads, streets leading to the airport remain deserted. The picture was very scary.

Policemen stationed around strategic areas of the airport had a difficult time preventing protesters from carrying out protests, just as the protesters out numbered them.

Businesses around and inside the airport in Lagos have remained under lock and key.

At the Murtala Mohammed International Airport, Lagos, foreign airlines like British Airways, Virgin Atlantic Airways, Emirates, Arik Air, Ethiopian, Air France and KLM which hitherto thought they would be allowed to operate, were disappointed when the industry unions prevented them from checking in passengers for flights outside the country.

Some foreign airlines have taken a holistic appraisal of their operations to the country. Some of them suspended operations to Lagos, while others are contemplating stopping their operations until the matter that has grounded the country was resolved.

Already, KLM Airlines said it has stopped operations to Nigeria because it could no longer guarantee the safety of its crew and equipment.

Spokesman for Air France-KLM, Mrs. Funmi Ojesina in a telephone chat with The Guardian said that the carrier had suspended operations for now until safety guaranteed.

Also, Lufthansa, which had earlier suspended its operations on Tuesday said, “We expect flight operations to restart on Thursday. That is outbound leaving each from Lagos and Abuja to Frankfurt. For inbound, we expect flights to come in by Thursday.

A source who pleaded anonymity said the airlines were equally concerned with the quality of air traffic control that is being handled by insufficient workers which it said could endanger its machines and lives.

When The Guardian visited the airport yesterday, passengers who had wanted to depart the country were stranded without any hope of making their journey out even later. No fewer than 800 passengers of various airlines were at the airport yesterday and wore gloomy faces.

The sector’s ability to borrow to support continuing losses is evaporating. The few airlines that have been able to achieve a profit are doing so under tremendous adversity – and with the prospect of war on the horizon, the overall picture is bleak.

The reasons for the imperiled condition of the industry are clear. Revenue has declined sharply. Although carriers are aggressively reducing costs where possible, stubbornly high fuel prices and escalating security and insurance costs, among other things, have combined with a particular vengeance in an under-performing economy.

The Assistant Secretary General of Airline Operators of Nigeria (AON), Muhammed Tukur said, “We have embarked on an unprecedented program of self-help to address this “perfect storm” of adversity.

He reiterated that issues such as fuel prices, however, are obviously beyond “our ability to battle alone”.

Increases in fuel prices affect the airlines in two ways; the cost of fuel has an obvious and direct impact on the cost of operation, and fuel cost increases have repeatedly triggered economic recessions, which in turn result in a substantial decline in demand for air travel and air cargo.

“Fuel price increases have a particularly adverse impact on airlines because even in good time fuel costs constitute roughly 30 per cent of our operating expense.

Every penny increase in the price of jet fuel costs the airline industry more than N10 billion a year. In the absence of pricing power – the ability to pass these costs along in the form of higher airfares – these increases come right off the bottom line.

An even more pernicious aspect of the fuel price increase is the relationship between the economy and air travel. The link between fuel prices and the health of the economy is clear.

The airlines are doing everything they can to conserve fuel. Throughout the history of commercial aviation, airlines have insisted upon the most fuel-efficient aircraft possible and have worked with airframe and engine manufacturers to reduce fuel consumption.

Today’s fleet is nearly three times more fuel-efficient than the fleet we were operating at the time of the first OPEC fuel crisis. In fact, our fuel conservation efforts have resulted in a fuel consumption rate of almost 40 passenger miles per gallon in today’s aircraft – a rate that compares favorably with the most fuel-efficient automobiles.

Airlines continue to look at every possible facet of their operations to further improve fuel efficiency through measures like taxiing on one engine, delaying startup and push back, removing all discretionary weight, and using ground power instead of on-board auxiliary power units while at the gate. These and similar measures are increasingly being used where commensurate with safety considerations to save fuel and, not incidentally, to reduce emissions.


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