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  • Airfares to “inevitably” increase –IATA

 

There are indications that the astronomical increase in the prices of aviation fuel, otherwise known as Jet A1, could lead the carriers to further adjust airfares.

The adjustment could be in the form of fuel tax or surcharge to cushion the effects high cost of Jet fuel on their operations.

An airline operator, who spoke to Aviation Metric under strict conditions of anonymity, said the carriers would not have any other choice than to do what other big carriers across the globe have implemented to navigate the tough situation posed by rising jet fuel.

 

Jet A1

According to the source, “it is true that Jet fuel is taking about 40 percent of airlines’ revenue. The recent increase has not helped matters. We are looking at every available option including the introduction of a fuel surcharge to ensure we remain in business. We are really considering that option. Many airlines in Europe and America including the Middle East have all introduced fuel surcharges.”

The introduction of a fuel surcharge would lead to another round of fare increases. The astronomic rise in prices of Jet fuel and the introduction of surcharges will inevitably translate to the high cost of flying, the Director-General of the International Air Transport Association (IATA), Willie Walsh, has warned.

Meanwhile, some airlines have introduced fuel surcharges which are treated like government taxes that make new tickets more expensive and appear as extra costs to travelers.

The soaring price of fuel threatens the airline industry’s recovery just as passengers are returning to the skies. As crude prices remain elevated, airline bosses face a critical calculation: how much of their fuel bill can they pass on to customers without leaving their planes empty?

The heads of Europe’s biggest airlines met in person for the first time in a few weeks at a conference in Brussels, Belgium each reporting a burst of demand as pandemic-related travel restrictions are rolled back. Carriers fear raising ticket charges will hit passenger demand but they may have little choice.

The United Arab Emirates (UAE) national carrier, Etihad Airways has retained its $49 surcharge on flights between Abu Dhabi and Delhi. At the domestic level, Nigeria is already seeing the effects of the hike and scarcity of aviation fuel which has risen by over 200 percent in the last few months from N250 per litre to more than N600 per litre.

This made domestic airlines raise airfares across board by over 80 percent to N50, 000 and N60, 000 from between N30, 000 and N35, 000 per hour flight.

On the international scene, airfares have equally gone up as international carriers are faced with twin issues of the high cost of the commodity and the ‘seizure’ of over $450 million in airlines’ funds by the Federal Government.

As a result of that, foreign airlines with $450 million trapped revenue in Nigeria have removed the lowest base fare from their price inventory and replaced it with higher ones in order to bypass the Central Bank and buy foreign currency in the parallel market.

Out of the $450 million about $200 million belongs to one of the airlines (name withheld). The carriers have stopped selling the lower inventories. The lower inventory is a bigger loss to them, in the long run, because they go to the primary market to get dollars.

The trapped revenue is said to be a result of a forex shortage, a sign that Nigeria is facing serious financial challenges.

The action has technically made airfares on international routes to be seen as expensive, whereas what the airlines have done is to close the lower airfare inventory by going to the cabin category on the same economy seats which are higher by as much as between 30 and 60 percent of what the fares should normally be.

The ongoing conflict in Ukraine has driven a record upsurge in oil prices and a subsequent increase in Jet fuel prices. With Brent crude at $105.37 and Jet fuel at $150.69 (in the North American market), 82% above the same period in 2021, according to IATA’s Jet Fuel Price Monitor.

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