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Aviation Fuel, Other factors hampering airline profitability

Aviation fuel, other factors hampering airline profitability

ANTHONY OMOH in this analysis looks at some of the aircraft type operated in Nigeria and how the nil fuel supply and increase in fuel affect airlines’ profitability coupled with other factors that are equally important to ensure hitch free operations.
Aviation fuel is supposed to be no more than 15 or 20 per cent of the total operation cost of a one hour flight and even then for airlines to make profit would be on a full load factor but right now the fuel percentage of the total operation in Nigeria is 40 per cent and the impact is far reaching.
Aviation in Nigeria has become the vehicle of economic growth and it supports the commerce of the country with its more than 300 daily flights for domestic, more than 75 Daily flights for international and over 400 helicopter sorties supporting the onshore and offshore oil operations.
Airlines in the country link virtually all major cities with the FCT Government seat, commercial centre of Lagos and the oil city Port Harcourt
However with the astronomical increase of aviation fuel (Jet A1), things are really not looking bright for these airlines which also have infrastructural and other challenges to deal with.
In a recent presentation, the Director General of the Nigeria Civil Aviation Authority (NCAA), Dr. Harold Demuren and his team did an actual breakdown of what it cost the airlines with their various aircraft to actually contend with their current crisis.
And it was discovered that the most widely used aircraft types on the Nigerian domestic operation are: Boeing 737 Classics (300/400/500 series), Boeing 737 NGs (700/800 series), MD 83, Fokker F100 and that each had a unique fuel cost of its own.
According to the analysis the Boeing 737 Classics with CFM56-3 series engine type which takes an average of 120 passengers in all economy has average fuel consumption 2700kg/3375 litres per hour.
In Nigeria however, actual consumption is about 25 per cent higher due to operational delays (Holding, diversions, VIP movement, Traffic congestion, weather etc), hence actual fuel consumption per hour – 3375kg/ 4219 litres.
Price of Jet A1 fuel rose up to approximately N 190 per litre so fuel cost for 1 hour flight is N 190 multiplied by 4219 equals N 801,610.00 and revenue from ticket sales assuming it reaches 70 per cent load factor at N 25,000 price = 70 per cent multiplied120passengers multiplied by N25000 equals 2.1 million.
So percentage cost of fuel to total revenue = 801,601/2,100,000 = 38.2 per cent
On the more fuel efficient Boeing 737 New Generations with CFM56-7 series engine type and carrying an average of 140 passengers has average fuel consumption per hour of 1500kg/1875 litres.
However, actual consumption is also about 25 per cent higher due to operational delays, hence actual fuel consumption per hour is1875kg/ 2343.8 litres and now due to same Jet A1 price hike to N190 per litre fuel cost for an hour flight is N 190 X 2343.8 = N 445,322.00.
Revenue from ticket sales assuming 70 per cent load factor at N 25,000 price = 70%X140X25000 = N 2.45 million and so percentage cost of fuel to total revenue = 445,322/2,450,000 =20 per cent
For the Mc Donnel Douglas 83 aircraft mostly used by Dana Air with an engine type of JT8D-217 which takes an average of 140 passengers average fuel consumption per hour – 3640kg/4550 litres
However, actual consumption is about 25 per cent higher due to same operational delays, hence actual fuel consumption per hour – 4550kg/ 5,687.5 litres and with the hike of Jet A1 price to N 190 per litre fuel cost for 1 hour flight will equals N 190 X 5,687.5 = N 1.08 million
While revenue from ticket sales assuming 70per cent load factor at N 25,000 price = 70%X140X25000 = N 2.45 million. This simply means that percentage cost of fuel to total revenue equals 1,080,000/2,450,000 = 44 per cent fuel cost.
Then there is the Fokker F28MK100 with engine type, TAY 650-15 carrying an average of 100 passengers all in economy, with average fuel consumption per hour – 2700kg/3375 litres
However, actual consumption is about 25 per cent higher given the same scenario as others, hence actual fuel consumption per hour – 3375kg/ 4219 litres while price of Jet A1 fuel rose up to approximately N 190 per litre.
Therefore fuel cost for 1 hour flight – N 190 X 4219 = N 801,610.00 while revenue from ticket sales assuming 70% load factor at N 25,000 price = 70%X100X25000 = N 1.75 million.
Meaning that percentage cost of fuel to total revenue = 801,610/1,750,000 = 46 per cent.
Apart from the New Generation (NG) Boeing operated by Arik Air which keeps fuel as part of operating cost within 20 per cent others shoot above it and thus even when there is availability of fuel at the current price airlines will find it difficult to operate much more make any profit.
Now talking about the issue of fuel availability in the country, the DG surmised all the reasons why the industry is experiencing such including and not limited to diversion of the product, hoarding, and Illegal movement of the product to other countries.
He said that the average daily consumption of Jet A1 aviation fuel is between 2.0 to 2.5 million litres with domestic operators consuming 40 per cent while 60 per cent is consumed by international operators.
All these are just rough estimates as the airline industry in Nigeria does not fly 70 per cent load factor except in the golden triangle of Abuja, Lagos and Port Harcourt and even sometimes they do not have 70 per cent capacity because of the consistent hike of air fare.
This has led the industry to make a plea to the Federal Government for deliberate intervention to make sure the product, Jet A1 is available and at affordable price
Now apart from Fuel, there are other operational costs the airlines have to deal with including Aircraft, Crew, Maintenance & Insurance (ACMI), ground handling charges, navigational charges and landing and parking charges, administrative expenses.
Problem areas according to the DG includes depreciation of the Naira from N118 to N160 to one US dollar as the airlines’ revenue is Naira based and over 90 per cent of expenditures apart from fuel are in foreign exchange.
This adds to the high cost of maintenance (Scheduled and non-scheduled including bird strike) done overseas as well as high cost of overseas training and high cost of funding: about 20 per cent Bank interest on loan.
According to the chief regulator, assistance required from the Government include: waiver on customs duties (Aircraft is mobile equipment), legislative approval of Cape Town Convention, incentives for the development of in-house maintenance capabilities, incentives for the development of training facilities (Simulators) locally.
All these once achieved a 100 per cent will reduce the amount these airlines spend in foreign currency which puts deep holes in their pockets as well as cut off some aspects of the capital flight in this sub-sector of the economy

About anthony omoh

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I am a Journalist with a passion for developmental stories and nigerianflightdeck.com was born out of passion for reporting the travel, business and aviation sub-sector. This site is an expression of my ideals and creativity as a reporter and my discretion as a publisher. I am extremely content doing this and I am sure when you read my stories you'd understand that I touch people and that's why

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