Recently, there has been uncertainty around the operating activities of airline operators in Nigeria after the Airline Operators of Nigeria (AON), in a now-withdrawn statement, threatened to shut down operations following an alleged increase in the price of Jet fuel from N190/litre to N700/litre. As a follow-up, the Major Oil Marketers Association of Nigeria (MOMAN) also dispelled claims, stating that airline operators had overstated the price hikes. During the pandemic, the aviation sector was severely hit and is again in the firing line, following a price increase directly impacted by the Eastern European crisis. The increased sanctions on Russia’s crude and refined exports by some European countries and the United States led to a global shortage in supply, and increasing prices in an already tight market.

Following the increased global shortages, domestic flights have been disrupted since March. Some started to cancel internal schedules while others delayed operations, citing the scarcity or increased cost of jet fuel. On the other hand, aviation workers have insisted that they commence a two-day warning strike on Monday, noting inadequate compensation. The aviation sector continues to be plagued with constraints since the pandemic’s start. During the pandemic, the aviation sector declined by 30.0% y/y  in 2020. However, in 2021, the sector recovered slightly, growing by 19.2% y/y.

Going forward, price increases in Jet fuel from about N175 per litre to N550 per litre will be a significant headwind for the aviation sector. Firstly, the increase in costs without a proportional increase in demand for flights will affect already low/negative margins for airline operators. Since 2016, household income has been relatively flat, shrinking the market for airline demand. Our data from Research showed that ATK fuel costs amounted to about 40% of our sample Airlines’ total operating expenses between 2016-2018, indicating that fuel costs constitute a significant line item for the profitability of airlines. Airlines find themselves in a tight spot. Although, in previous weeks, there has been increased intervention by the NNPC to bring in jet fuel through its crude swaps, in the longer term, the crisis only adds to the already increased FX bill of the FGN. This poses the question as to whether some sectors should be freely regulated.