African Airlines start joint fuel plan to lower costs

Nine African airlines are to jointly source for jet fuel as a way of reducing costs in an unpredictable international oil market.

The nine, all members of the African Airlines Association (AFRAA), have already concluded evaluating tender bids from fuel companies.

“We expect that there will be reasonable savings from the project,” Kenya Airways finance director Alex Mbugua said at a press conference in Nairobi on Wednesday.

The nine airlines are: Kenya Airways, Ethiopian Airlines, Precision Air, Air Malawi, RwandAir, Air Namibia, TAAG Angola Airlines, LAM Mozambique Airlines and Air Seychelles.

The Joint Aviation Fuel Purchase Project will see the airlines sign year-long contracts for a cumulative 700 million litres of fuel worth over $1.5 billion.

AFRAA is an umbrella body for 32 airlines whose purpose is to foster commercial and technical co-operation among themselves. Its members represent 83 per cent of the total international traffic carried by African airlines.

The association says unity among the carriers will give them increased clout in price negotiation. They will also attain a stable unit price of fuel for the participating airlines.

The new fuel regime will take effect this year once existing fuel purchase contracts expire. However, it will not affect existent hedging contracts.
“Hedging contracts are signed with financial institutions. The two are not necessarily linked,” said Mr Mbugua.

Skyrocketing fuel prices have eaten into aviation industry revenues, with recent estimates indicating that they constitute 40 to 50 per cent of airline operating costs.

The fuel purchase project is expected to make African carriers more competitive internationally. “Oil taxes and charges are very high in Africa, making airlines in the region uncompetitive,” said AFRAA secretary general Elijah Chingosho.

“This tax will mean additional punitive costs to airlines that are already handicapped by high fuel charges and taxes,” said Dr Chingosho.