Nine African airlines have teamed up to purchase fuel jointly in an effort to benefit from better bargains through increased negotiating power.
The new plan is a pilot project by the African Airlines Association which aims to reduce operational costs for its member airlines. It is estimated that fuel alone accounts for between 40 to 50 per cent of an airline’s direct cost. Direct costs for regional airlines are at an average of 70 per cent of all expenses incurred.
AFRAA whose members are 32 in total announced that only Kenya Airways, Ethiopian Airlines, LAM Mozambique airlines, Air Malawi, Rwandair, Precision Air, Air Namibia, Air Seychelles and TAAG Angola Airlines are part of the first joint fuel contract. “We invited several oil suppliers to Nairobi defend their bids, we have already discussed the tenders and different suppliers will be picked for the various destinations where members have a network,” explained KQ Director of Finance Alex Mbugua who is chair of AFRAA’s joint fuel purchase committee.
He further explained that participating airlines will still be free to pursue their individual hedging contracts if they see fit since such contracts are done with financial institutions like banks and not the suppliers themselves. The nine airlines use an average of 700 million litres annually whose current estimated value is worth about $1.5 billion.
Since the airlines have different starts to their financial year, some airlines will start to enjoy the joint fuel purchase deal next month while others like KQ will start in April as its financial year ends in March. “After the initial stage we shall streamline these contracts to be done at the beginning of a calender year for all the parties involved,” said Mbugua. AFRAA however added that it is still too early to calculate how much savings will be made under the deal.
Meanwhile, AFRAA Secretary General Elijah Chingosho has criticized the recently implemented European Union carbon tax on airlines adding that third world country aviation firms should have been exempted. “IATA (International Air Transport Agency) estimates that it will bring 2.3 billion Euros additional cost to the airline industry and is expected to grow in years to come. It (EU carbon tax) is against the Kyoto protocol which says that third world countries should not be made to adhere to the tax and should be allowed to grow,” explained Chingosho.