Aviation Fuel to sell between N1,760 and N2,037/litre — FG

Nigeria's Federal Government has signalled a structured price corridor for aviation fuel (Jet A-1), projecting a range of N1,760 to N2,037 per litre following high-level policy engagements aimed at stabilising one of Africa's most volatile aviation inputs. The announcement marks a critical juncture for Nigeria's airline operators, who have faced severe margin compression from unpredictable fuel costs and supply bottlenecks that have constrained fleet expansion and profitability across the sector.

Aviation fuel represents 25–35% of operating expenses for Nigerian carriers, making price predictability essential for route viability and capital planning. The proposed band reflects an attempt to balance three competing pressures: protecting airline economics, ensuring refinery utilisation at domestic facilities (chiefly the Dangote Refinery), and preventing speculative price volatility that has historically forced airlines to suspend regional routes or transfer costs directly to passengers.

### Why Is Aviation Fuel Pricing Proving So Difficult in Nigeria?

Nigeria's jet fuel market has been destabilised by a combination of structural challenges: limited domestic refining capacity until recently, heavy reliance on imports, foreign exchange volatility, and inconsistent supply from the Dangote Refinery—Africa's largest, which began operations in 2023 but has faced throughput constraints. The price band announcement signals government intent to anchor supply contracts and reduce the pricing arbitrage that has allowed parallel markets to emerge, eroding tax revenue and making airline budgeting nearly impossible.

### What Happens If Aviation Fuel Stays Above N2,037 Per Litre?

If global crude prices or FX movements push Jet A-1 above the government's projected ceiling, Nigerian carriers face three options: absorb losses (unsustainable), pass costs to passengers (demand destruction on regional routes), or reduce frequency and fleet utilisation. International carriers using Lagos, Abuja, and Port Harcourt hubs would likely shift capacity to competitors in Ghana or Ethiopia, reducing Nigeria's aviation connectivity premium and air cargo competitiveness—critical for e-commerce and perishable exports.

### Market Implications for Nigerian Airlines and Investors

The price band is bullish for Dangote Refinery's jet fuel unit and for airlines positioned to lock in medium-term supply contracts, such as Air Peace and Arik Air, which have signalled growth plans dependent on cost stability. However, the corridor only works if government enforces it through strategic reserves, import duty harmonisation, and refinery offtake agreements. Without enforcement mechanisms, the band becomes aspirational rather than binding—a risk that institutional investors in airline equities and aviation infrastructure must price in.

The mid-point of the band (approximately N1,900/litre) implies a ~15–20% discount versus Q4 2024 spot prices, assuming stable crude around $75–80/barrel and stable naira exchange rates. This assumes policy continuity and no major global supply shocks. Airlines that have hedged or pre-purchased fuel at higher rates may see margin recovery in H1 2026; those unhedged face execution risk.

---

##