The consumption of aviation fuel is up due to the removal of taxes on the product and supply challenges in neighbouring Nigeria
Last year, consumption of aviation turbine kerosene (ATK), the fuel used by aircraft, rose by 17.9 per cent to 140,272 metric tonnes.
The increment was due to the removal of taxes on the product and supply challenges in neighbouring Nigeria, which forced airlines in that country to rely on the Ghana market for refill.
The price of ATK had been one of the banes of the airlines operating from the country until mid last year, when the government reduced it by some 20 per cent.
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The action brought a relief to the airline industry, particularly the domestic operators, then prompting an increase in the consumption of ATK.
The increase in consumption of the ATK was revealed in an industry report released by the Chamber for Bulk Oil Distribution (CBOD).
Prior to the reduction in prices of aviation fuel, International Air Transport Association (IATA) had noted that high costs of aviation fuel in the country had limited air connectivity and risks contributing to a further deterioration of air links.
The global body of airlines and related service providers cited the exiting of some long-haul carriers from this market as a basis and further suggested three price reduction options that could result in relative and absolute revenue peaks for the government.
“Revenues from the sale of aviation fuel are maximised when the price reduction on one litre of aviation fuel is reduced by $0.29, approximately doubling revenues from the sale of jet fuel,” the association said in a document titled ‘The economic benefits of reducing fuel costs in Ghana.’
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Given that travel and tourism supports about 5.4 per cent of gross domestic product (GDP) and accounted for some 259,000 jobs in 2011, IATA said a reduction by US$0.29 per litre of aviation fuel would, on average, “reduce international travel costs by 6.7 per cent, which will boost international travel by about 3.8 per cent”.
It estimated that the measure could add some add US$30 million to GDP through the travel and tourism sub-sector, as well as support a further 4,200 jobs and boost tax revenue by over US$6.1 million.
“In the longer term, competitive fuel prices will support enhanced air connectivity, which enables foreign direct investment and business clusters and allows for other spill-over impacts on an economy’s productive capacity,” it added.
Although airlines did not respond directly to the reduction in the price of ATK through a slash in their airfares, the paper recollects that some industry players praised the measure as a necessary initiative for the growth of air transport.
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Indications are that the recent removal of value added tax (VAT) on air transport services will further boost growth in airlines through a reduction in sales and increased air traffic.