Introduction

When faced with higher-than-anticipated costs or the imposition of excessive tax and other charges by the government, most airlines have two choices. They can either raise their prices, risking upsetting consumers and losing market share to cheaper competitors; or they can sacrifice profits to keep prices steady and retain market share. However, in recent times some airlines have found a third solution: the imposition of fuel surcharges.

A fuel surcharge is an additional fee or levy added to the price of a ticket, fare, transport load or other transport-related item to recover fuel cost increases. Typically, airlines do not charge for moderately priced fuel because this price is reflected in their overall cost calculations. Therefore, fuel surcharges are charges above the normal rate.

At first blush, fuel surcharges appear to be a transparent, mathematically determined way for airlines to recoup their expenses for the unexpectedly high price of oil. But as they spread across the Nigerian aviation industry, fuel surcharges increasingly appear to be an arbitrary way of raising prices while making customers believe that they are not paying more.

Legal framework

Section 30(4)(i) of the Civil Aviation Act 2006 empowers the Nigerian Civil Aviation Authority to investigate on its own initiative whether an airline has been or is engaged in unfair or deceptive practices or unfair methods of competition in air transportation and ticket sales. This section also empowers the authority to regulate air navigation.

Further, Section 27(1) of the act empowers the authority to investigate, impose fines on erring airlines and ensure compliance with the act.

Evidence

Between 2004 and 2006, as the global oil price increased, British Airways and Virgin Atlantic imposed (almost simultaneuously) passenger fuel surcharges on their flights to and from Nigeria, increasing the final cost of travel for passengers. Between May 2004 and December 2006, both companies maintained and increased their passenger fuel surcharges at the same time and by the same amount.

In May 2011 the Nigerian Civil Aviation Authority commenced an investigation into the simultaneous imposition of fuel surcharges by British Airways and Virgin Atlantic, and found this to be unfair and deceptive, and to constitute an unfair method of competition. Neither British Airways nor Virgin Atlantic could demonstrate that the fuel surcharge was a pure cost-recovery exercise, as the increases were lockstep in nature and did not reflect the equivalent rises in oil prices. The authority found that, essentially, the fuel surcharges imposed were fare increases.

A committee on aeronautical, non-aeronautical and passenger charges in Nigeria, set up by the minister of aviation, has since exposed how airlines exploit passengers and defraud the government. For example, the committee analysed the calculation basis for passenger tickets for four domestic airlines: Arik, Dana, Medview and First Nation. The analysis showed that amounts ranging from 40% to 65% of the airfare were hidden as fuel surcharges. The methods of calculating these fuel surcharge were unknown to both passengers and the government.

Similarly, this cost element has been omitted by airlines in the calculation of both value added tax and the ticket sales charge, resulting in a significant loss of revenue to the federal government.

Therefore, with respect to passenger ticket charges, the basis of the charges is unclear and is somewhat arbitrary.

Passenger fuel surcharges continue to have a major impact on Nigerian travellers, who have a limited choice of airlines and thus must continue to pay indiscriminately high fares.

Comment

The imposition of a fuel surcharge on passengers that is found to be excessive, unfair, exploitative and unreasonable can be punished and remedied under the Civil Aviation Act, which sets down guidance for the Nigerian Civil Aviation Authority and recommends the payment of a specified sum per violation.

International best practice treats such violations seriously, emphasising the need for penalties to serve as deterrents to other potential violators and ensuring that revenues derived from inappropriate conduct are forfeited. The findings on passenger fuel surcharges and the recommended solution should help to check this practice within the Nigerian aviation industry and ensure that passengers' expectations are finally met.

For further information on this topic please contact Veronica Alaba Oyedeji at George Etomi & Partners by telephone (+234 1 462 1660) or email (veronica@geplaw.com). The George Etomi & Partners website can be accessed at www.geplaw.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.