Business

Double whammy for airlines, passengers over trapped funds

 

Airlines and travellers are beginning to see the repercussion of over $450 million in carriers’ monies trapped in the country. Emirates Airlines has cut down capacity on the Nigerian route, while other carriers are likely to follow the trend. Airfares have gone up as a result of the action to keep their funds; job losses loom just as travel agents also feel the brunt, writes WOLE SHADARE

 

 

Dire situation

The situation is very dire for foreign airlines operating to Nigeria. It is no longer news that over $450 million of the carriers’ funds is trapped in the country. Nigeria is not the only country keeping airlines’ funds.

 

As of June 2022, over $1 billion belonging to foreign airlines have been blocked by 12 African countries, as the Director-General of the International Air Transport Association (IATA), Willie Walsh, warned that such development had consequences to make airlines focus on markets that show more prospects, which could affect the aviation sectors of the countries.

Nigeria not an exception

 

Other countries in Africa that hold on to the huge amounts of airlines’ revenues include Zimbabwe – $100 million; Algeria – $96 million; Eritrea – $79 million and Ethiopia, $75 million. IATA noted, however, that the trapped fund in Nigeria was about 25 per cent of similar funds stuck in other countries as of April. The funds are proceeds from sales of foreign airlines’ tickets, among others, that are trapped in Nigeria. As of March this year, the trapped amount was $283 million ((N158.48 billion). According to IATA, the trapped fund has hit $450 million.

 

The accumulated funds are seriously eroding the image of the country as the clearing house for over 200 global airlines said the attitude of the Nigerian government towards the trapped fund is “unacceptable” and one that has seriously put foreign airlines in dire strait.

A repeat

What is playing out is reminiscent of what happened in 2016 when the world went through a recession and seriously impacted global economies. Predictably and unable to continue due to increasing pressure  they have been put through, Emirates Airlines, in a statement late Friday night, said it would reduce its flight operations to Nigeria over the inability to repatriate about $85 million in revenue.

The airline said this in a letter addressed to Hadi Sirika, Minister of Aviation, dated July 22, 2020, and signed by Sheik Majid Al Mualla, Emirates airline’s Divisional Senior Vice-President (DSVP), International Affairs.

Emirates cuts flights

Emirates said the planned reductions in its operations in Nigeria would take effect from August 15, 2022. It added that flights would be reduced from 11 per week to seven per week at the Murtala Muhammed International Airport (MMIA).

“We have had no choice but to take this action, to mitigate the continued losses Emirates is experiencing as a result of funds being blocked in Nigeria.

 

“As of July 2022, Emirates has $85 million of funds awaiting repatriation from Nigeria. This figure has been rising by $10 million every month, as the on-going operational costs of our 11 weekly flights to Lagos and five to Abuja continue to accumulate,” it said. It said the funds were urgently needed to meet its operational costs and maintain the commercial viability of its services to Nigeria.

“We simply cannot continue to operate at the current level in the face of mounting losses, especially in the challenging post-COVID-19 climate. “Emirates did try to stem the losses by proposing to pay for fuel in Nigeria in naira, which would have at least reduced one element of our on-going costs, however, this request was denied by the supplier,” the statement reads.

Airlines studying situation Though British Airways (BA) has not yet responded to the situation, there are indications that the carrier is seriously monitoring the situation. The carrier and few other carriers have the largest amount of funds trapped in the country, a situation that has hampered their operations. The domino effect is the skyrocketing price of airfares.

The carriers are in a serious dilemma. The situation has technically made airfares on international routes to be seen as expensive, whereas what the airlines have done is to close the lower airfare inventory by going to the cabin category on the same economy seats which are higher by as much as between 30 and 60 per cent of what the fares should normally be. Travel agents sell tickets at the Central Bank of Nigeria (CBN) official rate, a little above the official, but much less than the black market rate, between N22 and N25.

For the black market, the difference is over N150. Faced with the situation, they now go to the parallel market to buy dollars and send the money to their countries.

“For them to go to the parallel market to buy their dollars, we cannot sell at the lowest of N444,000 because the lowest is $1,000 and that cannot get the $1,000 in the parallel market.

What will give them $1,000 at the parallel market is when they sell at N600, N610, and N615 as the case may be. Expert’s view President, National Association of Nigeria Travel Agencies (NANTA), Susan Akporiaye, said: “If Isellaticketfor$ 1,000 at an exchange rate of N444, the money belonging to the airline is $1,000. The money the passenger that buys the ticket is N444,000.

“So, the airline is supposed to use that N444 to buy their $1,000 at the official rate of N416 or N418. The difference is the waiting period or  the time they have to wait to get their funds. If they go to the black market, they will buy it at N615, which will be a big loss.

“They will have to continue to wait to get it at the official rate. They don’t get it because of forex shortages. This waiting is what makes the funds pile up. So, what they now do is that if the $1,000 that I sold for N444,000, which the customers pay and, like I said, in every cabin, there are different fares. The airlines don’t sell one fare.

“This N444,000 is the lowest fare in the economy cabin, for instance. Some economy cabins have 125 seats and 236 for the bigger aircraft. At N444,000 at 236, the airlines will not sell at N444,000. “In the cabin of 236, they have different categories of economy seats with the lowest one of N444,000 with specific allocation. The next one might be N530,000 with some percentage allocation to N600,000, N700,000 being the highest economy to N2.1 million.

“So, the economy ranges from N444,000 to N2.1 million all — economy cabins. So, if the allocation for N444,000 finishes, you start buying from the next allocation until the other allocation is left for you to buy N2.1 million.

“The airlines are saying that they can’t wait forever because they don’t know how long their money will be stuck in the country.”

Last line

The current situation presents a real threat to the industry and the continuity of business as travel professionals, bearing in mind the potential job losses and the attendant national economic losses.

A bleak future more than the effects of COVID-19 awaits Nigerian travel trade operators if nothing concrete is urgently done to address the disturbing situation by the Central Bank of Nigeria.

 

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