Trapped Funds: Foreign airlines, neighbouring countries cash in on Nigeria’s $1.5b travel bazaar

In a year the air transport sector recorded a landmark 13 per cent growth rate and pooled over $1.5 billion in ticket sales, foreign airlines dealt Nigerian air travellers a bad hand over the FX repatriation crisis. The hues and cries of consumers and travel agencies notwithstanding, stakeholders are unanimous that a strategic intervention by the concerned authorities should have averted the daylight rip-off of the Nigerian market, and avoid turning the industry into a basket case. WOLE OYEBADE reports.

Adeyemi was still basking in the euphoria of relocating abroad when he visited the ABX travel agency. On arrival, he requested a return-ticket bill for a family of six.

Awaiting the quotation, he sat back to conjure the much-vaunted brighter future on the other end. Intermittently, he smiled at his good fortune after two odd years of walking the tightrope of Canadian migration. It is over now; he heaved a big sigh.

A louder “Mr Adeyemi, please!” got him startled to self-awareness. He hurried to the sales agent, who was ready with the bill. Barely seconds, Adeyemi’s signature smile vanished. His eyes narrowed midway through the bill. Further downwards, his mouth fell like a curtain. At the total figure, he froze.

Adeyemi last travelled in 2021 and at a price of N650,000 for an Economy Class seat. Now, he has the same nine-hour flight ticket for N3.8 million and a cumulative of N22.8 million for a family of six!

The sales agent betrayed no emotions. “We are already used to those pitiable scenes of customers’ shock and disbelief since last year,” she later told The Guardian. “It is that pathetic in our industry.”

In a similar tale of woes, a Masters student in the United States, Seun Oladiti, was planning his trip back to school last month after an extended festive holiday. He was also offered a return-ticket fee at the rate of N3.7 million ($4900).

“As of December, I got the same trip for less than N2 million but I declined because it as too expensive. Now, I was told that the only alternative was to pay in foreign currency (dollars) to get an affordable ticket. The bill immediately changed to $2200 (or N1.65 million) for the same ticket!” he said.

Air travel for an arm and a leg
Indeed, the international segment of the aviation sector has lately been messy and in a foreign exchange crisis lasting almost a year. The seemingly intractable foreign exchange liquidity crisis rocking the entire economy has taken a bigger toll on aviation with foreign airlines unable to repatriate funds, warranting heavy knock-on effects on inventories, the asking price and business of the Nigerian travel agencies.

While some airlines are demanding foreign exchange for tickets purchased locally, others have simply knocked off all inventories from the reach of local travel. Compared with last November and part of December, when only premium fares were accessible by travel agencies on official channels, the window of accessibility has been narrowed to the open market where airfares have increased by 200 to 300 per cent.

Inquiries by The Guardian showed that a global average of $1000 (or N750, 000 at N750/1$ rate) per six-hour Economy Class ticket now locally sells at an average of $4000 (or N3 million), especially for Naira paying customers. Its Business Class variant averages N7 million to N10 million.

The Guardian findings showed that several of the airlines, especially the American and European carriers, now have preference for foreign currency paying customers.

Apparently miffed by the development, a legal practitioner, Dr. ‘Yemisi Koya, said the requirement is repugnant to the sacred ideals of Nigeria’s sovereignty.

Koya, who is the Head of Alabukun Law Chambers (ALC), in a petition dated January 20, 2023, explained that in other countries, it would be totally inconceivable for any Nigerian enterprise to compel payment for purchases in Naira and Kobo.

“The torrents of the attendant denunciation, at such an audacious attempt by Nigeria to denigrate their sovereignty, would reverberate rebuke globally. Therefore, Nigeria must be accorded the same deference,” he said.

The CEO of ALC added that companies accorded the opportunity to conduct business in Nigeria were obligated to respect its sovereignty.

“Any adverse stance constitutes an act of hostility and is unequivocally unacceptable. The imposition of such reprehensible terms of payment is a brazen affront to the nation and citizenry granting those enterprises the privilege to transact business in Nigeria. It is patently unconscionable and a departure from the essence of corporate social responsibility.

“It is incumbent on the government to incisively excoriate this ignominy and assure the preservation of the nation’s sovereignty. In this governmental responsibility, citizens must remain hopefully assured,” the petition read in part.

Blame not the foreign partners
An airline official, however, offered that selling tickets in foreign currency is not peculiar to all. “The operators at no time agreed not to sell in Naira. By the way, those who decided not to sell in local currency also have the right justification. It is part of the survival mechanisms as mandated from the home office of those airlines.

“It (not selling tickets in local currency) is not a moral argument of it being good or bad; rather, a business decision for survival purposes. If Nigeria has promised to give us dollars in change for tickets sold in naira but backtracked on the agreement without warning, should airlines continue to sell in naira and keep accumulating its money in a country facing an uncertain path to the future? If your flag carrier (Air Peace) has $15 million stranded in another country, will it continue to operate? That is what I mean by survival mechanism,” he said.

Following a similar experience in 2016, the industry has again been embroiled in a repatriation crisis since mid-2022. This was due to foreign airlines’ inability to access foreign exchange from the official window of the Central Bank of Nigeria (CBN).

The International Air Transport Association (IATA), the clearing house for over 290 global airlines, in November 2022 listed Nigeria in the top five markets with foreign airlines’ blocked funds (excluding Venezuela). Nigeria was estimated to hold the lion share of $551 million; Pakistan, $225 million; Bangladesh, $208 million; Lebanon, $144 million and Algeria, $140 million.

FILE PHOTO: A packet of U.S. five-dollar bills. REUTERS/Gary Cameron

IATA’s Regional Vice President for Africa and the Middle East, Kamil Al-Awadhi, had warned that countries that keep foreign airlines’ funds in the local economy would be exposed to dire consequences, which include a downstream effect of 200 to 300 per cent fare hike.

IATA’s Director General, Willie Walsh, earlier advised that governments must remove all barriers to airlines repatriating their revenues from ticket sales and other activities, in line with international agreements and treaty obligations.

Walsh forewarned that, “Preventing airlines from repatriating funds may appear to be an easy way to shore up depleted treasuries, but ultimately the local economy will pay a high price. No business can sustain provision of service if it cannot get paid, and this is no different for airlines. Air links are a vital economic catalyst. Enabling efficient repatriation of revenues is critical for any economy to remain globally connected to markets and supply chains,” Walsh said.

Intervention by the CBN did pledge to release $265 million in August, leaving a balance of $200 million. But the stranded funds keep piling by daily sales of tickets, to warrant Emirates Airlines quitting the Nigerian route late October 2022. As at the last check, industry sources said the current accumulation is well over $560 million.

Chairman of the Airlines and Passengers Joint Committee (APJC) of IATA, Bankole Bernard, reckoned that foreign airlines that stayed back in the country, despite earlier threats of withdrawal, had done so just “to milk and maximise returns at the expense of the travelling public” – because the government either does not understand the market dynamics or not paying attention to issues.

Bernard said it is unfortunate, yet the foreign airlines that are charging in foreign currencies and blocking lower inventories, among other means to avert excess funds being trapped in Nigeria, could not really be blamed.

“There is a contractual agreement with airlines to sell in naira and get dollar equivalent in return. But the CBN is now saying that the airlines are not her priority after the carriers had sold in naira. Is that fair? Let us also put ourselves in their shoes,” he said.

Nigeria’s loss is others’ gain
Coincidentally, the crisis occurred in a year when the industry recorded major gains. A summary of 2022 industry performance by the Nigeria Civil Aviation Authority (NCAA), on the overall, showed a market rebound with over 16.17 million passengers recorded on both the domestic (12.7 million) and international (3.5 million) market segments.

The 2022 total traffic figure showed a 13 per cent increase when compared with 2021 figures (14.2 million), and the highest passenger traffic since the COVID-19 post-pandemic era.

Amid the prosperous industry outlook, most unacceptable for Bankole is the tone deafness that has attended the horrendous plight of Nigerian air travellers and the industry at large.

He said: “The NCAA statutorily earns five per cent charges for every ticket sold in Nigeria. For several months now, most of the tickets Nigerians use are bought from other countries, which means we are losing revenue. So, how come nobody is bothered despite the heavy loss in revenue compared to the previous year? There is a problem. It means that they have not been relying on that revenue stream.

“The airlines have just been coming here to exploit and we are not complaining. It will surely get to the point of selling in dollars. The planes are getting filled up because even travel agencies are partnering with their counterparts abroad, to buy and sell tickets for Nigerians and remain in business. It is a crazy situation, but what choice are people left with?” Bankole queried.

President of the National Association of Nigerian Travel Agencies (NANTA), Susan Akporiaye, added that the stuck fund crisis had turned for the worse lately, and much to the pains of Nigerian travellers and the travelling agents that are getting thrown out of their means of livelihood.

The association recounted that the industry lost between $450 million and $500 million revenue in 2022, compared to 2021 that earned the sector $1.5 billion in ticket sales. Over 750,000 out of 2.4 million aviation-related jobs were also lost due to the stuck fund crisis that has been as harrowing for travel agencies as it is for the air travelling public.

Akporiaye noted that the association’s public outcry, late last year, led to the release of the remaining 50 per cent of CBN’s $265 million pledge to the foreign airlines. It brought temporary relief as some carriers made lower inventories accessible to the Nigerian market late in November and December.

“But now, things are back to status quo,” she said with pain. “The truth is that the market is worse than before. Because the lower classes that were released then and sold by the travel agencies are no longer available now. So, if booked customers want to make changes to those tickets that were bought at N800, 000 (about three months ago) they will have to pay as much as N1.7 million to N1.8 million because those classes have been taken out of the system.

“When this initially happened, there was a system in place through which we could reach out to the airlines, but now that is no longer there. The report we got from the airline is that they are not allowed to make changes for travel agencies in Nigeria. Hence, we should sell whatever we see on the system, ‘pay N1.8 million for changes or just forfeit your travel’.

“That is where we are, which is so unfair to Nigerian travellers and to us. It is Nigerians that are bearing the brunt, just because they have the need to travel. It is also unfair to us travel agencies because it is our lives that the airlines and the government are toying with,” Akporiaye said.

Cheap fares in neighbouring countries?
The NANTA president added that a lot of travellers were finding other means to get cheap airfares from neigbouring countries or buying the same from overseas, which boycotts the local travel agencies and local conditions.

“Tickets are not necessarily cheaper in other countries, but the fact is that there are lower inventories over there unlike here. So, we (travel agencies) have been left hanging with no sales.

“Yes, flights are still getting full in Lagos and Abuja Airports, but most of these tickets are no longer issued by us. Nowhere in the world will you find a six-hour Economy Class ticket being issued above $1000, but here it is $4000. That is outrageous, exploitative and sad. It is not acceptable to us.

“The consequence is that a lot of air travellers are now sourcing for affordable tickets in neighbouring countries and overseas. This means that they are boycotting travel agencies in Nigeria, not paying the five per cent passenger charges to Nigeria and depriving the economy of revenue, yet they are Nigerians flying out of Nigeria. On account of that, only 30 per cent of the tickets used last year were bought in Nigeria, the rest are from outside. The only finger gaining in the value chain is the foreign airlines, and a reason the government should be worried,” Akporiaye said.

She added that it is only in Nigeria that foreign airlines are demanding as much as $2000 for an economy class ticket, “which is a rip-off on Nigerians.”

“Agencies are now forced to fold, leave the country or try to use other neighbouring countries to sell to their customers. The Nigerian travel market continues to be at the losing end with the airlines being indifferent to the plight of travellers and as a body, we are left with no option than to call the government to be more strategic, deliberate and direct in resolving this multifaceted dilemma,” she said.

Better be late than never
Secretary General of the Aviation Safety Round Table Initiative (ASRTI), Group Capt. John Ojikutu (rtd), reckoned that Nigeria is in a foreign exchange fix because it failed to tailor or plan its policies to save earnings for the rainy days.

Ojikutu had consistently queried the aviation policies that allowed foreign airlines’ multiple destinations into the country without reciprocity nor interlining with local carriers, coupled with estimated $1 billion yearly raked in from aviation services and charges.

He raised some questions: “First, how did we plan to repatriate the foreign airlines earnings when we signed the BASA agreements with them? How did we come to be giving the foreign airlines multiple destinations outside the BASA, without the considerations for the domestic markets and the domestic airlines?

“What was the sense in cancelling the commercial agreements that were made outside the BASA? What have we been doing with over $1 billion earnings on services provided to the foreign airlines by the private and government service providers? These are unilateral decisions that have no government backing and they surely are leading us to government and private sector revenue losses,” he said.

Ojikutu, a former commandant of the Lagos Airport, added that the implication of more foreign airlines exiting Nigeria is dire. “The country will lose earnings on Passenger Service Charge (PSC), landing and parking, navigational charges, ground handling services, cargo service charges, five per cent tickets sales charges and cargo sales charges, fuel charges, and so on.

“All these are what our neighbouring countries that may turn to be new hubs in the sub-region, will be generating from our lack of foresight,” he said.

Ojikutu recommended that the responsible authorities should stop the multiple destinations given to the foreign airlines, but replace the same with multiple frequencies to two airports; Lagos or Abuja and one other airport in the alternative geographical area.

“They (foreign airlines) must be forced to have interlining connecting flights with the domestic airlines on domestic routes for their transiting passengers to their local destinations and pay in dollars for the connecting flights. Same too for cargo services. This way, we can generate additional forex from these airlines. Such forex must be domiciled with the CBN where the recurring exchange can be paid or supported for the repatriation of the foreign airlines’ earnings.

“Government must call on its agencies that have been collecting forex earnings from these foreign airlines and ships in the maritime services too, as well as the private sectors in the two sectors to bring back their forex earnings. Where they fail, they must return whatever government has given to them in forex transactions in the last eight years or their certificates of incorporation cancelled,” he said.

First Vice President of the association, Yinka Folami, told The Guardian that though NANTA wanted the airlines to have their funds repatriated, the government should take more than a passing interest in the crisis and play its role as a government.

Folami said that the government retains the responsibility to commit to agreements with airlines to protect the sector and call airlines to order when there are obvious excesses from the airlines that puts the entire industry in jeopardy.

He said: “The truth is that the current fare structure and practices are exploitative of the Nigerian traveller as well as agencies, who provide a reasonable number of jobs for our great nation. There is no way the airlines can justify the current rate and charging of N1.5 million to N1.65 million just to change the date on an old ticket. This heavy cost to the Nigerian traveller is unnecessary. We strongly request the airlines to open inventories to tally with what obtains in similar markets with trapped funds,” Folami said.