How N100b ticket refunds may cripple travel agencies
• Bank collateral at risk as IATA insists on remittances
• British Airways, Emirates, Lufthansa pledge refund
• ‘It is the worst crisis ever in the air travel sector’
Travel agencies in the country are on the verge of being thrown into heavy debts as customers continue to press for the refund of unused tickets, though the requests are being declined by many foreign airlines.
While the airlines would not refund due to cash crunch, about 1000 top-rated travel agencies in Nigeria are caught in-between paying customers’ refund and settling airlines’ mandatory remittances, both estimated to reach a total of N100 billion.
The Guardian learnt that by yesterday, only three airlines – British Airways, Emirates and Lufthansa – had pledged to issue refunds to “interested customers” in accordance to the 50 days rule.
To make matters worse, the foreign airlines, through the International Air Transport Association (IATA), have mandated all travel agencies to pay up all tickets issued to date, whether used or unused, or risk being cut off from the business because of default.
The international air travel business is such that the travel agencies issue, sell tickets and collect fees on behalf of the airlines and their representative, IATA, in a Bill Settlement Plan (BSP).
Under the BSP arrangement, all enlisted agents must remit the payment for all issued tickets (which airlines had given on credit) every 15 days to the airlines through IATA. The consequence is that defaulters will be struck out of the selling platform and their bank collateral forfeited.
In the light of this payment schedule, the current restriction of all flights – local and international – and lockdown over coronavirus pandemic have plunged the travel agencies into difficulties.
Some of the agencies yesterday told The Guardian that they were owed by bulk-buying organisations and companies that have temporarily closed down. Other agencies are being troubled by customers who are insisting on ticket refunds.
The Chief Executive Officer (CEO) of Finchglow Travels, Bernard Bankole, said the nature of the business put many travel agencies in the middle of the global crisis and made them bear the brunt.
Bankole said the losses for travel agencies would be about N180 billion should the crisis last till July. This is going by last year’s N360 billion that the agencies raked in as total ticket sales revenue from international travels.
As at April, he said, unused ticket refunds and payments to airlines had already cost travel agencies over N100 billion.
Bankole said: “We (travel agencies) are stuck in the middle. As it stands, we have to keep encouraging our members to pay the airlines on schedule. We have a lot of clients that have not paid us. Yet, we have to protect the integrity of the BSP, just like IATA also wants.
“But while we are keeping to our end of the bargain, the airlines are not. They don’t have money to pay and they are not even ready to push money into Nigeria to settle our customers, who cannot fly because the airspace is shut.
“The challenge now is for IATA to protect the travel agencies from these airlines because not all of them will survive this crisis. Yet, IATA is not doing much of that, putting us in heavy losses,” Bankole said.
The president of the National Association of Nigerian Travel Agencies (NANTA), Susan Akporaiye, confirmed the dilemma of many top-tier travel agencies, saying the main loyalty was to the customers.
Akporaiye said talks were ongoing with airlines and IATA to strike a balance between cumulative ticket refunds and remittances to the airlines, to ensure that the travel agencies do not suffer unduly.
She explained that the crisis had left many airlines without cash for settlement of refunds as required by some of the loyal customers.
“But we have our customers to protect. As at now, Emirates, British Airways and Lufthansa, have issued us emails towards refunds and how they want to do it for customers that want a refund. But it has to go through a process lasting about 50 days. Other customers that do not want a refund, which is what airlines are encouraging, can still use the tickets within a two-year validity period.
“What we are requesting of IATA is to convince the airlines that are insisting on us (travel agencies) to pay remittances that they should give us the opportunity to compile our due refunds, and allow us to pay less of the refunds to the airlines. If I have N15 million to pay airline and the total refund is N5 million, then I should be able to pay N10 million balance. That is what we are telling IATA, to make it a win-win situation for airlines and the travel agencies,” Akporaiye said.
A Lagos-based travel agent, Lola Adewole, said all agencies were indebted and had had to lay off staffers lately.
Adewole said it was expedient for the government to give bailout to the downstream sector of the aviation industry. She said the disposition of the airlines was for travel agencies to pay first and complain about unused tickets later.
“The way out is a bailout from IATA on the remittance period. The government too should talk to the banks to support us. The banks should be able to consider that there is a general crisis. An agency that is doing N100 million in a month is now doing N10 million. The shortfall of 90 per cent means something is wrong somewhere and the government should be able to intervene in this matter between us and the banks. We need interest-free overdraft or interest-free loan for the period of crisis because our IATA licences are all at risk without us paying the airlines,” she said.
The temporary restriction of all flights, according to IATA, has the potential to affect at least 3.5 million passengers resulting in a $0.76 billion revenue loss for Nigeria.
IATA, the clearing house for 285 global airlines, said the general loss called for urgent action from governments in Nigeria, other parts of Africa and the Middle East countries to provide financial relief to airlines against imminent collapse.
Depending on how long the disruption lasts, no fewer than 91,380 jobs are at risk in Nigeria, with $0.65 billion in contribution to the economy.
IATA had said that the crisis was not unique to any country or region but cut across the globe with the airlines’ passenger revenues falling by $252 billion and 25 million jobs at risk.
IATA’s Director General and CEO, Alexandre de Juniac, said there were no words to adequately describe the devastating impact of COVID-19 on the airline industry as a whole, describing it as the worst crisis ever in the air travel sector.
De Juniac said IATA was scoping a comprehensive approach to re-booting the industry when governments and public health authorities allow. A multi-stakeholder approach will be essential. One initial step is a series of virtual meetings—or summits—on a regional basis, bringing together governments and industry stakeholders.
“We are not expecting to re-start the same industry that we closed a few weeks ago. Airlines will still connect the world. And we will do that through a variety of business models. But the industry processes will need to adapt. We must get on with this work quickly.
“We don’t want to repeat the mistakes made after 9.11 when many new processes were imposed in an uncoordinated way. We ended up with a mess of measures that we are still sorting out today. The 25 million people whose jobs are at risk by this crisis will depend on an efficient re-start of the industry,” de Juniac said.