Nigeria’s forex crisis crashing airlines?
The airline business (and, indeed the aviation industry) in Nigeria is at present facing an existential threat—triggered by an acute scarcity of foreign exchange (forex).
Both foreign and local airlines operating in Nigeria practically have this proverbial sword of Damocles hanging around their necks.
Aviation fuel (Jet-A1) price has gone through the roof, rising from merely two hundred naira per litre about a year ago to close to nine hundred naira a litre at present—underpinned by the worsening scarcity of the product in Nigeria.
To this lingering painful fuel, scarcity will be added the nation’s persisting currency crisis—a foreign exchange shortage that has led to the worrisome depletion of the country’s external reserves, continuing weakening of the Naira vis-à-vis the dollar as well as the inability of many multinationals (including many airlines) to repatriate their business proceeds/dividends.
Indeed, no foreign exchange (dollar, euro, pound sterling, etc.) to repatriate—leading to hundreds of millions of dollars of such ‘un-repatriated’ funds being trapped in Nigeria, even as the affected businesses keep plodding on in the stifling local environment.
In point of fact, not a few companies have had to flee Nigeria in recent times owing to the biting currency crisis and generally uncompetitive business environment, including heightening insecurity and spiralling inflation rate now standing at 20 per cent.
Specifically, international carriers operating in Nigeria have repeatedly complained about their inability to repatriate funds to their home countries. They have raised this concern on several occasions with top officials of the Federal Ministry of Aviation, Ministry of Finance and even the Central Bank of Nigeria.
Unfortunately, they had gotten no helpful attention from any of these Government organs; thus, keeping them more stranded and desperate.
Available records show that ‘blocked funds’ belonging to these airlines have hit about US$600 million (and still keep rising exponentially) due to the inability of the apex bank to make the dollar available for the carriers to ‘take home’.
Pushed to the wall, as it were, one of the giant carriers, Emirate Airlines, said in a recent statement that it “has tried every avenue to address our ongoing challenges in repatriating funds from Nigeria, and we have made considerable efforts to initiate dialogue with the relevant authorities for their urgent intervention to help find a viable solution”.
Continuing the lamentation, the international carrier said “regrettably there has been no progress. Therefore, Emirates has taken the difficult decision to suspend all flights to and from Nigeria, effective September 1, 2022, to limit further losses and impact on our operational costs that continue to accumulate in the market.”
Emirate had much earlier cut its flight frequencies to Nigeria from eleven to seven, in the efforts to curb ‘trapped funds’—but it has now opted to withdraw fully from Nigeria, come September 1, 2022.
Like the Emirate Airline, British Airways has already reduced its flight frequencies to Nigeria, as the airline informed its customers recently of an “imminent hike in its flight tickets.”
In fact, Turkish Airlines and British Airways have said they would no longer issue tickets to passengers in naira. Both airlines said in separate messages the other day that (they’re) Nigerian passengers can only pay for tickets in US dollars.
Specifically, Turkish Air said, “dear business partner, kindly be informed that as of today, only C and Y fare classes will be available on GDSs for sale in Nigeria; unused tickets will be upgraded to Y and C class for voluntary reissue cases, fare and tax difference shall be collected for inbound or outbound travel.”
Still, much earlier in the year, APG Interline E-Ticketing (IET) in a travel advisory issued to its trade partners said (its) members would commence the sale of tickets in Nigeria in dollars. APG IET is an interline platform allowing travel agents to issue a large number of airline tickets.
APG IET members that use Nigerian routes are Middle East Airlines, Turkish Airlines, South Africa Airways, Egypt Air, Asky Airlines, Kenya Airways, Royal Air Maroc and Rwandair. It means all these airlines have since April 2022 been either selling their air tickets to Nigerian travellers in US dollar or charging deliberately prohibitively hiked airfares in naira.
APG IET had said “dear travel partners, warm greetings from APG. This is to bring to your notice that with effect from April 19, 2022, GP would only accept issuing of tickets in US dollars and not Naira. This is mainly due to repatriation issues and the Forex situation in the country.
“This would most likely be a temporary measure till the Forex situation improves. Our sincere apologies for any inconvenience this may cause you and your business. Thank you for understanding.”
To date, however, the situation has not improved; rather the Forex scarcity keeps getting worse.
Even Nigerian airlines are not spared the lingering ravaging catalogue of woes in the aviation industry: recently a local operator, Air Peace, issued notice to stop flights to South Africa owing to Forex scarcity and visa-related issues.
The airline effectively stopped flight services to Johannesburg on August 22, 2022, due to delayed issuance of South African visas to travellers—a situation that worsens the pangs of the Forex crunch and the rising price of aviation fuel as well as scarcity.
According to the airline, it had informed the South African High Commission in Lagos of the effects of the difficulty in getting the country’s visas by Nigerians, which consequence is the abysmally low passenger loads on flights to and from Johannesburg.
“Passengers whose flights are affected have the option of rescheduling to fly before August 22, 2022, or from October 9, 2022”, the airline said, adding that (booked) passengers could also request a refund, and get their money back.
As is the case with many sectors of the Nigerian economy, the airlines (or aviation industry) are steadily being unwittingly asphyxiated by a motely challenges—key among which include acute shortage of Forex, scarcity of the critical (Jet A1) fuel—and when found, the prohibitively high prices of the commodity anywhere in Nigeria.
In the face of these and other ‘legacy’ challenges such as poor airport infrastructure, insecurity and myriad taxes and levies on airlines, the sector can only have a gloomy outlook.
With the looming exodus of foreign airlines (and shut down by local ones), Nigeria faces the ineluctable danger of ‘disconnection’ from the rest of the world. The scenario also carries with it huge job losses by Nigerians; loss of revenue by Nigeria as well as poor image implications for the country, globally.
At present, most local airlines have withdrawn from many ‘unviable’ and ‘less-viable’ routes in the country; and not a few intending passengers are getting stranded. Those plying the ‘high frequency’ routes have to pay very high fares that keep rising exponentially in a matter of days.
Consequently, (prospective) passengers are shunning air travel while business organizations and associations are reverting mainly to ‘virtual’ meetings for their executives rather than physical ones, to eliminate high airfares and disruptions of rampant flight delays and/or cancellations.
In the subsisting scenario, how long the airlines (aviation industry) will keep trudging along is anybody’s guess. Is there any lifeline from the powers that be?
Okeke, an economist, sustainability expert and business strategy consultant, lives in Lekki-Lagos. He can be reached at: firstname.lastname@example.org This article was written before the release of $265 million to the airlines by the CBN last Friday.