Aviation
Forex scarcity: Foreign airlines adopt tougher measures to stay afloat
BY EMEKA EJERE
As the dollar scarcity continues to worsen, foreign airlines operating in Nigeria are facing increasing difficulty in repatriating billions of naira in ticket sales proceeds to their head offices abroad.
Effort by the affected carriers to mitigate the effect of the situation have resulted in some tough measures that have brought hardship to Nigerian travellers, with a view to seeing that there shareholders continue to get good return on their investment, even without compromising standard.
Just last week, South African Airways (SAA) announced that from Wednesday, August 10, 2022, it would start adjusting its tickets from naira to dollars with the aim of making it seamless for its funds to be repatriated to its home country rather than getting them trapped in Nigeria.
In a statement issued and addressed to its trade partners, the Southern African carrier declared that passengers can only issue Sold Inside Ticketed Inside (SITI), that is, trips emanating from Lagos-Johannesburg-Lagos tickets in naira.
In other words, all tickets issued in Nigeria will be paid for in naira in line with the Central Bank of Nigeria (CBN) policy that tickets issued in the country should be paid for in naira.
The airline, however, added that all other tickets, such as Sold Outside Ticket Inside (SOTI) and Sold Outside Ticketed Outside (SOTO), that is, tickets issued outside, would be paid for in dollars. Under the latest arrangements, tickets sold outside and tickets issued outside the country would be issued in dollars.
In the notice issued to its trade partners, the airline stated: “Please be informed that effective from Wednesday 10th August 2022, you can ONLY issue SITI (i.e. LOS-JNB-LOS) tickets in Naira. ALL other tickets, i.e. SOTI and SOTO, have to be issued in USD. Note only tickets with travel originating from Nigeria can be issued in naira.”
The latest announcement by South African Airways may have been triggered by the inability of the over 27 foreign carriers operating in Nigeria to repatriate their accumulated $450 million funds trapped in the CBN without any hope of getting the funds back to their home countries.
Many of the foreign carriers, out of frustration, have introduced other tough policies that will help cushion the impact of the trapped funds on their operations.
Such policies, which include an increase in fares on the different international routes and the suspension of the sale of cheaper tickets, have subjected Nigerian travellers to serious hardships with the fares on the Nigerian route becoming the most expensive in the sub-region.
Two weeks ago, UAE’s Emirates announced plans to reduce flights to Nigeria this month over challenges it is experiencing repatriating revenue from the country, according to a Reuters report.
The airline in a letter to the Nigerian government said it plans to cut the number of flights to Lagos to seven from 11 by mid-August, adding that it had $85 million stuck in the country as of July, a figure that had been rising by $10 million per month.
Industry observers say more airlines could follow suit if the CBN, which restricts access to foreign currency to tackle a severe dollar shortage, does nothing to address the airlines’ matters.
“We have no choice but to take this action to mitigate the continued losses Emirates is experiencing as a result of funds being blocked in Nigeria,” the airline said in a letter to aviation Minister Hadi Sirika dated July 22.
Emirates, in an emailed statement, said trouble repatriating funds was impacting its commercial viability in Nigeria and that efforts to solve the problem had been met with limited success.
In late July, the naira black market value against the dollar dropped to a record low, raising worries for the CBN. Nigeria which gets roughly 90 percent of its foreign exchange from oil sales is struggling to produce due to pipeline theft and years of underinvestment.
Similar foreign exchange restrictions in 2016, saw several airlines reducing flights while carriers like Iberia and United Airlines stopped flying to Nigeria altogether. The latter re-launched a Nigerian service last year, but Iberia has yet to return.
The development had prompted the International Air Transport Association (IATA) to say in June that Nigeria was withholding hundreds of millions dollars in revenue that international carriers operating in the country had earned.
The CBN says it is concerned about the falling value of the naira but that it is making deliberate efforts to avert a further downward slide.
The naira has fallen to successive record lows at the parallel market due to dollar scarcity since July 2021, when the apex bank stopped forex sales to retail currency traders to ease pressure on reserves and support the official market.
The move channeled demand towards the unofficial market, where the currency is freely traded. The currency has been trading within a range on the official market.
Early this month, the federal lawmakers said the policy had “contributed to the excessive scarcity of forex in Nigeria” and summoned CBN governor, Godwin Emefiele over the “free fall of the naira,”
A business analyst, Dr. Bede Okoro, said the foreign airlines cannot be blamed for bringing out initiatives to remain afloat at very difficult times.
“Those to be blamed are successive governments who chose to keep the country at the mercy of other countries by failing to build her productive capacity”, Okoro said.
“How do you explain that a major oil producer in the world is depleting its reserves by importing petroleum products”? he queried.
Another analyst, Peter Adesanmi, noted that the situation would not have been as bad as it is if there were a functional national carrier, like in other African countries.
“I sympathise with Nigerian foreign travellers who will now have to pay through their nose because their country’s currency has come to nothing”, he said.
Naira depreciated heavily against the United States dollars at the official market on Thursday. After trading activities on Thursday, Data from FMDQ Securities showed that Naira exchanged for the US dollar at N430.25. This was a N1.5 or 0.34 percent loss when compared to the N428.75 for the previous two days.
Naira’s poor performance is largely driven by low forex supply to the market. According to FMDQ, traders exchanged $58.39 million on Thursday compared to $113. 64 million traded on Tuesday.
After dropping to a low of 720/$, the naira miraculously recovered, reversing the previous losses trend to trade as high as 635/$ on the black market. The achievement, however, appears to be fleeting as the local currency falls slowly into the N700/$ region again.
The naira sunk to N675/$ on Wednesday, August 10, 2022, in the parallel market.
Analysts attribute the temporary strengthening of the currency in early August and the subsequent weakening to intermittent supply fluctuations.