Travellers Kick as Naira Devaluation Drives Up Airfares
The Central Bank of Nigeria’s decision to devalue the naira has led to a substantial increase in airfares, thereby negatively affecting the summer holiday arrangements of several travellers, Funmi Fabunmi.
The summer travel season was eagerly anticipated by numerous travellers who were planning to go on their yearly holidays. The devaluation of the naira may disrupt the plans of holiday travellers, making this year’s summer less predictable. Airfares have surged to an unparalleled level as a result of the depreciation of the naira.
In his election campaign, President Bola Tinubu pledged to bring together the various exchange rates in the country, a move that would deter arbitrage and foster greater capital inflow. As promised by the President, the Central Bank of Nigeria has initiated the floating of the naira on June 14, resulting in its depreciation from 471.67/$ to 471.67/$ at the Investors’ & Exporters’ forex window. The local currency has further weakened to 763.17/$ as of Wednesday.
Before the naira devaluation, airlines in the country have been grappling with forex and aviation fuel scarcity, which have impacted their operating costs and forcing to review airfares upward.
The challenge of trapped funds of international airlines also made Nigerian travellers pay more for flight tickets than their counterparts in neighbouring countries.
Speaking at the 79th Annual General Meeting and World Air Transport Summit in Istanbul on Sunday, the Regional Vice President, Africa and Middle East, IATA, Kamil Alawadhi, said the trapped funds had risen to $812m as of April 2023.
In March, the IATA Area Manager West and Central Africa, Dr Samson Fatokun, in a letter to the Minister of Aviation, Hadi Sirika, said trapped funds belonging to foreign airlines operating in the country had risen by 12.39 per cent to $743,721,097 in January 2023 from $662m in the corresponding period last year.
“Airlines cannot continue to offer services in markets where they are unable to repatriate the revenues arising from their commercial activities in those markets. Governments need to work with industry to resolve this situation so airlines can continue to provide the connectivity that is vital to driving economic activity and job creation,” IATA’s Director General, Willie Walsh, said.
According to the global airline body, the top five countries account for 68 per cent of blocked funds. These comprise Nigeria ($812.2m), Bangladesh ($214.1m), Algeria ($196.3m), Pakistan ($188.2m), and Lebanon ($141.2m).
“For over a year, Nigeria has been the country with the highest amount of airline-blocked funds in the world. Please find attached the comparative table of airlines’ blocked funds by country
“Moreover, as of January 2023, airlines’ blocked funds in Nigeria have increased to $743.721.092 from $662m in January 2022 and $549m in December 2022,” the letter read in part.
Consequently, local and international airfares have skyrocketed, a major source of concern for travellers who have plans for summer holidays.
Travellers planning international trips have been hit hard by currency devaluation. The rising costs of aviation fuel, aircraft maintenance, and other operational expenses have forced airlines to pass on the burden to consumers. As a result, the dream of an affordable summer getaway has become increasingly elusive for many travellers.
A source in one of the foreign airlines operating in Nigeria, who spoke on condition of anonymity, told our correspondents on Tuesday that the new regime of N770 to one dollar would kickstart on Wednesday.
According to the source, IATA had already informed its member airlines of the new benchmark.
The source said, “The IATA Rate of Exchange will increase to 770/dollar from Wednesday.”
Before the devaluation of the local currency on June 14, the exchange rate adopted by international airlines for tickets was about N445/dollar but ballooned to about 770/dollar on Tuesday.
Domestic travellers have also been affected by the surge in airfares. With limited alternatives for long-distance travel, domestic flights have become an essential means of transportation for business and leisure purposes. However, the skyrocketing prices have placed a strain on individuals and businesses alike, impacting travel budgets and potentially discouraging travel altogether.
A passenger, Adeniji Matthew, who spoke with our correspondent at the Murtala Muhammed International Airport on Saturday, lamented, “I wanted to book my flight ahead by a few weeks but I kept telling myself that ticket prices would come down. Unfortunately, that has not been the case. Prices keep changing. At this rate, I may not be able to go visit my family this year.”
Another traveller, who gave his name as Okoro, expressed worry over the astronomic rise of airfares.
“This is not a nice feeling in any way. Why is it only Nigeria’s fares that are going up? I and my cousin in Ghana booked our flights for the same day, but he got a cheaper fare. Who did we offend in Nigeria?” the concerned traveller stated.
Another passenger, Mr Kayode Enitan, who expressed displeasure on the increase in the ticket price, said, “I have determined to spend this summer holidays in the United Kingdom with my family. In the past four years because of work, I have been travelling to the UK but it seems I would not be able to do so this year as a result of the high cost.” He called on the government to intervene and make airfares affordable to the average traveller.
In the same vein, Mrs Evelyn Chukudi, a traveller, claimed the sharp rise in airfares had adversely impacted air travellers.
She said, “They just keep increasing the ticket prices. I was supposed to travel with my husband but this will eat into our savings. We actually booked a few days ago. This is too much.”
The tourism industry, a vital sector for economic growth and job creation, is already feeling the impact of the hike in airfares. Expectedly, small and medium-sized enterprises in the tourism sector, such as hotels, tour operators, and travel agencies, are not struggling with reduced bookings and cancellations.
The unaffordability of air travel for both international and domestic tourists has dampened the prospects of a robust summer tourism season.
As travellers grapple with these challenges, industry experts are calling for measures to alleviate the burden. They emphasised the importance of stabilising the exchange rate and creating a conducive business environment for airlines.
While the current situation presents significant obstacles for travellers and the aviation industry, stakeholders remained optimistic that the situation would improve over time. They highlighted the resilience of the Nigerian tourism sector and express hope that economic stability measures and favourable exchange rate policies would reverse the current trend and make air travel restore affordability.
As summer begins and travellers eagerly plan their vacations, the unprecedented surge in airfares serves as a stark reminder of the economic realities faced by the industry. The quest for affordable travel experiences continues, with travellers and industry players eagerly awaiting measures that will bring relief to the soaring costs of airfares.
International airlines in Nigeria have closed their low-price ticket inventory in order to cushion the effect of blocked funds put at $802m as of April.
A few months ago, foreign airlines sold tickets at 444/dollar in accordance with the CBN official exchange rate. However, in recent weeks, IATA has reviewed the exchange rate for ticket sales in Nigeria to 462/dollar, N551/dollar, N582/dollar, N610/dollar and currently N634/dollar.
The increase in the IATA exchange rate has led to a commensurate jump in airfares on the Nigerian route.
IATA officials justified the exchange rate increases, saying they were in line with the spot rates the CBN had been selling foreign exchange to foreign airlines in Nigeria for the repatriation of their ticket sale proceeds.
Foreign airlines submit FX bids to the CBN through their respective commercial banks every fortnight.
An IATA official, who spoke on condition of anonymity, told The PUNCH that “The increases in the IATA exchange rate are in line with the changes in the CBN exchange rates for airlines. The airlines are just matching the rate at which the CBN is selling the dollar to them. It is not a unilateral change from the airlines.
“You can also check with the banks the rate at which CBN sold dollars at the last retail auction for spot bids. We got the results today from the banks. If you check you will see that the airlines are even matching the lowest point on the spot rate in order to reduce the increase in airfares,” the official added.
The President of the National Association of Travel Agents of Nigeria, Susan Akporiaye, expressed disappointment about the current development.
He lamented that passengers would suffer the most from the airfare increment.
Akporiaye said, “Fares will definitely increase and passengers have to pay more. As a result, passengers would not travel as much as they should and this will affect travel agents.”
Also, a travel agent in Lagos, Akande Diran, in his reaction said, “Majorly around June, ticket prices always gear up. We call it the peak period because many people go on vacations during this period. Apart from that, the exchange rate really affects the cost of tickets these days. However, if you book a flight from outside the country, it is a bit lower than when you book from here. These are some of the factors that led to the increment.
“The dollar rate last year was lower than it is now so airlines have adjusted their fares to reflect these changes.”
Delta Air Lines announced sales in March were up 16 per cent from 2019, with record advance bookings for June, already 75 per cent booked, and the addition of more seats to international flights, ABC News reports.
Source: The Punch
