Airlines Jettison CBN Rates To Repatriate Funds, Remove Lower Fare Inventory

Foreign airlines with $450 million trapped revenue in Nigeria have removed the lowest base fare from their price inventory and replaced it with higher ones in order to bypass the Central Bank and buy foreign currency in the parallel market. Out of the $450 million about $200 million belongs to one of the airlines (name withheld).

The trapped revenue is said to be a result of a forex shortage, a sign that Nigeria is facing serious financial challenges. The action has technically made airfares on international routes to be seen as expensive, whereas what the airlines have done is to close the lower airfare inventory by going to the cabin category on the same economy seats which are higher by as much as between 30 and 60 percent of what the fares should normally be.

British Airways, Delta, United, and Emirates, among others, collectively make up about 80 percent of the trapped funds. This is because they have the biggest sales since most people travelling to Britain, the United States, and the United Arab Emirates patronise them.

Travel agents sell tickets at the Central Bank of Nigeria (CBN) official rate, a little above the official but much lesser than the black market rate between N22 and N25. For the black market, the difference is over N150.

Speaking to Aviation Metric, the National Association of Nigeria Travel Agencies (NANTA) President Susan Akporiaye said: “If Isellaticketfor$1,000 at an exchange rate of N444, the money belonging to the airline is $1,000. The money the passenger that buys the ticket is N444,000.

“So, the airline is supposed to use that N444 to buy their $1,000 at the official rate of N416 or N418. “The difference is the waiting period or the time they have to wait to get their funds. If they go to the black market, they will buy it at N615 which will be a big loss.

“They will have to continue to wait to get it at the official rate. They don’t get it because of forex shortages. This waiting is what makes the funds pile up. “So, what they now do is that if the $1,000 that I sold for N444, 000 which the customers pay and like I said in every cabin, there are different fares. “The airlines don’t sell one fare.

This N444, 000 is the lowest fare in the economy cabin, for instance. Some economy cabins have 125 seats and 236 for the bigger aircraft. AtN444,000at236, the airlines will not sell at N444,000. In the cabin of 236, they have different categories of economy seats with the lowest one of N444, 000 with specific allocation. The next one might be N530, 000 with some percentage allocation to N600, 000, N700, 000 being the highest economy to N2.1 million.

 “So, the economy ranges from N444, 000 to N2.1 million all-economy cabins. So, if the allocationforN444,000finishes, you start buying from the next allocation until the other allocation is left for you to buy N2.1 million. “The airlines are saying that they can’t wait forever because they don’t know how long their money will be stuck in the country.

Faced with the situation, they now go to the parallel market to buy dollars and send the money to their countries. “For them to go to the parallel market to buy their dollars, we cannot sell at the lowest of N444, 000 because the lowest is $1,000 and that cannot get the $1,000 in the parallel market. What will give them $1,000 at the parallel market is when they sell at N600, N610, and N615 as the case may be.

“So, what now happens is that the fares that are below N600, 000 they will stop selling it because those fares below N600, 000 cannot make them buy the dollar. “They will be having huge losses; so, the result is selling from N650, 000 to upward category.

It is not that the $1,000 fare equivalent of N444, 000 has increased; they have just stopped selling it because now, they have to go and source their money by themselves and they cannot source their money at that rate without making a huge loss. “Thatactuallyiswhathas led to an increase in fares.

They stopped selling the lower inventories. The lower inventory will be a bigger loss to them, in the long run, to go to the primary market to get dollars.”

Akporiaye appealed to the Federal Government to meet with the airlines to discuss how they would get their funds.

Wole Shadare