- Emirates begins Nigeria route capacity cut today
Foreign airlines are said to be scared of their humongous funds trapped in the country and the reason they have clandestinely raised the value of air tickets by over 100 percent.
Consequently, the carriers are worried over the devaluation of the country’s currency which they said hurt the carriers.
A top official of an airline who pleaded anonymity told Aviation Metric that the devaluation of the Naira makes it impossible to get the total money stuck with the Central Bank of Nigeria (CBN) because of the continued devaluation of Naira against the United State dollars.
The International Air Transport Association (IATA) had in June put the total amount of airlines’ monies trapped in Nigeria at $450 million. The amount would have gone high since June as the carriers have pleaded with Nigeria to quickly look for ways to offset the debts.
Group Managing Director of Flinchglow, Bankole Bernard explained that this is not the first time that airlines are facing the issue of trapped funds, adding that the situation first happened in 2016 when the total trapped fund of the airlines was far higher than whatever it is now –about $750m.
He noted that at that period, Venezuela was also going through the same challenges and they owed a lot more to the extent that Lufthansa had to stop flying to Venezuela.
Bernard further stated that some of the things people noticed were reduced capacity, with air tickets becoming more expensive, saying, “And that is exactly what we are seeing now”.
“But, one critical reason they are more agitated is that in 2016 after their money was held back without being repatriated, Nigeria devalued its currency and as a business person, they felt that if they had taken their money out, they would not have been affected by the devaluation. So, that is the fear they are nursing now because if the currency is devalued, it means that they would have lost several percentages of that money they intend to repatriate”.
To resolve the logjam, he said the only way to reduce or stop the agitation is that there should be a communiqué from the government, which will give them some assurances that the country is not planning to devalue its currency coupled with another assurance that this won’t affect them and that they will repatriate their money as it were.
His word, “It is very important that when things like this happen, there is room for communication, especially from the government. In business, you will always have exposure and the exposure is the fact that your money is tied down, but you know you are always going to get it because it’s a credible country, but when your money is tied down and it will eventually lose value, then, the agitation will be more.”
“That is why they want to cut capacity because if you cut capacity if the devaluation eventually happens, they will be able to cut their losses. Or on the other hand, they will seek what we call yield. In aviation, airlines make their money in two ways; volume and yield”.
Emirates Airlines had penultimate week announced that it would reduce its flights to Nigeria from today August 15 2022 due to its failure to repatriate its revenue earned from ticket sales in Nigeria.
The airline said it would be forced to reduce flights from Dubai to Lagos from 11 times per week to seven times per week, saying that it does not have any choice but to take this action, to mitigate the continued losses it is experiencing as a result of funds being blocked in Nigeria.
The airline made this known in a letter it wrote to the Nigerian Minister of Aviation, Hadi Sirika, dated July 22, 2020, and signed by Sheik Majid Al Mualla, the DSVP International Affairs.
The letter explained that as of July 2022, Emirates had $85 million of funds awaiting repatriation due to the non-availability of dollars in Nigeria and this figure has been rising by more than $10 million every month, as the ongoing operational costs of the airline’s 11 weekly flights to Lagos and five to Abuja continue to accumulate.
The volume according to Bernard is to have a lot of people to fill the capacity of the aircraft, so, they can afford to sell discounted fares.
“On the yield, you will know that even if you sell 30 percent of the capacity of your aircraft, you know you are not losing because you are selling using yield. An economy ticket to Dubai now is about N800,000. So, if you insist you want to buy it, you are buying at 100 percent or more in an increase in fares. So, you have to be desperate if you want to do that. If you are paying about N1 million for an economy ticket, you can imagine what the business class would be like.