Victor EzejaWith the ensuing hike in cost of tickets for international travels, following the exchange rate reforms, Nigerian government has been advised to strengthen the capacity of indigenous airlines to compete in the international route.
The recent foreign exchange reforms by the Nigerian government which unified all FX windows has seen the rate of exchange between naira and foreign currencies such as Dollars, Euros and Pounds being determined by market forces.
The Central Bank of Nigeria (CBN) floated the naira and directed commercial banks to sell foreign exchange at market-determined rates.
This has seen airfares to various international destinations skyrocket, with the exchange rate fluctuating on the International Air Transport Association (IATA) platform from 663.04/$ to now N770/$.
READ ALSO: IATA Increases International Flight Tickets In Nigeria By Over 20%
In an exclusive interview with Prime Business Africa, Assistant Secretary General, Aviation Round Table (ART), Olumide Ohunayo, said the unification of the official and parallel market exchange rate has impacted on cost of international travel that is dollar denominated.
He said it has become very difficult for people traveling from Nigeria to various destinations who has to book or pay for tickets using the prevailing Naira to dollar exchange rates at the time.
He also said the blocked funds of foreign airlines have contributed to the high airfares on Nigerian routes.
According to IATA, funds belonging to foreign airlines trapped in Nigeria is now about $812.2 million.
The industry’s blocked funds have increased by 47 per cent to $2.27 billion in April 2023 from $1.55 billion in April 2022.
The top five countries that account for 68.0 per cent of blocked funds are Nigeria with the highest trapped funds ($812.2 million), Bangladesh ($214.1 million), Algeria ($196.3 million), Pakistan ($188.2 million), Lebanon ($141.2 million).
“What has happened is that the international airlines having suffered from the trapped funds, and based on the international trade agreement to remit at the rate of exchange at the time of sale, which is now a loss to them. Wth the new rate of exchange, they are forced to only open the higher fares to Nigerian routes, and that’s why if you try to book from Nigeria in Naira, it is about twice the cost compared to when you book in dollar,” Ohunayo said.
Prime Business Africa’s checks reveal that an economy class ticket from Lagos to London and France now cost an average of ₦1.8 to ₦2.3 million depending on the airline against the previous cost of ₦1.5 million.
Ohunayo, who is also the Head of Business Development, Zenith Travels, said the development has also led to loss of patronage for travel agents as according to him, many travellers now move to neighbouring countries to make travel arrangements or call family members or friends abroad to help them book tickets.
The aviation analyst further pointed out that there is no enough capacity in the country, so the available airlines would use the current window of exchange rate unification to hike the fares due to high demand.
In a media interview, President of the National Association of Nigeria Travel Agency (NANTA), Mrs. Susan Akpoariaye, explained that since airfares are denominated in dollars and converted to naira at the prevailing exchange rate at the time of booking or payment for tickets, the exchange rate is subject to fluctuations from time to time depending on the depreciation or increase in value of the naira against the dollar.
The NANTA president also advised air travellers to book their tickets early enough to avoid paying higher fares due to exchange rate fluctuations.
Ohunayo stressed that with the current situation, the only way to bring down the price of tickets is to strengthen the capacity of indigenous airlines to compete in the international route.
According to him, robust competition by increased number of airlines on the international route, would force the price of tickets to come down.
“What has happened is that our agents are losing patronage completely which might lead to loss of a lot of jobs. Many are now running to neighbouring countries or calling friends or relations abroad who can buy ticket for them with the dollar rate on the websites of airlines and then use the ticket to travel.
“So, this has continued to affect travel numbers due to that high naira rate for tickets. If you have Dollars, it is cheaper than when you want to buy in Naira. Because majority in Nigeria would have to use naira, the here you see the downward side.
“But again, our market is peculiar because of our penchant for travel, corruption, and not assessing the market situation, and see how we can reverse it for Nigeria’s advantage. Today, public travel is still dominant on the Abuja route and almost about 40 per cent on Lagos route, so, the first class and business class are still filled up irrespective of the fares.
“The only way we can bring all these down is that since the foreign airlines are the only ones on that route, they would continue to fix fares and continue to increase, as far as the demand is still there. It will only drop when there is no demand. The lower demand travel now is only for the economy fare and private travel not for public travel.
“So, what I would advise is that we need to increase our capacity on the international route, and the only way we can increase the capacity is that the Nigerian airlines, whether as flag carrier or national carrier must join the fray. They should find a way, look for partnership to join the fray. It is only that period you will bring the price down.
“We need to work out how the indigenous airlines would participate on the international route. That responsibility should be the priority of the next government,” Ohunayo advised.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
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