Foreign airlines have expressed their opposition to the recent increase in the Rate of Exchange (RoE) and the subsequent rise in the cost of international air travel.
According to the airlines, the exchange rate and local market volatility, influenced by the Central Bank, have induced these changes rather than their own determinations.
The International Air Transport Association (IATA), representing the airlines, clarified that the exchange rate used for international flight tickets sold in Nigeria is not controlled by the airlines and should not be referred to as the “IATA exchange rate.”
Over the past two months, the RoE applicable to foreign airlines has surged for the third time, reaching N582/$1, leading to a significant spike in the cost of international air travel.
As per the new RoE registered by the Global Distribution System (GDS), a six-hour Economy class ticket from Lagos to London is priced between N1.1 million to N2.97 million, depending on the airline, destination, and booking time. Business class tickets range from N3.36 million to N4.8 million.
This development has made international air travel increasingly unaffordable for the average Nigerian, while also providing some relief to foreign airlines using the Investors and Exporters (I&E) FX window for fund repatriation and reopening naira inventories to travel agencies in their home countries.
In response to the concerns raised, IATA, the clearing house for over 290 world airlines, emphasized that airfares for international flights from Nigeria are denominated in U.S.
Dollars and converted to Naira for sale in the local market. These conversions are based on the prevailing exchange rate provided by the country’s financial system, with IATA using the spot rate from the Central Bank of Nigeria’s retail foreign exchange auctions, which fluctuates based on market dynamics.
The international aviation sector has been grappling with a fund crisis for the past year, resulting in inventory issues, higher prices, and the near-collapse of local travel agencies.
The Central Bank of Nigeria had previously intervened with a pledge of $265 million in August 2022, leaving a balance of $200 million of stuck funds in Nigeria.
However, due to the daily sales of tickets, the accumulated stranded funds exceeded $800 million, ultimately leading Emirates Airlines to suspend its Nigerian route in late October 2022.
Recent negotiations aimed at resolving the crisis resulted in a shift from the official Central Bank window to the more volatile I&E window for the repatriation of foreign airlines’ funds in Nigeria.
Travel operators and experts view the new rates as inevitable and partially beneficial in light of current market realities.
Bankole Bernard, Chairman of the Airlines and Passengers Joint Committee (APJC) of IATA, believes that foreign airlines accessing the I&E window could provide a permanent solution to the longstanding issue of stuck funds, thereby unlocking the commercial viability of the international segment.
Bernard expressed his disappointment with the government’s indecisiveness in addressing the FX liquidity crisis and its impact on foreign airlines, stating that the government itself contributed to the problem.
He added that by utilizing the I&E window, airlines are now receiving their payments promptly, benefiting both the airlines and the government, while the masses are the ones bearing the brunt of the situation.