• Monday, July 15, 2024
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BusinessDay

Airlines squeezed as dollar shortage hits operations

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Airlines in Nigeria are having difficulties with their operations as biting dollar shortages and elevated black market rates leave them facing losses on their routes and struggling to acquire foreign exchange for routine and scheduled maintenance.

“The foreign exchange rate has made it difficult for customers to get dollars and it has a negative impact on the traffic level of our airline,” Jean-Raoul Tauzin, general manager, Air France KLM Nigeria and Ghana, said in an interview with BusinessDay.

On the home front, Tauzin explained that Air France has naira in Nigeria which they routinely transfer to Europe and when there are fewer available dollars, it becomes a problem.

He observed that airlines in Nigeria see the falling value of the naira negatively affecting margins, but since it is governed by the Central Bank Nigeria, (CBN) there is nothing they can do as airline operators.

Other airline sources say consumables for aircraft, such as spares, have become harder to buy and stock in large quantities, while repayment for lease rentals and loans have kept dragging, as the dollar shortage worsens.

The naira has been all but fixed at N197-N199 per dollar, since early March last year, after the CBN restricted banks’ ability to buy foreign exchange.

The FX restrictions have led to a spike in the exchange rate in the black or unofficial markets to N290 per dollar.

Nigeria’s foreign exchange reserves are down by 2 percent or $0.6 billion year to date, to $28.4 billion as at December 18, as oil prices slump below $30 per barrel- data from the CBN show.

A spokesperson for an international airline, speaking to BusinessDay anonymously, explained that with the current paucity of forex in the market, it is difficult for both foreign and international airlines which are faced with the challenge of getting hard currency.

“Most of the cost of operations comes from abroad. We are talking about financing of the aircraft, payment of crew abroad, maintenance and many more, that have to be settled abroad. This means we need hard currency, as only a few costs can be settled in naira,” the source said.

He further explained that the airlines depend on CBN to give them forex as the tickets are calculated in dollars, which have to translate to naira for people to pay.

“We cannot take the naira and go to the black market because the rates are high and it kills profit in any business. To get the hard currency for the proposed exchange rate is a very tough one, so we are depending on the CBN to review this policy.”

Analysts say airlines could increase fares to cushion declining sales and strains from the FX scarcity; however, such a move could result in a further decline in demand from passengers, even as the status quo is clearly unsustainable.

Ticket fares on domestic flights are relatively cheap: an hour flight on a jet plane costs less than $150, while in some cases, competition has lowered fares below $60 for similar distances.

Jet A1, the fuel used on most airplanes is relatively expensive in Nigeria.The price of a litre of aviation gasoline has increased in the past one month, by as much as 10 percent.The increased cost has a negative effect on margins, as airfares remain unchanged to trade-off for increased fuel expenses.

Aviation experts say the majority of aviation-friendly countries have low interest rates; stable and easily convertible currencies, and no draconian policies that adversely affect airline operations.

Kola Olayinka, commercial manager, British Airways, said in compliance with a directive by the CBN, from January 1, 2016, British Airways could not accept payment from Nigerian credit or debit cards for in-flight purchases on its flights, which used to be the practice prior to this time.

Olayinka noted as a result of the development, the management of the airline requested that customers use another form of payment, which appears to inconvenience customers.

Purely domestic airline operators may however be less affected by FX shortages than their foreign counterparts, despite Nigeria’s challenging business climate.

“Foreign exchange for our operations is sourced through the Central Bank, via our bankers. Airlines have to bid, same as every other industry, for available funds,” Obi Mbanuzuo, Dana Air’s Accountable Manager.

“We have noticed a slight drop in the cost of Jet A1 but this has completely been wiped out by the rising cost of dollars and the unavailability in the market of forex to service debts overseas and run operations.”

About 15 million air travelers passed through Nigerian airports in 2015. The figure for 2014 was about 14million. Analysts say this number may reduce by up to 30 percent with the new foreign exchange policy, if it is not reviewed.

Nigeria has ten domestic airlines, which provide 6,538 seats to the traveling public daily. The airlines include Arik Air, Medview, Aero, First Nation, Discovery Air, Air Peace, Azman Air and Overland.

International airlines operating in Nigeria include Air France, Lufthansa, Region Air, Egypt Air, Sudan Airways, Middle East Airlines, British Airways, Egypt Air, and Ethiopian airlines.

IFEOMA OKEKE