Emirates Planned Withdrawal of Services and Fear of Capital Flight

Aviation

Emirates Airlines’ planned suspension of flights to Nigeria beginning from September 1 may trigger similar actions from other foreign carriers until their blocked funds are paid. Chinedu Eze writes that this will erode foreign investment in the country 

Last week’s announcement by the Middle East mega carrier, Emirates Airlines, to suspend flights to Nigeria has triggered a lot of reactions both within and outside the country and brought to the fore the critical role air transport plays in the economy of any nation.

What prompted Emirates’ decision to issue the threat was the over $95 million it could not repatriate from the country due to scarcity of dollars.

Nigeria tops the countries that have failed to allow airlines to repatriate their revenues which have increased from $450 million in June this year to over $600 million by August.

The International Air Transport Association (IATA), which has been calling on governments of the countries involved in the blocked fund to release them to airlines, had warned that Nigeria’s failure to do the needful would force airlines to increase their fares to Nigeria and subsequently suspend operations.

As a catalyst to the economy of every nation, airlines bring in investors who spend foreign currency and ensure liquidity. Analysts, therefore, fear that now that the airlines have concluded plans for a gradual withdrawal of service to Nigeria, it will impact the economy of the country.

New Fares

Last week, foreign airlines introduced new fares in their higher inventory, which increases economy tickets to an average of N1 million and business class tickets from N4 million. These airlines include major international carriers like Air France, KLM, Delta Air Lines, Lufthansa, Qatar Airways, Emirates Airlines, and others.

Round trip in later August, as indicated by the airline’s sites, indicated that business class could go as high as over N12 million, while the economy could go for over N3 million.

The National Association of Nigeria Travel Agencies (NANTA) has said that Turkish Airlines is still selling tickets in naira, contrary to reports that it has directed otherwise.

All foreign airlines have adopted a system where they sell high inventory tickets in naira, while promotional tickets are sold in dollars.

Some of the airlines, including British Airways, South Africa Airways, Turkish Airlines, and others have indicated to their travel agents that tickets bought from outside Nigeria must be paid in dollars.

The President of NANTA, Susan Akporiaye explained that the airline sells only the highest inventory of tickets in Nigeria and such class of tickets is still available in naira.

She stated that almost all foreign airlines in Nigeria stopped selling lower ticket inventories to reduce the number of their trapped funds in Nigeria, leaving only the highest inventories. 

She said airlines’ tickets are sold in naira but have to be bought in the airline’s offices and further explained that passengers who decide to buy low ticket inventories on the airlines’ website, will have to pay with their dollar cards. 

“Since airlines in Nigeria stopped sales of lower inventories of tickets, passengers have been forced to buy higher inventories in naira. No airline will force anyone to pay for tickets in dollars because it is against the law of Nigeria. So to cushion the effect of their trapped funds, airlines blocked all low-class inventories. If passengers insist on buying low ticket inventories from the airline’s foreign website, then they have to use their dollar cards to buy the tickets. All ticket sales in airlines’ offices are done in naira,” the NANTA president explained.

Foreign Investment 

The NANTA President told THISDAY that what Emirates did was expected and warned that other international airlines like British Airways, Air France, Lufthansa, KLM, Turkish Airlines, and others would withdraw their services unless the federal government holds discussions with them.

She said that airlines are doing business and they ought to repatriate their earnings, but when the revenues are held back and there is no indication they would get their money, the natural reaction as a business is to reduce their flights to mitigate their losses and if there is no hope of getting their money they would pull out their service.

She also warned that if foreign airlines stopped operations in Nigeria it would be severely injurious to Nigeria’s economy because it means that foreign currency would stop coming in, foreign investment would stop coming in, and at this critical time in Nigeria’s economy, such action would be deleterious to the nation.

“We need foreigners to keep coming because they bring in the needed dollars. If the airlines stopped flying to Nigeria that critical window will be closed. This will hurt our economy. The foreign airlines that bring people into our country provide us with liquidity, the foreign currency we need. So the airlines provide serious economic value to our country and help us get out of the current financial crisis.

 “We need every foreign investment we can get. This is not the time to close this window; so government should do everything possible to make the airlines continue to fly to the country. What the federal government should do it to put the airlines on the priority list for the distribution of dollars. Let them have their money and also assure them that their revenues would not be allowed to accumulate to a certain amount before they have it. If they get this assurance, they will calm down,” the NANTA President said.

IATA’s Position

IATA had earlier warned about the implication of holding back airlines’ funds by some countries and stated that this would hurt the economy of those nations because the natural reaction to unprofitability in business is the withdrawal of service.

Reacting to the decision of Emirates to withdraw service to Nigeria, IATA’s Regional Vice President for Africa and the Middle East, Kamil Alawadhi, said: “IATA is disappointed that the amount of airline money blocked from repatriation by the Nigerian government grew to $464 million in July. This is airline money and its repatriation is protected by international agreements in which Nigeria participates. IATA’s many warnings that failure to restore timely repatriation will hurt Nigeria with reduced air connectivity are proving true with the withdrawal of Emirates from the market. Airlines cannot be expected to fly if they cannot realize the revenue from ticket sales. Loss of air connectivity harms the local economy, hurts investors’ confidence, and impacts jobs and people’s livelihoods. It’s time for the government of Nigeria to prioritise the release of airline funds before more damage is done.”

Subtle Blackmail

However, industry stakeholders have excoriated Emirates Airlines over its decision to suspend its operations in Nigeria from September 1, 2022, saying that it is a subtle pressure on the government to release unavailable dollars.

The industry observers said that the reason why the Central Bank of Nigeria (CBN) has been unable to pay the blocked fund was that government does not have money, and the blocked fund has been a challenge in Nigeria since 2015.

They also observed that while the airline singled out Nigeria, other countries have been unable to allow airlines to have this fund, adding that there is a global economic meltdown, which is exacerbated by the Russia-Ukraine war.

“Please do not succumb to the blackmail of Emirates and their sponsors from within. The country cannot and will not manufacture dollars for them to repatriate their so-called over $80 million in Nigeria. When they were competing devilishly to outdo an indigenous, the only airline doing direct flights to Dubai, didn’t they know of the dollar situation here before embarking on having multiple frequencies into Nigeria?  They do two flights out of Lagos daily and one out of Abuja daily, bringing the total to three daily flights into Nigeria and 21 flights every week,” said one of the stakeholders, who also remarked that at the time the airline increased its frequency, there was no passenger traffic to justify it.

“Once they heard a Nigerian airline was about to start flying to Dubai, they applied to increase the Lagos frequency to three flights daily, just to stifle the airline out and dominate the route. They didn’t need all these flights but they increased frequency to stifle competition. Nigerians are even angry at the figures they are publishing; they feel having been ripped off by Emirates,” a Nigerian airline executive said.

The blocked fund has been an issue with Nigeria since the country faced economic challenges, especially since 2015. In 2016, foreign airlines faced difficulty repatriating their revenue, which forced United Airlines and Iberia to leave Nigeria.

Since then airlines operating in Nigeria have faced the problem of repatriating their earnings.

The NANTA President had advised the government to prioritise airline funds and ensure that when the monies accrue they are repatriated, but signals from the government indicate that it would not be easy, as Nigeria’s economy continues to constrict due to dwindling foreign earnings.