Despite Challenges, Nigeria Remains Profitable Route to Foreign Airlines

Despite the recent threat by the International Air Transport Association that its members may leave Nigeria because of their trapped funds in the country, the reality is that foreign airlines are still making a brisk business in the country because it is a profitable destination, writes Chinedu Eze

Some foreign airlines have left Nigeria due to factors bordering on the issues of unstable exchange rates and trapped funds, but most of the 25 foreign airlines that operate in the country have continued their operation despite the hiccups they complain of. 

Nigeria is beset with poor airport infrastructure, policy inconsistency and charges that are multiple and outrageous, but many foreign airlines have operated in Nigeria for about 70 years. 

Foreign airline officials at different fora admitted that Nigeria gives airlines profit per passenger despite the challenges encountered while operating in the country and one major disadvantage Nigeria has is the lack of state-of-the-art airport facilities. That after transiting through the best airports in the world, airline crew would go through the Nigerian airports, which some describe as riding a 1970 Opel Kadet after riding a 2023 model of Mercedes Benz. 

But the latest challenge foreign airlines face is the issue of their trapped revenue, which the federal government has not been able to liquidate completely.

Trapped Fund

Recently the International Air Transport Association (IATA) Regional Vice President Africa & Middle East, Kamil Al-Awadhi, during a media presentation with African journalists at the IATA Global Media Day in Geneva, reiterated that Nigeria is yet to pay foreign carriers and called on the Federal Government to take the matter seriously.

He listed Nigeria as the country with the highest amount of airlines’ blocked funds at $792m followed by Egypt, $348 million, Algeria, $199 million, AFI zone, $183 million and Ethiopia, $128 million.

He said: “It is getting to a breaking point for the airlines. They are contemplating stopping operations. Nigeria should look into this to resolve the issue. The airlines don’t have the cash to expand their operations”.

“Ethiopia is seeking a way to resolve this issue even though the blocked fund is rising. The first step for us to solve these blocked funds is for both parties to engage. If parties don’t engage, it is very difficult to move forward.”

High Fares

To avert the continuous piling up of unremitted revenue, foreign airlines instead of contemplating leaving the country have decided to charge high fares that would enable them to change their revenues at the parallel market and still make a profit, instead of channelling their earning through the Central Bank of Nigeria (CBN), as stipulated by most of the Bilateral Air Service Agreement (BASA) and commercial agreements Nigeria signed with the countries that own the airlines that operate in Nigeria.

This explains why Nigerian travellers pay about N2.7 million for economy tickets to most European destinations, while travellers from Ghana, Ivory Coast, Togo, and Benin Republic among other countries in the sub-region pay less than that. 

Foreign airlines said that why they charge Nigerians more because they spend more money operating in Nigeria compared to other destinations. They pay their officials extra allowance for operating in Nigeria, they pay extra for security and pay multiple taxes in addition to the fact that the currency value is unstable against major currencies in the world. 

Contribution of taxes to High airfares in Nigeria 

Speaking on taxes and high charges, the President of the National Association of Nigeria Travel Agencies (NANTA), Mrs. Susan Akporiaye said that Nigeria needs to have tax policy advocacy in the aviation industry.

“Why is the cost of airfare becoming very expensive? When you put airlines on the spot, they will tell you that they cannot discuss fares. If you look at every fare, there is what you call the base fare and taxes. The base fare is one of the smallest in the entire ticket, so you ask yourself, how come the total is still expensive? You have a local ticket where the base fare is N10,000 for instance and after all the taxes, the total is N60,000, meaning that taxes alone is N60,000. There are some taxes we see on tickets and we have been asking questions about it for as long as we can remember and no one can explain to us what that tax is for.

“Once you ask the question, the airlines will tell you that they are not allowed to discuss fares. If you notice, from history, every last quarter of the year, local airlines increase fares for absolutely no reason. Did anything drastic change? Why have the tickets gone up? It means that the airlines deliberately increase fares every last quarter of the year starting from November but by January, the fares will come down. I want to look at it as an issue of demand and supply. They know that there is high demand during the last quarter of the year. They are not the only ones that do this, international airlines also do it because there is demand during peak periods and all the airlines add to their fares. They would tell you they are following the law of demand and supply,” she said.

Secretary of Aviation Round Table, Olu Ohunayo said that various charges add to the tickets in the local and international flight service and foreign airlines take advantage of it to charge outrageous fares to Nigerian passengers.

“We need to have this interface with the policymakers and if we do not, we will continue to have these problems of multiple charges, some of which are extortions that come under the name of charges. This is not something that we can handle alone, everyone must have to join hands to make the sector work. I can assure you that the ART under the leadership of our president and other stakeholders will be able to come together, move to the Ministry of Aviation and make a bold decision for the industry so that we would not have to come back next year and still be talking about these problems.

“As of today, it is so sad when you look at the high cost of ticket fares and how Nigerians are going to other countries to get lower fares is a situation that we need to reverse. We have heard about the millions in trapped funds, devaluation of the naira and we know how aviation products are delivered in dollars and for you to get anything, you have to get it in dollars which definitely affects cost of operation and in turn also affects the cost of ticekts. The easiest way is take care of the issue of high cost of ticket fare is to increase competition. Nigerians have a high demand and taste, we must go for graduation, we must go for capacity building, but then, if our bilateral agreement gives provision for reciprocity and we cannot reciprocate using Nigerian airlines, increase the frequency of other airlines. If we keep on rejecting and we are not participating, then Nigerians will suffer. Whether it is private, flag carriers or national carriers, we would need to step up and use the BASA agreements. I am happy that Emirates is returning, but Emirates is not a Nigerian airline and the benefits are not coming to besides a possible reduction in fares,” he said.

Ohunayo expressed the hope that high fares charged by foreign airlines could be controlled if Nigerian airlines effectively joined the international travel market.

“We need Nigerians to be able to lead this process. Air Peace, United Nigeria and all other domestic airlines must see how they can work together to produce a very strong flag carrier that can take up this position. We can’t keep waiting. We can’t keep bringing in others and our own airlines are not going out. Nigerian airlines should be supported by the government because what has been happening is that after designation, everyone goes back and the airlines are left alone. But when you designate and you follow through, it would be more effective. If the Ministries of Aviation, Foreign Affairs and Justice stand strongly and protect them and say ‘This is our flag carrier’, there would be a difference. Our airlines should not be carrying files around offices alone and they should not be looked down upon and say, this airline belongs to Mr. A or This airline belongs to Mr. B, so you will not help them. It should not be so.”

So, instead of leaving the country, foreign airlines are devising ways to become less dependent on the federal government when it comes to repatriating their funds. They have resorted to selling their tickets at the prices that when they exchange their naira through the I and E window, it will give them the equivalent amount they ought to sell their tickets