Stakeholders in the airline sector have said they see airline business coming alive again with the announcement of the Central Bank yesterday to boost the supply of hard currency in Nigeria.
This announcement is coming at a time when trapped funds of foreign airlines have reached a sum of $700 million, making Iberia airlines and united airlines to pull out of the country.
Godwin Emefiele, CBN governor yesterday said that Nigeria’s central bank will launch a foreign exchange interbank trading window on Monday to boost the supply of hard currency in Africa’s biggest economy.
“The window’s exchange rate will be purely market-driven. The new system would help with economic growth and restore investor confidence,” Emefiele added.
The new window would have eight to ten primary traders handling minimum volumes of $10 million.
Analysts say airlines increased fares to cushion declining sales and strains from the FX scarcity; however, such a move resulted in a further decline in demand from passengers, even as the status quo is clearly unsustainable.
Wole Shadera, an expert in the aviation sector said that the implication of the long awaited announcement is that airlines will now get FX to run their businesses effectively and efficiently.
“The airlines can now know the exact exchange rate. Air fares were expensive because the airline operators did not know what the actual exchange rate was. Airlines didn’t want to lose monies because there was no definite exchange rate,” Shadare explained.
He explained that passengers can now afford to pay for tickets because airfares will reduce since airlines depended on CBN to give them forex as the tickets are calculated in dollars, which have to be translated to naira for people to pay.
BusinessDay checks reveal that the decision by United Airlines to stop flying into Nigeria its only route to Africa like its Spanish counterpart is due to the airline’s inability to repatriate to its home country money from tickets sold in Nigeria.
Jonathan Guerin, United Airline spokesman, confirmed the planned pull out, saying that, “Repatriation has been a significant issue, as has been the downturn in the energy sector.”
John Ojikutu, Secretary-General, Aviation Round Table Initiative told BusinessDay that with over $700million dollars stuck in Nigeria, each of the 25 international airlines operating in Nigeria have nothing less than $20 million dollars stuck in the country.
Ojikutu said this amount can affect the operations of these airlines and could cause more airlines to pull out of the country.
A travel agent who craved anonymity told BusinessDay that since the forex challenge, Virgin Atlantic which often fly full to various destinations now travel with their seats empty.
The source went on to say the weekly flights have been reduced from five times to about three times weekly as a result of the biting forex policy.
Analysts see these challenges coming to an end with plans of the bank to open a foreign exchange futures market to ease demand on spot trading, reduce volatility and give businesses more certainty.
Nigeria has been suffering from foreign exchange shortages due to a slump in oil revenues which have crippled public finances and hit currency reserves.
“Airlines operators are required to change their tyres on a weekly basis, pay for wear and tear on a monthly basis and fix old engines when the need arises and this is often done outside the country and it requires dollars to foot these bills,” Nogie Meggison, Chairman, Airline Operators of Nigeria told BusinessDay.
Meggison noted that with the recent development by the CBN, these mandatory routine activities can be done with ease and on time.
Meggison observed that before now, airlines in Nigeria see the falling value of the naira negatively affecting margins.
