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Airlines Exit Nigeria on Slow Economy Hit by Dollar Shortage

NCAA, airline operators
Posted: Jun 10, 2016 at 6:33 am   /   by   /   comments (1)

International carriers may follow the example of United Airlines and Iberia and halt operations in Nigeria or cut flights as they struggle to move revenue out of the country because the oil-price slump has depleted the country’s foreign exchange reserves, reports Bloomberg.

Iberia suspended its route to Africa’s biggest economy on May 12, followed by United, which informed employees that it would end flights from the U.S. to Nigeria at the end of June because of a lack of demand and trouble collecting payments. British Airways and Emirates have said they are facing difficulties obtaining outstanding air fares.

The Lagos route became “untenable” for United, the CEO Oscar Munoz said Wednesday. Pulling out was a “tortured decision,” he told reporters after an annual meeting in Chicago.

More airlines will probably cancel routes to Nigeria, according to John Ojikutu, CEO of Centurion Aviation Consultancy. “Besides an inability to repatriate profit, passengers are reducing because the economy is going down,” he said on the phone from the country’s economic hub, Lagos.

Africa’s biggest economy is on the verge of a recession, oil production has fallen to about a three-decade low, and the budget deficit has swelled to a record. The economy contracted for the first time since 2004 in the first quarter, and foreign-currency reserves have slipped to $26.4 billion, the lowest in more than a decade.

Faced with dwindling oil revenues, the central bank has restricted access to foreign exchange. The Central Bank of Nigeria (CBN) has held the naira at N197-N199 per dollar since March 2015, unlike many other oil producers affected by the slump in crude prices since mid-2014, which let their currencies weaken. As the dollar shortage has worsened, the naira’s value has plummeted on the parallel market, falling to N370 per dollar on Wednesday.

President Muhammadu Buhari on May 29 gave the central bank the go-ahead to introduce a more flexible exchange rate while maintaining his opposition to a full devaluation. No details on what the measures will be have been made public. Finance Minister, Kemi Adeosun, told investors in London Tuesday that it would take “days or weeks” to implement those changes, according to sources who attended the meeting.

Madrid-based Iberia halted flights to Lagos “due to very difficult operating circumstances and dwindling passenger numbers,” Kola Olayinka, country manager for parent company IAG SA, said in an e-mailed response to questions.

Nigeria owed $575 million in outstanding air fares, as of March 31, according to the International Air Transport Association. Vice President Yemi Osinbajo told IATA Chief Executive Officer Tony Tyler, who visited the capital, Abuja, in late May, that airlines must agree “a realistic and achievable payment schedule,” the trade body said.

British Airways, also owned by IAG SA, is struggling to repatriate its share of the money owed to the carriers and is evaluating its routes to Nigeria, Olayinka said. Other companies flying to Nigeria, including Virgin Atlantic, Turkish Airlines, Lufthansa and Air France, either declined or weren’t available to respond to calls and e-mails requesting comment.

South African Airways’ operations have suffered from the downturn in Nigeria.

While the company has no plans to exit or scale down its activity in Nigeria, it “noted that business and leisure travel has declined and we hope that this will improve as the government gives more economic direction in the coming weeks,” spokesman Tlali Tlali said in an e-mailed response to questions. He declined to say how much income the carrier, which has also faced flight delays due to fuel shortages in Nigeria, has held up in the country.

Emirates, which added Nigeria to its network of routes 12 years ago, is speaking with the authorities and hoping to find a solution, a spokeswoman for the airline who declined to be named due to company policy, said in an e-mailed response to questions.

“Others will follow,” after Iberia’s and United’s exit, said Bismarck Rewane, chief executive officer of Financial Derivatives Co. “That is, if the government doesn’t make the foreign exchange market liquid,” he said from Lagos.

Even though some 15 to 20 international airlines are still flying to Lagos, travel costs are expected to surge, analysts said. IATA has said Lagos could lose its role as a hub for other destinations in West Africa.

“It will affect the perception of global investors about Nigeria,” Mike Nwanolue, investment analyst at Greenwich Trust Group Ltd., said from Lagos. “It will make the cost of travel expensive, because the providers of airlines services have reduced.”

Comments (1)

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