Airfares drop as foreign carriers unleash low-priced tickets

Airfares drop as foreign carriers unleash low-priced tickets

Foreign airlines operating in Nigeria have begun to unblock their low-priced fares on Nigerian routes as the Central Bank of Nigeria completes the payment of about $7bn backlog, which includes over $700m unremitted ticket revenue.

The CBN had about two weeks ago announced the completion of payment of $7bn legacy debt, which included FX forward contracts among foreign exchange-denominated debts.

The CBN, however, declared about $2.4bn of the $7bn debt invalid, saying it could not be verified due to improper documentation among other infractions.

The International Air Transport Association, the trade body representing foreign airlines, has yet to verify the clearance of the entire $700m but findings showed on Saturday that the foreign carriers had begun to unblock their low-priced tickets.

To maximise their yields, foreign carriers had over 24 months ago blocked their low-priced tickets on Nigerian routes after ticket revenue running to hundreds of millions of dollars became trapped in Nigeria.

The development led to a sharp increase in fares on the Nigeria routes and was exacerbated by the sharp depreciation of the naira against the United States dollar, with economy fares on popular destinations such as the Lagos-London-Lagos route going for over N3m.

The CBN began the gradual clearance of the debt but the new administration of the apex bank later fast-tracked the payment, leading to clearance of major parts of the debt between late last year and so far this year.

Following the CBN announcement of the clearance of the $7bn, findings revealed that most of the airlines had released their low-priced fares.

The development was confirmed by the Chairman of the National Association of Nigerian Travel Agents, Susan Akporiaye.

She, however, revealed that virtually all the foreign carriers opened their low fares before the CBN announcement of the payment of the $7bn about two weeks ago, adding that low fares were opened about two weeks before the apex bank announcement.

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Akporiaye said, “All of them (foreign airlines) have opened up all the inventories before the final backlog of forex was cleared. It is not now that it was cleared. It was cleared earlier in March.

“It is the only airline that has not done that. All of them have opened up all the inventories before the final forex backlog was cleared.

“We had a few that had issues – the unverified ones. There were some transactions for which some documents were not available. They were unverified. And those that were not cleared in February because they were unverified are those that have just been cleared.”

The NANTA chairman pointed out that one foreign airline had yet to open up its low-priced tickets, saying, “Before this final clearance, the airlines had already reduced inventories, except for one airline, which I won’t mention due to privacy, and I’m sure that the reason why they haven’t complied is a management thing.”

She emphasised that the airlines had been cooperative, but challenges such as unverified transactions caused delays.

“The money the airlines are saying that they are still owed is money with the commercial banks and not with the government, because commercial banks are private. They are not government entities,” Akporiaye added.

Findings showed that commercial banks were still reconciling with the foreign airlines with a view to clearing the final payment following the announcement of the clearance of the final backlog by the CBN two weeks ago.

“At times, the commercial banks are slower than the communication from the CBN. We will ask the airlines to contact their banks and we will have a clearer position. Then we will be able to respond to your inquiry based on verified data,” an IATA official told one of our correspondents on condition of anonymity because the official was not authorised to speak on the matter.

An IATA spokesperson confirmed the development, noting that the body would come with its position on the matter soon.

“IATA is engaging with its members on the situation regarding blocked funds in Nigeria,” a spokesperson for the global body in Geneva said when an update was sought following the CBN announcement.

However, findings showed that the airfares on the Nigerian route recorded a drop despite the opening of low inventories by foreign carriers.

This was confirmed by the NANTA chairman, Akporiaye.

“The release of lower inventories will not necessarily make airfares low because of the rate of exchange,” she noted.

It was discovered that there was a notable difference in the costs of air tickets sold on March 4, 2024, compared to those on Saturday.

As of Saturday, the round-trip economy class ticket from Lagos to London varied in cost among different airlines.

RwandAir Express offered it at N1,102,563; Royal Air Maroc at N1,628,675; and Ethiopian Airlines at N1,641,249.

However, on March 4, 2024, a round-trip economy class ticket from Lagos to London attracted significantly higher prices. Air France priced it at N2,482,138, while Lufthansa offered it at N1,966,165. Qatar Airways provided the same ticket for N2,016,824, and KLM priced it at N2,448,740.

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The average fare for flights on March 30 amounted to approximately N1,457,495.67, reflecting a decrease from the prices observed on March 4, which averaged approximately N2,478,466.75

This price drop represents a 41.19 per cent decrease in the cost of round-trip economy class tickets from Lagos to London.

A trip from Lagos to New York also recorded a drop in fare in the same period.

For the Lagos to New York route on Qatar Airways, the ticket was sold for N2,982,049 as of March 4. However, as of Saturday, it was sold for N1,989,098.

KLM charged N3,158,314; Air France priced it at N3,148,308; United Airlines listed it at N3,193,185, and Delta Air Lines offered the ticket for N3,310,097, on March 4, 2024.

Agents speak

A travel agent with Fadpaulo Travel and Tours Limited, Fadeyi Paul, expressed concerns about the actual impact of the low inventory fares on consumers, saying, “It is still on the high side; there are no low inventories yet. Like Lufthansa.

“But the European airline that I worked with a few days ago has low fares.”

He noted that despite the appearance of low fares, taxes attached to the fares often inflate the final cost for travellers.

Paul stated, “Moreover, the ones which have low inventories, the taxes attached to them are high? They find a way around it and make you still pay one way or the other. If you see a fare that costs $211, you will still end up paying N1.4m.

“So some of them have released low inventories but still make taxes high. So they have a way of working around it to get their money back.”

Another travel agent, Enebeli Alloy, acknowledged that airlines were indeed releasing cheaper fares but noted that the rates were still relatively high.

“The airlines are complying. They are releasing some cheap classes on the system now. The only complaint now is that the rate at which they are selling is still high. But I believe it will reduce gradually. It won’t be done overnight.”

Adewale Adediran of Untamed Travels and Tours echoed similar sentiments, stating, “The inventories have been released although not all, but it is better than what we were experiencing before now.”

Adediran raised concerns about the significant fare differences between travelling from Nigeria compared to neighbouring countries on similar routes.

“The fares are on the high side compared to our neighbouring countries. For example, if one is travelling from Lagos to London and Cotonou to London with the same airline and at the same hour, what they are charging there is lower than what they are charging here. They need to work on that situation,” he added.

Sanction threats

The Federal Government had earlier this month issued a warning to foreign airlines regarding the release of low inventory tickets, threatening sanctions for non-compliance.

During a meeting with the Nigerian Civil Aviation Authority and aviation stakeholders, foreign airlines pledged to enhance transparency by making low-inventory tickets more accessible to the Nigerian middle class.

The Director of Public Affairs and Consumer Protection, NCAA, Michael Achimugu, said that the meeting had in attendance representatives of the National Association of Nigerian Travel Agencies.

While some airlines claimed to have opened low inventory tickets, NANTA confirmed discrepancies, leading to instructions for all airlines to comply.

“A majority of them are reported to have complied by opening low inventory tickets. For those who have yet to do so, we have given them a week or so,” stated Achimugu.

He also mentioned that sanctions would apply to airlines failing to comply, pending confirmation of the exact deadline.

The government had recently disbursed part of the $700m trapped air ticket funds to foreign airlines, signalling ongoing efforts to address aviation industry challenges.

Airfares drop as foreign carriers unleash low-priced tickets

Punch