On Monday, the 8th of August 2016, the Guardian Nigeria reported that 14 airlines have allegedly withdrawn their services from the country, due to the economic recession. This is after other companies in other sectors of the economy ended operations in the country within the last year, for the same reason.
Since the fall in oil prices began in 2014, Nigeria has been struggling to save its currency from weakening. The country is about 75 percent dependent on revenue accrued from oil exports, and this dwindled as the price of oil decreased.
In order to save the Naira from falling further, the current administration decided to put stringent monetary policies in place which, unfortunately, failed. Apart from being unsuccessful, these policies drove investors away from the country, because they could not predict the next policy or how it would affect them. On Wednesday, it was announced that investors in Nigeria lost about N1.6 trillion in the past 18 months alone.
Earlier in the year, portfolio investors including Aberdeen Asset Management Plc and the Ashmore Group Plc, which oversee about $450 billion of assets together, left the Nigerian markets. A few months ago Iberia Airline and United Airlines announced their exit from the country, while Emirates Airline announced that it was reducing its flight frequency to Nigeria because of unfavourable economic conditions. These airlines could not access foreign currency to repatriate their revenue and currently, more than $600 million in air ticket sales is blocked by the country’s chronic lack of foreign currency.
The Guardian’s story about 14 airlines leaving Nigeria is very controversial as it does not mention all 14 airlines in its article, but only mentioned three names including Air Gambia. Surprisingly, Air Gambia has not operated in Nigeria in the past three years.
However, over the years, Nigeria has been a lucrative market for foreign airlines. This reduces the chances of them leaving in a huff during an economic recession.
In an interview with CNBC Africa, Pekun Sowole, an Aviation Lawyer and Jurislaw legal practitioner, said that the foreign-owned airlines charged ridiculously high rates. For a Lagos-London return trip on Economy Class tickets, African carriers charge N300,000, the middle east airlines charge around N400,000 and the Western airlines charge over N600,000. For Business Class tickets, South African Airways charge N1.2 million and British Airways charge around N2.6 million, more than two times the price of the former.
Apart from the airlines, Nigerian passengers have also been affected because they have to pay in US Dollars. Passengers who pay in Naira are charged a lot more than those who pay in Dollars.
Still, there are concerns that if these airlines exit (Airxit) Nigeria, it would have a huge impact on the economy.
Here’s what the “Airxit” of western airlines could mean for Nigeria:
Drop in revenue for Nigeria
Airlines that operate in Nigeria are mandated by law to contribute to Nigeria’s economy by paying income tax and other levies.
According to Nigeria’s Companies Income Tax Act “All Nigerian companies and all non-resident companies that are carrying on business in Nigeria shall file income tax returns as prescribed by Section 55 of CITA.”
Currently, there are over 13 Western airlines operating in Nigeria. If these airlines left the country, it would affect the Nigerian economy severely.
Reduction in revenue for agents
Some of these airlines have agencies which sell their tickets across Nigeria. These agents generate income from these foreign airlines, which, in turn, pays their bills. They use the revenue generated from the sales of tickets to pay their staff as well as their tax. The exit of these airlines will also mean less tax to accrue from agencies.
Job loss
If these Western airlines left Nigeria, this would add to the number of unemployed. Airline agents will be forced to downsize, meaning more people without a job in the country.
Fewer choices
The exit of the western airlines would also mean fewer choices for Nigerian passengers and they’ll be forced to make do with the airlines available. This may cause airlines to stop offering quality services to Nigerians as there is no more competition in the market.
