The decision of the Nigerian government to float the naira is sending rippling effects across the nation’s sectors of the economy, following the resulting high exchange rates. From fuel to electricity, consumers are without choice, being pushed to the receiving end of the consequential high cost of goods and services.
On Tuesday, The Punch reported that airfares in Nigeria are expected to rise as a result of the floated exchange rates. The expected rise in ticket prices will include domestic and international routes.
Last week, the Central Bank of Nigeria announced the deregulation of the nation’s forex market, after removing controlling pegs on the naira and collapsing different exchange rates into one – at the Importer & Export window.
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Following this move, the naira has recorded significant depreciation against the dollar, trading as low as N756 per dollar on Tuesday at the I&E window, which has been adopted by the International Air Transport Association (IATA).
Previously, IATA was using NAFEX, another window of exchange allowed before the CBN floated the naira.
For airline operators, the development means that the cost of their services will be reviewed upward according to market dictates. This has seen tickets for summer trips rising by 25 percent in the past week.
“Fares will definitely increase and passengers have to pay more. As a result, Passengers won’t travel as much as they should and this will affect travel agents,” the President of the National Association of Travel Agents of Nigeria, Susan Akporiaye, told The Punch.
Stakeholders in the industry are concerned that the development will impact the aviation sector negatively, by forcing many summer travelers to abort their plans.
“Around mid-June, ticket prices always go up. We call it peak period. This is so because many people often go on vacation during this period. Apart from this, the rising exchange rate will lead to higher ticket prices,” the Chief Executive Officer, Corporate Travels, Mr. Akande Diran, said.
The Nigerian aviation industry has been rocked in recent times by the inability of IATA to repatriate funds. Last year, Emirates Airlines twice announced it was suspending flights to Nigeria due to the government’s failure to release more than $400 million trapped in the country.
IATA’s Regional Vice President, Africa and Middle East, Kamil Alawadhi, said during the association’s general meeting held in Istanbul two weeks ago, that the trapped funds had risen to $812m as of April 2023.
With IATA’s adoption of the I&E window, the value of the trapped fund is expected to significantly increase. The recent policy change in the FX market did not result in the automatic unification of exchange rates, though it offers hope for the repatriation of the fund.