Subsidy payments, summer travels, students’ exodus worsen naira depreciation - Investigation - VANGUARD
By Babajide Komolafe, Economy Editor
The burden of under-recovery for fuel subsidy cost borne by the Nigeria National Petroleum Corporation, NNPC, Limited, and hence its inability to remit into the federation account, is a major factor worsening the prevailing acute scarcity of the dollar driving the continued depreciation of the naira.
Other factors include increased forex demand for summer travels, exodus of Nigerian students, and activities of politicians buying up dollars in preparation for 2023 general elections, as well as dollar outflow via foreign capital reversals.
The dollar outflow via foreign capital reversals from emerging and developing economies is triggered by interest rate hike by central banks of developed countries in their bid to contain rising inflation.
Furthermore there is rising demand for dollars by Nigerians traveling for summer holidays while the ongoing imbroglio in the educational sector has also triggered exodus of Nigerian students to foreign schools, resulting in additional demand for dollars.
Prior to its transformation to NNPC Limited, the NNPC has the statutory function of remitting oil revenue in dollars into the federation account. This remittance which forms a major part of the nation’s dollar earnings and hence critical source of dollar supply has not been forthcoming due to fuel subsidy payment.
The spike in fuel subsidy aggravated by the Russia/Ukraine war has wiped out the expected contribution of NNPC into the federation account.
The above according to Vanguard investigations accounted for the decline in the nation’s external reserve for most part of the first half of the year, in spite of the sharp rise in the price of crude oil.
Though the price of Nigeria’s Bonny Light crude rose by 66.5 per cent per cent to $126.94 from $76.25 on December 31st, 2021, the external reserves declined steadily to $38.421 billion on June 6th, 2022 from $40.52 billion at the end of December 2021, translating to N2.1 billion or 5.1 per cent.
This downward trend in reserves, according to investigations, was further worsened by a huge dollar facility the apex bank had to extend to the NNPC recently to fund its forex obligations.
Recall that the Senate on Wednesday, resolved to summon the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, to educate and inform senators in a closed session on the reasons for the rapid depreciation of the value of the naira. This follows the continuous depreciation of the naira which worsened to N710 per dollar on Wednesday July 27th from N615 per dollar on June 30th.
But a senior banking industry source, who spoke to Vanguard on condition of anonymity said: “There are four sources through which Nigeria earns foreign exchange namely proceeds from oil exports, proceeds from non-oil exports, diaspora remittances, and foreign Direct/Portfolio Investments (capital flows).
“The past six years have been characterized by two recessions, triggered by a slowdown in the global economy as well as the effects of COVID-19. These were also further accentuated by sharp declines in the prices of crude oil, the major source of Nigeria’s foreign exchange.
“Considering Nigeria’s heavy dependence on oil exports for foreign exchange earnings and government revenue, the impact of the oil market crash severely affected the government’s naira revenue and other macroeconomic aggregates including economic growth. Hence, the rate of exchange between the naira and other currencies has widened over the past few years.”
Dismissing claims that the persistent depreciation of the naira is due to impact of cryptocurrencies, the source averred that “the current exchange rate of the Naira, like other major currencies, is not driven by cryptocurrencies, given the volatility in the cryptocurrency space, which lost over two trillion in the past two years in face of high inflation.
Explaining factors driving the persistent naira depreciation, the sources stressed that it is important for people to understand that the CBN issues legal tender in Nigeria (Naira) and does not print foreign exchange, and the pressure on the Naira has both local and global perspectives”.
“There is unabating demand for foreign exchange for both goods and services, thereby creating a demand challenge.
“Domestically, there has been zero dollar remittance to the country’s Foreign Reserve by the Nigerian National Petroleum Corporation, NNPC.
“High inflation in other climes and the hike in interest rates has heightened pressures on Nigeria’s exchange rate. This has triggered capital flow reversals from Emerging Markets and Developing Economies (EMDEs) to more advanced economies
In Nigeria, which is also an OPEC member state, the Federal Government has maintained a controlled price of N175 per litre through the payment of fuel subsidy.
The retention of the pump price of N165 per litre which is far below the landing cost of petrol is all in a bid to cushion the negative impact of global energy crisis on the cost of living on Nigerians.
NCAA: Aviation Sector in Crisis, Dollar Scarcity, Weakening Naira Impacting Operations - THISDAY
* Says financial health of some airlines not sustainable
BY Emmanuel Addeh in Abuja
The Nigerian Civil Aviation Authority (NCAA), yesterday said with rising dollar scarcity, weakening value of the naira against the dollar as well as the rocketing price of jet-A1, the industry is currently experiencing a full blown crisis.
Describing the problem as ‘horrible’, the Director General of the NCAA, Capt. Musa Nuhu, who spoke on the state-run television station, NTA, noted that the triple challenges have combined to throw the sector into some form of instability. Aviation fuel is currently selling at about N1000, while the cost of operations in the sector has generally climbed in recent months, resulting in a massive rise in the cost of flight tickets.
“We indeed have a crisis. And now first of all, it’s about the scarcity and unavailability of jet -A1 which is a significant component of the direct operating costs of any airline. “The increase in price is about five times over what it was less than a year ago. And to compound matters, not only the scarcity of foreign exchange, but the exchange rate itself has deteriorated significantly, doubling the cost of the airlines operations in terms of maintenance, training of pilots, buying spare parts and the purchase of fuel,” he stated.
Nuhu added that due to the crisis in Ukraine and Russia, the international price of jet A1 has increased significantly and at the same time , the value of the naira has decreased significantly , while the dollar has been getting stronger, creating multiple jeopardies. According to him, with the current situation, the NCAA has begun an audit of some of the airlines, noting that the health of the airlines was not sustainable if things continue as they are.
“Indeed, we do have a serious crisis. We’ve started the financial and economic health audit of some couple of airlines and what I can say is that it’s not sustainable. “A significant amount of money is wiped out just getting jet-A1 to fuel the airlines. Unfortunately, flight delays cancellations come when an airline goes or takes hours to negotiate (for fuel). And some of the airlines because of previous debt, they have the fuel suppliers asking for cash payment. “So, if you’re operating a flight, you have to cough out N5 million depending on how much you have to pay for supplies in cash for fuel. So, all these contribute to making an already bad situation worse,” he pointed out.
He stated that for the NCAA, the situation has increased the amount of work it has to do because it has had to continue to mount heightened surveillance and ensure that despite the difficulties, airlines comply with the rules and regulations. “So, it’s not the best situation, but we can assure the traveling public that we’re doing our best to work with the airlines to ensure the continued safe operations of all flights. “Over the last couple of years, due to some challenges and some difficulties we’re having in land transportation, aviation has become the preferred means of transportation.
“Aviation sector has become more particularly critical than what it used to be to the economy and with the difficulties the airlines have, it (shutdown of multiple airlines) is going to have a significant impact on economic activities,” he added. Stressing that aviation globally remains a catalyst for economic growth and development, Nuhu said that there has be collaboration of all actors in the sector to find a solution to the crisis. “It’s going to have a negative impact if we have to shut them down due to their inability to continue operating safely because of the difficult situations they have. It is going to have a significant negative impact on the economy. “People can’t travel, businesses will be affected, goods and services cannot be transported. We’re all in this together, including the government, the agencies, the industry,” he explained.
Recently, he recalled that the NCAA had to suspend the operations of Dana Air because it saw the fragile financial stability of the company which could have an impact on safety was unsustainable. “So it’s not the best situation. In fact, it’s a horrible situation we find ourselves in but I keep saying we will keep doing our best to ensure the safety of travellers and sometimes we may take decisions that are not very palatable to the traveling public, but priority for us is safety. “But also, aviation is business, it is a catalyst for economic growth. So we just have to find a solution to get out of the conundrum the sector finds itself,” he noted. Also speaking, a former Managing Director of the Nigerian Airspace Management Agency (NAMA), Capt. Roland Iyayi, aligned with Nuhu on the cost of fuel, stressing that it has increased by at least five times in the last 24 months.
“The margins airlines have is less than five per cent of their total. So if you’re talking about a situation where fuel, a component that is about maybe 40 per cent or 50 per cent of your cost having gone up, there’s no way you can look at an airline and sustain the same pricing for airline tickets. “So it is impossible to sustain what airlines have been doing over the years. So invariably, what we have now is a situation where it’s been compounded by the fact that there’s a scarcity of foreign exchange for airlines to be able to acquire spares to maintain their operation safely. “So with all of these factors, it’s become very important that airlines actually review their pricing to indicate the current trends. There’s no way they can sustain fares that are below cost, you must produce at a particular cost. And for you to stay in business, it has to be cost plus profit,” he noted.
Domestic Airlines Lose N4.3bn Annually to Sunset Airports - THISDAY
BY Chinedu Eze
Nigerian airlines have lost about N4.3 billion annually to airports that provide only daylight service which restrict operators from flying longer hours. Most of these facilities, known as sunset airports, do not have the infrastructure that enables flights to operate into the night, like the airfield lighting; while the Federal Airports Authority of Nigeria (FAAN) limited few that have the infrastructure to only daylight operation, which means flights cannot service such airports after 6:30 pm.
The amount of loss was disclosed by the Chief Operating Officer (COO) of Ibom Air, Mr. George Uriesi at the 26th annual conference of the League of Airport and Aviation Correspondents (LAAC) held yesterday in Lagos. Speaking on the theme of the conference, “Sunset Airports: Economic and Safety Implications, Uriesi said lack of 24 hours flight operations to major routes in Nigeria was impeding the growth of the airlines.
In his paper titled, “Maximising Runway Utilisation: A Nigerian Airline Perspective,’ the Ibom Air Chief Operating Officer said domestic carriers were losing an average of N4 million per flight, N12 million in every flight, N360 million in 90 flights and N4.3 billion annually on every flight lost to sunset airport operations. This restriction, Uriesi noted had led to a huge under-utilisation of aircraft fleets by the Nigerian airlines as against the global industry standards.
“This is due partly because of too many impediments in the operating environment that limit airline productivity. These include limited runway availability across the domestic network, multiple operational infrastructure deficiencies, poor organisation and many others,” he said.
In a bid to solve the challenge, Uriesi appealed to the government to prioritise airfield infrastructure and provide the necessary Instrument Landing System (ILS) and accompanying accessories for every airport, while also keeping the aerodromes open to meet the needs of airlines and other users. He also advised that the government should make approved master plans a regulatory requirement for every airport and make non-adherence to the master plans by any organisation illegal.
“There is need to establish a local aircraft lessor /financing vehicle that would allow for the domiciling of aircraft payments in local currency. This would make a huge difference to the air transport sector in Nigeria,” he added. Also speaking at the seminar, the Director at the Centre for International Advanced and Professional Studies (CIAPS), Prof. Anthony Kila in his paper: ‘Passenger Experience in Daylight Airports,’ said the NCAA should encourage the airlines to succeed without compromising safety.
He regretted that the aviation industry was bedeviled with myriads of crises, stressing that the high cost of flights and shutting down of airlines in any country signified a bad omen.
Kila called for total rethink and resetting of the aviation industry by all players in the sector and also canvassed for the establishment of Bank of Aviation, which would make access to foreign exchange by airlines easier.
“We need to act swiftly and decisively to deal with this situation so that this very bad situation we have at hand does not turn into an unmanageable disaster. Decisive actions in this case will require a total rethink and resetting of the way we conceive and manage our aviation manners.
“There is a prevailing idea in the general public and amongst too many leaders of thought, opinion moulders and indeed policy makers that aviation is a sector that services the elites or the privileged, this is however an anachronistic misconception that needs to be deliberately and assertively corrected.
“Those who know and can need to find the clarity of mind and courage of voice to explain to the rest of the society that in the times we live in and with the size and structure of Nigeria, aviation has become and will remain a basic and essential infrastructure. With such conception in mind, the role of regulators in the sector will be radically modified. “
Earlier, the Group Managing Director, Finchglow Holdings, Mr. Bankole Bernard in his speech, warned that the continuous naira depreciation would spell doom for the industry.
Young US College Graduates Face Tougher Job Market Than Average - BLOOMBERG
(Bloomberg) -- Job openings are near record highs in the US and unemployment is close to a generational low. But one category faces a tougher labor market than average: Young college graduates.
Since the start of 2021, the unemployment rate for those age 22 to 27 with a bachelor’s degree or higher has surpassed the national average every single month, according to data released by the Federal Reserve Bank of New York on Friday. Last month, the gap stood at 0.6 percentage point.
The pandemic era exacerbated a trend that started in mid-2018, when the advantage new graduates had enjoyed for almost three decades on the labor market reversed. From 1990 to 2018, they had a better chance of finding a job compared with other workers, the data show.
The worst period for educated young Americans was the summer of 2020, when millions graduated at the peak of the Covid-19 crisis. Many of them got jobs rescinded by employers as the economy shut down.
While employment improved for young graduates as the economy reopened, the gap has started to widen again in recent months. In March, the overall unemployment rate, smoothed with a three-month moving average, was 3.8% and that of recent graduates stood at 4%. By June, the national rate had fallen to 3.5%, while that of young graduates had risen to 4.1%.
Honduras launches 'Bitcoin Valley' in the tourist town of Santa Lucia - REUTERS
(Reuters) - People can pay for a slushie with crypto in the streets of “Bitcoin Valley,” a project in the Honduran tourist enclave of Santa Lucia through which the country has entered the digital currency trend.
The small town in the mountains, 20 minutes from the capital Tegucigalpa, has become a bitcoin city.
Owners of businesses big and small in Santa Lucia are adapting to handle cryptocurrencies as payment, hoping to attract more tourism.
“It will open more opportunities and attract more people who want to use this currency,” said Cesar Andino, manager of Los Robles shopping square.
The “Bitcoin Valley” project targets 60 businesses to initially get trained and adopt cryptocurrencies to market their products and services, expecting to spread these practices to more enterprises and nearby areas.
The initiative was jointly developed by the Blockchain Honduras organization, the Guatemalan cryptocurrency exchange consortium Coincaex, the Technological University of Honduras and Santa Lucia’s municipality.
Ruben Carbajal Velazquez, professor at the Technological University, said “Santa Lucia’s community will be educated to use and manage cryptocurrencies, implementing them in different businesses in the region and generating crypto-tourism.”
While some Latin American countries are exploring cryptocurrencies’ potential, there are risks.
In September 2021, El Salvador adopted bitcoin as legal tender having its own ‘Bitcoin Beach’ in the surfing hotspot town of El Zonte.
The Central American country’s bet on bitcoin was hampered by the crypto market downturn and skepticism from multilateral lenders and ratings agencies. Its publicly disclosed holdings of $105 million are now worth about $57 million.
To deal with volatility, the Honduran “Bitcoin Valley” will “enable merchants to receive instant payments in the local currency, eliminating cryptocurrencies fluctuation risks,” said Leonardo Paguada, founder of the Block Chain Honduras organization.
Critics of bitcoin’s expansion have warned that these kind of operations may fuel money laundering and financial instability while enhancing the digital gap, as poorer parts of society may struggle to access the technology.
Reporting by Rodolfo Penaroja and Aida Pelaez-Fernandez; Editing by David Gregorio
Emirates announces flight reduction to Nigeria over $85 million blocked funds - PREMIUM TIMES
The airline says it has been able to repatriate funds amid Nigeria's dollar shortage.
Emirates Airlines says it will reduce the number of flights to Nigeria from August 15 due to failure to repatriate its revenue from the country.
The airline disclosed this in a letter dated July 22 addressed to Nigeria’s Minister of Aviation, Hadi Sirika, and signed by its DSVP International Affairs, Majid Al Mualla.
“With effect from 15 August 2022, Emirates will be forced to reduce flights from Dubai to Lagos from 11 per week to 7 per week. We have had no choice but to take this action, to mitigate the continued losses Emirates is experiencing as a result of funds being blocked in Nigeria,” the letter partly read.
The letter noted that as of July, Emirates had $ 85 million of funds awaiting repatriation from Nigeria. It said the figure has been rising by more than $10 million every month, while operational costs of 11 weekly flights to Lagos and five to Abuja continue to accumulate.
The airline said these funds are urgently needed for them to meet their operational costs and maintain the commercial viability of our services to Nigeria.
“We simply cannot continue to operate at the current level in the face of mounting losses, especially in the challenging post COVID-19 climate,” the airline noted.
According to the Bilateral Air Service Agreements (BASAs) with countries, airline tickets are mostly sold in naira while the airlines would repatriate the funds in dollars through the country’s central bank.
Efforts made so far
Emirates said it tried to stem the losses by proposing to pay for fuel in Nigeria in Naira, which would have at least reduced one element of its costs, but that the request was denied by the supplier.
“This means that not only are Emirates’ revenues accumulating, we also have to send hard currency into Nigeria to sustain our own operation. Meanwhile our revenues are out of reach and not even earning credit interest,” the airline added.
The airline said, “Your Excellency, this is not a decision we have taken lightly. Indeed, we have made every effort to work with the Central Bank of Nigeria (CBN) to find a solution to this issue.”
It said, “Our Senior Vice-President met with the Deputy Governor of the CBN in May and followed up on the meeting by letter to the Governor himself the following month, however no positive response was received.”
The letter also explained that meetings were also held with Emirates bank in Nigeria and in collaboration with the International Air Transport Association (IATA) to discuss improving Forex allocation, but with limited success.
The ariline requested the government to help resolve the problem. Nigeria is facing a foreign currency crunch with amid low oil revenues and rising demand for dollars. Naira sold for N700 a dollar on Friday at the parallel market, about its worst performance.
“Should there be any positive development in the coming days, we will of course re-evaluate this decision,” the airline noted.
When PREMIUM TIMES reached out to a Special Assistant to Mr Sirika, James Odaudu, for comments he said, “ I am not in the mood to talk to you now.”
While Nigeria grapples with forex scarcity as demand increases, domestic airline operators within the past weeks and months have lamented the sudden increase in aviation fuel, threatening to halt operations.
Mr Sirika on Tuesday during an emergency meeting with airline operators, said, “there are no immediate solutions” to the lingering crisis in the sector because what ails the industry is a global problem.
BA chief calls Heathrow chaos “acute” as airline cuts passenger capacity forecasts - EVENING STANDARD
IAG, the parent of British Airways, has called the recent travel chaos at London’s Heathrow Airport “acute” as the industry has struggled to keep up with demand after the end of Covid restrictions sparked an unprecedented travel boom.
It said overall passenger capacity would not reach full strength for the rest of the year “mainly due to the challenges at Heathrow”, with full-year levels expected to be at around 78% of 2019 levels. It cut its guidance on capacity in the second half of the year by 5% after the west London hub ordered airlines to stop selling tickets for the peak summer travel period.
“Our industry continues to face historic challenges due to the unprecedented scaling up in operations, especially in the UK where the operational challenges of Heathrow airport have been acute,” said Luis Gallego, chief executive.
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Gallego’s comments were more measured compared with a furious war of words over the causes of the chaos. Two of the biggest names in the industry -- the former Heathrow chairman Sir Nigel Rudd and Willie Walsh, who ran BA -- blamed each other’s former companies in a public clash involving letters to the press. Rudd said Walsh had a cost-cutting obsession, leaving the airline a “laughing stock”, while Walsh called Heathrow’s management “a bunch of idiots.”
Dubbed the flightmare by frustrated passengers caught up in late-cancellation chaos, airports across Britain have struggled with staff shortages after the end of Covid travel restrictions. Heathrow’s move to minimise short-notice disruption by stopping further ticket sales until mid-September shocked the travelling public and the industry alike in July.
BA’s capacity at the west London hub was limited to 69% in the second quarter and will only reach around 75% in the third quarter, according to the company. It is a different story for IAG in North America, where it said it expects to return “close to 2019 capacity” by the end of the year.
In 2019, BA’s Terminal 5 base at Heathrow handled between 550 and 600 weekday flights and around 90,000 customers a day and at the peak of the busy school summer holidays, more than 100,000 customers used the facilities each day.
“We will continue working with the industry to address these issues as aviation emerges from its biggest crisis ever,” said Gallego. “Although bookings into the fourth quarter are seasonally low at this time of year, we are seeing no signs of any weakness in demand.”
Overall, the sharp rebound in demand helped IAG return to quarterly profit for the first time since the pandemic in the three months to the end of June. The company, which also runs Spain’s national airline Iberia, reported an operating profit of €293 million (£245 million) for the second quarter, up from a loss of €967 million (£809 million).
International oil traders are flocking to India as the nation seeks new ways to buy Russian crude - BUSINESS INSIDER
Oil traders are flocking to India to sell discounted Russian crude, according to a Bloomberg report.
Small international traders have been selling barrels of Russian crude at an $8 markdown.
Sri Lanka has turned to international traders as well, receiving a shipment of Russian oil in May and then purchasing more in July.
A hoard of small, lesser-known oil traders are flocking to India to sell Russian crude, according to a report by Bloomberg, offering steeper discounts and new ways for Indian buyers to purchase supplies rejected by the West.
India has already been purchasing Russian crude at a markdown amid Western sanctions, making the country one of Russia's largest oil buyers since its invasion of Ukraine.
While its demand for Russian crude recently declined, Indian buyers are working with small and little-known oil trading companies, which are selling Russian crude at even lower costs.
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Sources told Bloomberg that some international traders have been offering barrels at markdowns of about $8 and that state-run refineries like Indian Oil are considering deals as they require less red tape than buying directly from Russia.
Sri Lanka has turned to international traders as well, receiving a shipment of Russian oil in May and then purchasing more in July, Bloomberg reported.
Nigeria, other African countries need 20,000 pilots –Report - OUNCH
Aircraft giant, Boeing has raised concern over the dearth of pilots, technicians, and cabin brew as the plane maker In its 2022-2041 Pilot and Technician Outlook says Africa is set to need 20,000 pilots, 21,000 technicians, and 26,000 cabin crew.
According to the PTO, Africa is set to need 20,000 pilots, 21,000 technicians, and 26,000 cabin crew. Meanwhile, China will require 126,000 pilots, 124,000 technicians, and 162,000 cabin crew.
The European market demand for pilots is estimated to reach 122,000, 120,000 technicians, and 207,000 cabin crew, while the Latin American market will need 35,000 pilots, 35,000 technicians, and 48,000 cabin crew.
For the Middle East, 53,000 pilots, 50,000 technicians, and 99,000 cabin crew will be needed compared to 128,000; 134,000, and 173,000 respectively in North America and 22,000, 24,000 and 38,000 in Northeast Asia.
Furthermore, Oceania will require 9,000 pilots, 10,000 technicians, and 18,000 crew members, compared to 37,000, 34,000, and 43,000 in South Asia and 50,000 pilots, 58,000 technicians, and 85,000 crew in Southeast Asia.
In Nigeria, the scarcity of skilled manpower to replace the aging workforce is putting the country’s aviation industry on the edge as the Nigerian College of Aviation Technology, Zaria trains professionals yearly without companies to engage them for their services, according to Aviation Metric.
Aside from Nigeria, the global aviation industry is facing a similar problem. A widespread deficit of pilots across all continents has affected the sector, particularly in recent years, with cases of pilot shortages regularly occurring.
Nigeria’s case is ironic because while so many young pilots and aircraft engineers are seeking to fly for airlines, airline operators are looking for very experienced pilots and engineers who are not being replaced.
The shrinking size of aircraft in the fleet of airline operators has forced many Nigerian pilots to seek greener pastures outside the shores of Nigeria.
The shortage of aircraft engineers for many operators of Maintenance Repair Overhaul in Nigeria has led to a capacity deficit and as such has led to the commensurate expansion of many of the nation’s MRO operators.
Boeing in its projection estimates that 602,000 pilots, 610,000 maintenance technicians, and 899,000 cabin crew members will be required to operate the global commercial fleet set to nearly double to 47,080 aircraft by 2041.
The aerospace and defence giant, Boeing projected an increased demand for 2.1 million new aviation personnel over the next 20 years to support the commercial aviation sector’s steady recovery and meet the anticipated surge in demand for air travel over the forecasted period.
Boeing estimated that 602,000 pilots, 610,000 maintenance technicians, and 899,000 cabin crew members will be required to operate the global commercial fleet set to nearly double to 47,080 aircraft by 2041.
This year’s projections surpass 2021 estimates by 3.4 per cent, excluding the Russian Federation in line with the Western sanctions forbidding aircraft exports to the transcontinental country.
China, Europe, and North America collectively represent more than 50 per cent of the total global demand for aviation professionals, with Africa, Southeast Asia, and South Asia taking the lead as the fastest-growing markets expected to grow by four per cent over the projected period.
“As the commercial aviation industry recovers from the pandemic and plans for long-term growth, we anticipate a steady and increasing demand for aviation personnel, as well as the ongoing need for highly effective training,” Boeing Global Services’ Vice President of Commercial Training Solutions, Chris Broom said, stressing that the company’s customer-centric approach and digital expertise include a commitment to delivering data-driven, competency-based training and assessment solutions as well as technologies that meet customers’ evolving needs.
Withheld $1bn foreign airlines’ funds frustrating African market recovery –Walsh - PUNCH
The Director-General, International Air Transport Association, the Switzerland-based air transport body, Willie Walsh, speaks on the challenges and prospects of the global airline industry at the recently concluded 78th Annual General Meeting and World Air Transport Summit in Doha, Qatar. OYETUNJI ABIOYE was there
When do you think African airlines will recover?
African airlines will recover in 2023 and 2024. Looking at the momentum, full recovery will be in 2024. At the global level and as an industry, it will be in 2023 but the basis is not the same everywhere. The US is back to recovery already; the US domestic market is back to what it was in 2019. It very much depends on the market. Markets with big domestic elements are recovering faster. Russian domestic market was way ahead before 2019, before the war in Ukraine. The Chinese domestic market has been recovering strongly but obviously disrupted by the closure in Beijing. If you look at Africa, it is principally an international market and therefore, the small domestic market is picking up because of all the travel restrictions that are been removed. The recovery in Africa has seen a slower pace than in other regions in the world.
How would you react to the slow vaccination in Africa compared to the rest of the world?
We have been saying for some time that the speed of recovery has been a high level of vaccination. The vaccination in Africa has been slower than in the rest of the world. They have not been going at the same pace.
African governments have blocked international airlines from repatriating over $1bn in ticket sales proceeds. What other ways do you think airlines can get these funds from the African governments?
We are looking at ways to get these funds out. It is really having an impact on the airlines and the recovery of the market as well because airlines will be reluctant to bring capacity into markets where they can’t repatriate their money. It affects national growth and additional capacity. If you can’t get your money out, I am sorry, it is a simple business decision, you are not going to give additional capacity to the market. Airlines are looking to recover their money and they are not going to put their funds into markets that they have no confidence in. I think this is a significant factor against recovery in the continent. It is unfortunate because it would affect the consumers, they are not going to get the choice, they are not going to get the competition and they would not be able to get the choice that they have been getting if the funds were not blocked. They are big issues, really big issues.
Post-COVID-19, most countries suffered fiscally; some governments in Africa applied to the IMF and some think they could hold on to airlines’ funds. What steps do you think IATA is taking to ensure other countries do not follow such a path?
All we need to do is to make it clear to people that it will have consequences. The idea that the industry went into bankruptcy because of closures and still lost a huge amount of money doesn’t work that way, and that does not allow them (African governments) to keep airlines’ funds. Airlines are not rich. We don’t have a lot of cash. If all people do is undermine the recovery in the industry, it is going to have a direct impact on the services that they give.
There is a discrepancy in the IATA and the Central Bank of Nigeria’s exchange rates; this creates a ‘fight’ all the time between travel agents and the public. How do we solve this problem in the area of the exchange rate?
It is impossible to solve because these differences have existed forever. I honestly don’t see a simple solution to that. It could be good if it is made to be aligned or closely aligned. You are right. In some cases, the difference is significant. I don’t see a simple solution to it.
I am actually concerned about skyrocketing Jet A1 which is taking a toll on not only African airlines but global airlines. Could you tell us how this is impacting the operations of African airlines and how they can mitigate this?
It has a serious impact on the airlines and the price of basic commodities. The oil Brent benchmark that we use is very much influenced by what is happening in Ukraine-the sanctions against Russian oil-and that has driven up the price of oil quite significantly. The second aspect is the difference between a barrel of Brent and a barrel of JetA1 and the lack of capacity in refining. There was little demand for Jet A1 during the pandemic, obviously because the value of the activities by airlines had reduced. We switched attention away from Jet A1 to other products. It is not easy for them to switch back. You cannot just do it overnight. So, we need to see a return to refining capacity. The 10 years between 2010 and 2019, Brent averaged $80 per barrel and 17 per cent on average. Jet fuel was about $93, $94 per barrel. We are looking at an average cost of 25 per cent basic at $100 on average. So, Jet A1 is $125. Brent jumped from $80 to $100. Both of these have increased and both of these have an impact. In the same period, fuel represents 20 per cent of the industry cost base. In that ten-year period in the history of the industry, the average cost was five and a half per cent. Airlines do not have big profit margins and ultimately, these prices are passed on to the consumers on ticket prices. No one is avoiding that if your biggest cost escalates. The industry cannot absorb this that is why you are seeing (the high) ticket prices. Ticket prices would be highly influenced by supply and demand, and in certain cases, the pace at which demand has recovered has been faster than the pace at which supply has returned to the market; and that clearly leads to pushing prices up.
In what ways do you think African airlines and governments can tap into sustainable aviation fuel?
I think it is a huge opportunity for African countries. They do not need to rely on oil and gas to be extracted. You develop Sustainable Aviation Fuel (SAF) which is in huge demand. You have invested in the production facilities and refining capacity. This will help you to reduce your dependence on imports for Jet A1. I genuinely believe that if I was a politician, I will be looking at this huge opportunity because you have the feedstock. You can actually generate sustainable fuel from multiple sources, generate new jobs and you will be able to generate a product that you can sell and help the environment as well. If ICAO is saying this to African countries, I will be saying it as well. There is no risk because the airline industry would need to save fuel. The demand for this product is huge. The demand will continue to increase in the next 10, 15 years. People are looking at opportunities to make investments. It is a great opportunity.
How do you think this can affect the future of African airlines?
The issue of SAF is not just an African issue for African airlines; our strong belief is that SAF can be produced in Spain, exported to Africa. You add that to the transport cost, the carbon footprint of transporting it, it would be more useful to produce SAF in Africa. It does not only constitute a challenge for African airlines, it is a challenge for many airlines across the world. I also think it is a huge opportunity for governments and countries across the world.
Do you subscribe to a bailout for African airlines and the aviation industry?
Yes, I welcome a bailout but the problem I have with a bailout is that it is not sustainable in the long-term and it kills the innovation that is necessary. It helps airlines to navigate any crisis but it is not the most sustainable in the long term. They delay the restructuring or the needed innovation by airlines because you have got a temporary reprieve. If you don’t take the advantage of temporary reprieve, you will just be back in crisis. The only way you can guarantee your future is to drive innovation and efficiency and to make sustainable true economic planning. It is not just African countries but the African countries contribute most significantly to the industry’s platforms.
Some African governments are looking at airport concession and privatisation. What do you think about this?
The only thing we can do is try to convince governments to face up to the responsibilities that they have. We have seen airlines whose funds were trapped completely leave the country like Venezuela. The rest that did not stop significantly reduce the capacity to the country and restricted sales. We can’t advise the airlines on what they should do. That is the decision for the airlines to take. Airports that are privatised do not guarantee a return because they are just going to drive costs, you are preventing innovation because it is going to just guarantee returns.
Most African countries are planning to set up national airlines, what is your take on this?
Airlines can be created by anybody at any time. We have had very successful airlines and unsuccessful airlines. I will never say to people don’t do it because definitely, you know what the challenges are.
The Single African Air Transport Market (SAATM) is a project of the African Union to create a single market for air transport in Africa. SAATM and air liberalisation has been described as a game changer in Africa. What specifically is IATA doing in conjunction with African Civil Aviation Commission (AFCAC) in realising this goal?
The SAATM has to be an opportunity, It has to do with deregulation that has benefitted consumers in other markets that had been deregulated. Europe is a great example of that. So, it gives a massive increase in connectivity, an increase in the number of flights, increases in the number of activities, and much better competition. The consumer wins. This will benefit the African consumers, the connectivity which has a huge benefit for the industry and the economies; it is the right way to go. A fragment of the market will not be sufficient as a single, open competitive market. We still have the US domestic market as a single, open competitive market which is a deregulated market; you have new entrants taking advantage of new opportunities and fantastic for consumers. I think African economies have to concentrate most on what would benefit them from the market.