Trapped Funds: International Airfares Increase By 20% Following Hike In Exchange Rate

Foreign airlines have raised the ticket sale exchange rate from N462 per dollar to N551 per dollar in Nigerian routes, leading to a skyrocketing in international airfares.

Trapped funds are reportedly the reason why international travelers opting for Nigerian routes are paying 20% higher airfares, Punch reported.

"Virgin Atlantic which has a promo of about N800,000. This same promo is going for about N1.1m as a result of the increase in the exchange rate," the chief executive officer of a travel agency, who preferred to remain anonymous, told Punch.

International Air Transport Association revealed earlier this month that Nigeria has about $743m in trapped funds, which was the highest amount of airline-blocked funds in the world.

Bankole Bernard, who worked as former president of the National Association of Nigeria Travel Agencies, confirmed the country was moving toward a black market rate as Nigerians are also paying 66.36% more on airfares.

"Today, the rate at which we are issuing tickets is N551 to a dollar. Is that the official rate? No, but that is the rate we are issuing tickets, which is moving closer to the black market rate," he said. "This means the issue of trapped funds would not have been if it had been properly managed."

Bernard explained that the funds were trapped because the government was not ready to give foreign airlines funds at the official rate.

"Why didn't you tell them the rate you would give them funds so that they can sell their tickets at a particular rate as long as it is official? After all, we have multiple exchange rates. So, what will make this one different? Then, there will not be an issue of trapped funds and people will do their business and the agony travelers are facing will not be there."

Research firm Financial Derivatives Company Limited's director, Bismarck Rewane, noted the increased ticket prices won't impact foreigners, but only those who purchase with Naira.

"In dollar terms, airfares have not gone up, it is still the same amount," Rewane said. "The increase will only affect those who buy their tickets in naira. But we can't blame foreign airlines. We need to put ourselves in their shoes."

He continued, "Why can't they repatriate their funds? They are losing money by not being able to repatriate their funds. Most of their expenses are denominated in dollars, how will they pay for all these services and goods when they can't repatriate their funds?"

The trapped funds of $662 million from January 2022 have become $743 million this year. Minister of Aviation, Hadi Sirika, shared this information on March 15, noting it will create a social-economic impact on the country, as it will discourage direct foreign investment in the future.

Emirates announced in September 2022 that in the wake of the currency crisis in Nigeria, the airline would "limit further losses and reduce the impact on its operational costs that continue to accumulate in the Nigerian market," The Cable reported.