‘How foreign airlines’ $1billion trapped funds hinders recovery of aviation in Africa’

BATTERED by the deadly COVID-19 pandemic and other challenges, it may take African airlines including Nigerian airlines up to 2023/2024 to fully recover from the impacts of the crisis.

Director General of the International Air Transport Association (IATA), Willie Walsh revealed this to some journalists at the recently concluded Annual General Meeting of the association in far away, Doha, United Arab Emirates.

With particular mention of Africa as a continent, the IATA DG though said airline recovery in Africa was at a slower pace compared to other parts of the world declared: “If you look at Africa, it is principally 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 slower pace than other regions in the world.

African airlines will recover in 2023, 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.

Speaking on the over $1billion blocked funds of foreign airlines trapped in Africa including Nigeria and how to recoup the funds, Willie Walsh lamented how the trapped funds was deeply impacting the airlines and their recovery, emphasising this to be responsible for why the continent was not getting additional capacity from the foreign carriers.

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“We are looking at ways to get these funds out. It has not. It is really having 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 get additional capacity. Airlines are looking to recover their money and they are not going to put their funds into markets that they have no confidence. 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 issue.”

On how to solve the obvious discrepancy in the IATA and the Central Bank of Nigeria (CBN) and the consequences between the IATA selling agents and travelers, the IATA DG stated: “It is impossible to solve because these differences have existed for ever. I honestly don’t see a simple solution to that. It could be good if it 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.”

He used the opportunity to speak on the negative effect of the skyrocketing price of aviation fuel, Jet A1 on global airline operations saying; “It has serious impact on the airlines and price of basic commodities on the Oil Brent benchmark that we use very much as  influenced by what is happening in Ukraine, the sanctions against Russian oil which has driven up price of oil quite significantly. The second aspect is the difference between barrel of Brent and barrel of Jet and lack of capacity in refining. There was little demand for Jet A1 during the pandemic obviously because the value of 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 Ten 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 average cost of 25 percent basic $100 dollars on average. So, Jet A1 is $125. Brent jumped from $80 to $100. Both of these have increased and both of these have impact. In the same period, fuel represents 20 percent of the industry cost base. “In that ten year period in the history of the industry, the average cost was five and half percent. 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 ticket prices. Ticket prices would be highly influenced by supply and demand and in certain cases the pace which demand has recovered has been faster than the pace which supply has returned to the market and that clearly leads to pushing prices up.

I think it is a huge opportunity for African countries. They do not need to have to rely on oil and gas to be extracted. You develop Sustainable Aviation Fuel (SAF) which is a huge demand.