The Central Bank of Nigeria introduced a new foreign exchange policy in June 2016, unblocking access to dollars that airlines had struggled for months to obtain under the tightly controlled forex regime introduced the previous year. For a brief moment, the move was greeted with relief across an industry that had watched blocked ticket revenue accumulate for well over a year.
That relief did not last. Once the new exchange rate settled at around N330 to the dollar, airlines began to lose at least 40 percent of their accumulated revenue converting naira ticket sales into dollars at the new rate, industry figures said. On every $1 million repatriated out of the country, carriers were effectively losing roughly N80 million compared with the rates they had been budgeting against, a gap that ate directly into already thin margins.
A Policy That Cut Both Ways
The forex flotation was meant to unify Nigeria's exchange rate system and restore confidence for foreign investors and businesses, including airlines that had been unable to repatriate funds since restrictions were tightened in 2015. But for carriers whose revenue was earned largely in naira while their costs, from aircraft leases to spare parts to insurance, were denominated in dollars, the new market-driven rate simply moved the pain from access to price.
Ripple Effects Through the Year
The devaluation fed directly into the airfare increases and operational retrenchment that marked the rest of 2016, as foreign carriers weighed the economics of continuing to serve the Nigerian market and domestic airlines passed rising dollar-denominated costs on to passengers wherever they could. The federal government would later move to include aviation among the sectors prioritised for forex concessions later in the year, but the June flotation itself left the industry worse off in the short term even as it addressed the underlying scarcity of dollars.