Airlines exit Nigeria on slow economy hit by dollar shortage

[LAGOS] International carriers may follow the example of United Airlines and Iberia and halt operations in Nigeria or cut flights as they struggle to move revenue out of the country because the oil-price slump has depleted the West African nation's foreign exchange reserves.

Iberia suspended its route to Africa's biggest economy on May 12, followed by United, which informed employees that it would end flights from the US to Nigeria at the end of June because of a lack of demand and trouble collecting payments. British Airways and Emirates have said they are facing difficulties obtaining outstanding air fares.

The Lagos route became "untenable" for United, the CEO Oscar Munoz said Wednesday. Pulling out was a "tortured decision," he told reporters after an annual meeting in Chicago.

More airlines will probably cancel routes to Nigeria, according to John Ojikutu, CEO of Centurion Aviation Consultancy. "Besides an inability to repatriate profit, passengers are reducing because the economy is going down," he said on the phone from the country's economic hub, Lagos.

Africa's biggest economy is on the verge of a recession, oil production has fallen to about a three-decade low, and the budget deficit has swelled to a record. The economy contracted for the first time since 2004 in the first quarter, and foreign- currency reserves have slipped to US$26.4 billion, the lowest in more than a decade.

Faced with dwindling oil revenues, the central bank has restricted access to foreign exchange. Nigeria has held its currency, the naira, at 197-199 per dollar since March 2015, unlike many other oil producers affected by the slump in crude prices since mid-2014, which let their currencies weaken. As the dollar shortage has worsened, the naira's value has plummeted on the parallel market, falling to 370 per dollar Wednesday.

President Muhammadu Buhari on May 29 gave the central bank the go-ahead to introduce a more flexible exchange rate while maintaining his opposition to a full devaluation. No details on what the measures will be have been made public. Finance Minister Kemi Adeosun told investors in London on Tuesday that it would take "days or weeks" to implement those changes, according to sources who attended the meeting.

Madrid-based Iberia halted flights to Lagos, Nigeria's biggest city, "due to very difficult operating circumstances and dwindling passenger numbers," Kola Olayinka, country manager for parent company IAG SA, said in an e-mailed response to questions.

Nigeria owed US$575 million in outstanding air fares, as of March 31, according to the International Air Transport Association. Vice President Yemi Osinbajo told IATA Chief Executive Officer Tony Tyler, who visited the capital, Abuja, in late May, that airlines must agree "a realistic and achievable payment schedule," the trade body said.

British Airways, also owned by IAG SA, is struggling to repatriate its share of the money owed to the carriers and is evaluating its routes to Nigeria, Olayinka said. Other companies flying to Nigeria, including Virgin Atlantic, Turkish Airlines, Lufthansa and Air France, either declined or weren't available to respond to calls and e-mails requesting comment.

BLOOMBERG