International travel tickets set to rise as travel agencies devalue exchange rate

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International travel tickets set to rise as travel agencies devalue exchange rate

International travel tickets in Nigeria are on track to rise following a directive to travel agencies to adjust exchange rates from N420.86 to N460, effectively an 8.5% devaluation. Nigeria’s official exchange rate at the Investors and Exporters window is currently N410.11/$1.

In an email communication sent to travel agencies and cited by Nairametrics, travel agencies were advised that exchange rates will be “going from N420.86 to N460 per dollar on GDS” starting today, Tuesday, July 13th 2021. They were also advised to “issue all pending tickets” using the new rates.

The GDS is an acronym for Global Distribution System and is the platform used by the travel industry for issuing tickets. Booking platforms such as Amadeus, Sabre, Galileo, etc, all running on GDS already have their exchange rate adjusted to N460/$1.

Why this matters

Nairametrics understands the adjustment in the exchange rate is a reflection of the market value of the naira in the exchange rate market. Unlike other industries, the travel industry has a history of relying on the official exchange rate (not IFEX) as a basis for issuing tickets after converting from dollars to naira.

  • International airlines who are the original issuers of the tickets repatriate their funds by converting their naira proceeds into dollars based on the exchange rate.
  • They also hedge against current risks by purchasing hedging instruments sold by the central bank.
  • This adjustment reflects the market dynamics of Nigeria’s exchange rate quagmire, as supply of dollars continues to struggle to meet demand.
  • The latest move by the airlines to adjust the official exchange rate for selling tickets could be a precursor to a wider adjustment at the I&E window which is what the central bank currently cites as Nigeria’s exchange rate.

What this means

Nigerians looking to travel internationally but yet to purchase tickets will pay higher due to the adjustment.

  • This means a $1,000 ticket that previously cost N420k will now cost N460k, a 9.3% rise.
  • It is also likely that other ancillary charges outside of ticket cost may also increase in tandem. For example, travel agency fees, commissions, applicable taxes might all increase.
  • While travel is a small subset of the consumer price index, this price increase is likely to impact the inflation rate.

This is a developing story…

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