•Local firms lose 40% market share
By Chinelo Obogo
The Nigerian travel industry is under siege, literally speaking.
Foreign travel agencies have continued to dominate the market, leaving local operators struggling to keep up as they hold the shorter end of the stick.
Already, it is reported that local firms have lost 40% of the market share, a development that clearly shows they are slowly but steadily being squeezed out of the game by international players who leverage global operating licenses, cheaper airfares and other factors that favour them.
Fingered as the lead cause of the market share depletion is “cross-border trading,”.
It is an injurious practice that has given foreign agencies an unfair competitive advantage over their counterparts when selling airline tickets in Nigeria.
The worrisome development, experts note, has forced many local agencies to shutter, raising genuine concerns about the long-term viability of Nigeria’s travel sector.
Daily Sun’s investigation reveals that at the heart of this issue is the exploitation of the global operating licenses by these international travel agencies, which allows them to sell flight tickets that originate from Nigeria at far cheaper rates than the local Nigerian-owned agencies.
Trapped funds saga: The genesis
According to analysts, the genesis of the problem can be traced back to the tenure of former President Muhammadu Buhari, whose administration withheld funds meant for international airlines from the sales of tickets in Nigeria. When international airlines could not repatriate their funds from Nigeria, they implemented very severe restrictions on ticket sales in the country by blocking the lower inventories to minimize losses.
As a result, Nigerian travel agencies were unable to access lower tickets for their clients, and the cost of flying out of Nigeria went through the roof. This problem created an opportunity for travel agencies outside the country, who were empowered by airlines to offer lower airfares for flights originating from Nigeria, as airlines feared accumulating more trapped funds. Insiders told Daily Sun that this was achieved because international airlines offered these foreign travel agencies cheaper pricing, fearing that increased sales within Nigeria would only lead to an increase in the amount of funds trapped in Nigeria. Unfortunately, Nigerian agencies were at the receiving end. Many were at a loss on how to navigate the turbulence, and the smaller ones went out of business.
Due to the fact that Nigerian travel professionals could not afford to access lower-priced tickets because the airlines had blocked them, they were forced to rely on their international counterparts to issue tickets for their clients. This led to a massive surge in business for foreign agencies and prompted many of them to open offices in Nigeria in order to capitalise on the situation. With Nigerian travel agencies unable to access lower inventories, international travel companies with global licenses operating in multiple countries flooded the Nigerian market.
Daily Sun’s investigation reveals that these international travel agencies, including some owned by Nigerians, have a huge advantage over their local counterparts through their global licenses, which allow them to operate in multiple markets worldwide. These agencies have offices in various countries and can compare airfares across different markets and select the cheapest option to offer their Nigerian clients.
For instance, Daily Sun learned that a Lagos-to-London ticket might officially cost N1.1 million. However, an international agency operating in Nigeria but with a Ghanaian ID might be able to access the same ticket for N900,000 through their Ghanaian system and sell it to a Nigerian customer in Nigeria at that lower price—a rate Nigerian agencies with only a Nigerian ID cannot access. This allows them to advertise “best buy” deals that local agencies cannot compete with.
An industry source who preferred anonymity told Daily Sun that, “When you have a client that you have been issuing a particular ticket to and all of a sudden you are telling the client that you can no longer issue that type of ticket, the client would not understand the technicalities involved.
“For instance, a Lagos-London-Lagos ticket of the same class and airline with a Nigerian-based ID is N1.8 million, but when you use a UK-based ID for the same airline, date, and class of ticket for the same Lagos-London-Lagos route, a passenger will pay N1.2 million despite the fact that the flight originates from Nigeria.”
Although the Federal Government has cleared the trapped funds and Nigerian travel agencies have resumed normal operations, cross-border trading has not stopped. International agencies that have flooded the Nigerian market now check their global network for the cheapest fares and use their foreign IDs to sell tickets to Nigerian customers. This explains why these agencies can advertise lower fares on their websites compared to their Nigerian counterparts that are restricted to using their Nigerian IDs and can only access the fares loaded for the Nigerian market.
Airlines to blame
Daily Sun’s sources place the blame on the airlines because they insist that the operators are the ones that determine ticket prices for each market. This ongoing practice, where tickets are cheaper when sold and ticketed outside the country of origin, is seen as a deliberate disadvantage imposed on Nigerian travel agencies by the airlines. Insiders said that airlines should provide Nigerian travel agencies with the same “home advantage” they give to agencies in other countries.
“Nigerian travel agencies should have the home advantage, but the airlines which are the ones that load the fares do not give it to them, so they lose out. It is the airlines that fix the ticket prices, so they are the ones that should rectify this problem,” Daily Sun’s source said.
However, the National President of the Association of Foreign Airlines and Representatives in Nigeria (AFARN), Dr. Kingsley Nwokoma, defended the foreign airlines. He told Daily Sun everything is standard practice and procedure and that the way the ticket pricing is done in Nigeria is the same way it is done outside Nigeria. He cited factors such as different exchange rates, taxes, charges, and the high cost of doing business in Nigeria as major factors contributing to the disparity in pricing.
Fragmentation of Nigerian travel companies
Another challenge facing Nigerian travel consultants is the fragmented nature of their businesses compared to their international counterparts, who often operate as consolidated companies. International agencies frequently pool resources to purchase seats in bulk from airlines at discounted rates, which they can later sell at cheaper prices.
An industry source explains how it works, saying, “What these international agencies do is that they pool funds together and buy seats upfront from the airlines. For instance, in January, five companies can come together, pool funds and buy 500 seats upfront from the major airlines for economy class, which would be 100 seats per company in lieu of the summer vacation in July/August. The travel agents can agree with the airline to pay N1m for each seat, and since they are buying in bulk, despite the fact that the cheapest on the website is N1.2m… if the airlines agree, the travel company will pay N100 million for 100 seats and block them—maybe 60 from Lagos and 40 from Abuja—and those seats which have been bought upfront through the consolidation would be removed from the airlines’ websites.
“So, the regular travel agent who wants to buy tickets would check the websites and would not see any seats available. What they would be seeing would be higher-priced tickets because the consolidators have already bought up the lower tickets.
“By May, when it’s two months to the start of the summer holiday, many people will go to the websites of these airlines and find out that they can only see higher fares of over N4m. By that time, those consolidator companies would agree to start releasing the tickets they had earlier bought in January through their websites and start selling them for N1.6m and above, and those agents who don’t know how consolidation works would start harassing the airlines and accusing them of giving cheaper tickets to some agents.”
NANTA calls for government intervention
The National Association of Nigerian Travel Agents (NANTA) is urging the government to intervene to address this problem. The association’s National President, Yinka Folami, told Daily Sun that some international companies operating in Nigeria are under investigation in a West African country for alleged money laundering related to cross-border trading.
He said that the practice of cross-border ticket trading increased during Nigeria’s trapped funds crisis and allowed foreign travel agencies to offer lower fares than local agents. He said that even after the trapped funds issue was resolved, this unfair advantage over local operators has persisted as global agencies exploit SOTO (Sold Outside, Ticketed Outside) tickets, which are meant for occasional client needs but are now being used regularly to destroy Nigerian businesses.
“The cross-border trading intensified during the period Nigeria had the issue with trapped funds and travel agencies outside Nigeria were able to get lower fares than their counterparts in Nigeria. Now that the issue of trapped funds has been resolved, it is difficult to stop. When you are a global merchant, you can issue SOTO tickets, which mean Sold Outside, Ticketed Outside. They are not supposed to trade with it very regularly. Such tickets should be issued sparingly. They should be reserved for a particular kind of client. It is a client service tool because sometimes your regular customer can require such tickets that are sold outside your market. But when you start trading in it, then you are undercutting that market and nobody will allow it because it is supposed to be an occasional thing, and even IATA is not happy about it. When you continue to do this, you are going to shift the figures of that market.
“Some people attribute it to market forces, but this is a deliberate disrespect to the Nigerian market. They have come into Nigeria, and they are conquering our market. These global merchants are using the SOTO advantage in Nigeria unethically, and it is putting pressure on our naira and eroding our market share. Currently, we have lost 40 percent of our market share to these merchants, and they have to be stopped. They have done that in other African countries and they have succeeded. But some countries, like Côte d’Ivoire, didn’t allow it,” he said.
Folami said NANTA has spoken verbally with the Ministry of Aviation over this issue but that they are going to make it official. He expressed confidence in the Minister of Aviation and Aerospace Development, Festus Keyamo, describing him as “an action man” who he believes will address the issue.
“Our minister is an action man, and we believe he will do something about it. We want the government to ensure balanced and equitable regulation. They should ask why a travel agency would sit in China and have better fares for a Lagos-London-Lagos flight than a Nigerian travel agency in Nigeria,” he said.