Nigeria’s local currency, the Naira faces another devaluation following a directive to travel agencies to adjust exchange rates from N420.86 to N460, effectively an 8.5% devaluation effective from Tuesday, July 13.
Nigeria’s official exchange rate at the Investors and Exporters window is currently N410.11/$1.
In an email communication sent to travel agencies, they 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.
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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.
Recall that 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 CBN.
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.
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 not 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.