Emirates and Turkish Airways ditch local travel agents in a bid to circumvent govt’s restrictions on remitting their earnings

LAHORE: International airlines have resorted to pricing out local travel agents in a bid to encourage purchases through credit cards, and international travel agencies. The rationale for this is to circumvent the restrictions on repatriating their profits levied by the government of Pakistan as a means to keep the rupee afloat. Airlines have sought to tempt customers by offering different prices to local travel agents in a bid to price them out, and redirect spending. 

“They have stopped locally selling their tickets due to their issues with the Government over being able to repatriate their earnings back to their home countries,” says Yousaf Rizvi, the former Vice Chairman of the Travel Agents Association of Pakistan. “They have blocked access to the normal sellable fares and instead given agents access to only those fares that are unsellable. They are trying to force customers to use their credit cards, or arrange for their transactions outside of Pakistan,” Rizvi continues. 

The two leading airlines that have adopted this are Emirates Airlines and Turkish Airways according to Rizvi. Profit visited various travel agencies across DHA and Gulberg in Lahore to confirm that these two are in effect the ones utilizing this practice. No discrepancy could be found with any of the other larger airlines. Profit compared the rates provided to us by local travel agents and the ones listed on the respective airlines’ website from Lahore to both airlines’ respective hubs. The differences are as follows: 

What does repatriating funds even mean? 

Airlines typically price and sell tickets in the currency of the country in which they are being sold. The local currencies are then converted into their main operating currencies before it can be repatriated. 

Why are airlines angry over not being able to repatriate funds? 

Funds become ‘blocked’ overseas when in certain markets airlines are unable to source the foreign exchange they need to convert their local currency revenues. 

The International Air Transport Association (IATA), the trade association for the world’s airlines which represents some 300 airlines or 83% of total air traffic, alleged that the Government of Pakistan has blocked foreign airlines from repatriating $225 million in funds. 

The allegation was made by Willie Walsh, IATA’s Director General, on December 7. The allegation was made in a bid to convince the Government of Pakistan, and those in other similar countries such as Nigeria and Bangladesh, to end their practice. The Government of Pakistan has clearly not listened, and thus forced airlines to take matters into their own hands. 

How are airlines offering these dual rates to customers? 

Understanding how this works requires an explanation of how airlines price their seats to begin with. Airfare pricing is a complex process involving technological systems and human decision-making. A passenger’s fare price is influenced by several factors, leading to significant pricing differences even among adjacent seats. 

To meet financial targets, airlines create different fare classes for each flight, which can be challenging for even experienced frequent flyers to understand. Essentially, fare classes segment each seat into specific categories with varying prices and rules, identifiable by one-letter fare codes. While some fare classes and codes are universal, others are specific to individual airlines. The following are a few codes that are used commonly across a myriad of airlines: 

• F and A: First Class.
• C, J, R, D and I: Business Class.
• W and P: premium economy.
• Y, H, K, M, L, G, V, S, N, Q, O and E: Economy.
• B: Basic economy.

A Lahore based travel agent elucidates upon the matter in simpler terms. “There is no difference in the quality of the seat you get within a fare class. The best way to imagine it is looking at the differences in price two individuals sitting next to each other might pay, if one of them bought their tickets six months ago whilst the other bought it the week of their flight,” he tells Profit. 

So what have airlines done? Profit interviewed another Lahore-based travel agent to understand the matter. “They have set a fare category floor, below which they will not allow access to Pakistani based travel agents. Travel agents have, therefore, had to stock their inventories with higher category fare classes, rather than the usual mix of low fares,” he tells us. “International travel agencies will be able to manage. The ones that are local, wo becharay phas gaye hain,” he continues. This sentence is important because, outside of credit cards, international agencies retain access to the lower fares because this is a geographic restriction placed by the airlines. 

Who are the international travel agents then? Travel agents with Travel Industry Designator Service (TIDS) codes for countries outside of Pakistan. “Travel agencies who are accredited in the international market, those who are either part of or have international chains,” explains the second travel agent to Profit. In simpler terms, it is companies. 

Both travel agents, who agreed to give their remarks on the guarantee of anonymity, gave us reassurances that they had access to the lower fares available on the website, and that we would not have to use our credit cards. They stated we could pay them in cash, bank transfer, and/or cheque, and they would then authorize the transactions through their branches in Australia or England. 

In defence of the Airlines 

Criticizing the airlines here would be useless. They’re here to make money, and will need to repatriate their earnings into their home countries to buy fuel to maintain their operations if nothing else. Expecting them to comply with the Government’s restraints would be akin to having them subsidize our indecision. Their decision to eliminate low yield flights, and subsequently their low yield partners is logical given the circumstances. 

Redirecting profits directly to themselves by eliminating the middle-man is also a global phenomenon, so the Government’s decision to block funds has accelerated the rate at which foreign airlines would have phased out their local partners. However, this is at best a stop-gap measure. Foreign exchange denominated credit card transactions are likely to provide some immediate respite to Emirates and Turkish Airways, however, it is not sustainable.

It is correct that banks in Pakistan, like elsewhere in the world, do have their own foreign exchange reserves. However, the banks also utilize the open market for foreign currency denominated transactions too. Which of the two pools of foreign exchange that banks utilise is at their own discretion. Subsequently, there is no guarantee whether Emirates and Turkish Airways will receive the foreign exchange they so require. The most guaranteed source of foreign exchange will be the sale of these tickets in foreign markets, for local customers. This is where the Government might have jolted the grey market by forcing the hand of legitimate players. 

Has the Government gone and created a Hundi/Hawala market? 

There remain two ways outside of airlines resting on the good faith of credit card: International travel agents, and purchasing tickets via someone abroad. The latter basically entails something such as “Your cousin will buy you a ticket, and you will reimburse them either abroad or here,” explains Rizvi. Both the two options lead to one outcome: Hundi and Hawala. This might provide the airlines with the immediate injections they need but could create even greater forex problems for them if the Government maintains it stance on the repatriation issue

What are the ramifications of Emirates Airline and Turkish Airways? 

“These are two very large, and important players. Their actions set a precedent for others to follow,” said one of the two travel agents. The travel agents’ views are pertinent, given that Turkish Airways, and Emirates jointly catered for 1.97 million passengers between July 2021, and June 2022, based on the latest available statistics provided by the Pakistan Civil Aviation Authority. Independently, Emirates was the largest foreign airline, and Turkish the third largest foreign over the aforementioned time period.

“This will destroy travel agents in Pakistan. If the payments are being abroad, then what is the point of travel agents conducting their business here?,” says Rizvi. “What will likely happen is that those of us with big enough credit cards, will just provide access to our credit cards as a service then. The people basically just want a service, the government instead needs to engage in more concrete efforts with the airlines,” Rizvi continued.