LAHORE: Philip Goh, the Asia-Pacific Head of the International Air Transport Association (IATA), has told the Financial Times in an interview on March 17 that international airlines are struggling to repatriate their funds from Pakistan. Goh highlights that some airlines have revenue from sales in 2022 still stuck in Pakistan. The Financial Times report suggests how a persistent and sustained blockage of repatriable funds by the Government of Pakistan might lead to airlines either scaling back their operations, or exiting the Pakistani market altogether.
“The issue is twofold,” a senior industry source told Profit. “The first issue is the issue of repatriating earnings itself, whilst the second issue is that the application process has been made more cumbersome. The process is now more time consuming and costly for airlines,” the source continued.
“Which business is going to operate in a market where they’re making money, but they cannot repatriate money to their head-office to pay for the expenses of their operations?,” warned our source. “Pakistan’s aviation industry has been neglected by the government for decades, hindering its contribution to the GDP. In contrast, despite Sri Lanka’s default last year, their government prioritised the aviation industry and avoided issues with airline operations and payment delays.,” they continued.
What does repatriating funds mean?
When airlines sell tickets, they typically price them in the local currency of the country where they are being sold. Then, the airlines convert the local currencies into their main operating currencies before repatriating the funds.
However, in certain markets, airlines may face challenges in accessing the foreign exchange needed to convert their local currency revenues. This can cause the funds to become ‘blocked’ overseas, which can create financial difficulties for the airline.
What is IATA’s allegation?
According to IATA, as of January, airlines had $290 million of funds stuck in Pakistan. This is an increase of nearly one-third in terms of blocked funds from the $225 million in December. This makes Pakistan the second-largest holder of foreign currency from airlines globally, after Nigeria.
A timeline of the issue
“The issue goes back to October 2021,” our source stated. “IATA took the matter to the Government of Pakistan in March 2022, last year. It is now March 2023, and the issue has only gotten worse,” they continued.
Ramifications of the matter
“The Government of Pakistan has not provided any assistance or opportunities to airlines to offset these losses either. If you cannot release foreign currency reserves because the country is in a financial crisis, then at least let the airlines pay for the fuel in local currency. You are not giving them access to dollars, but you want them to pay in dollars for products that they are buying in Pakistan,” they mused.
“The ramifications are simple. Companies will just not sell tickets locally. If I buy a ticket online, the travel agent loses out on the commission and may lose their job. The government also earns less tax revenue from the transaction if it’s not done through the agent. However, the airline benefits because it gets the money quickly and it’s less costly for them if the customer buys directly from their website,” our source said..
“But not everyone has a credit card to purchase tickets, especially low-income workers. Additionally, many people may not have high enough credit limits to buy more expensive tickets. This is problematic as ticket prices are increasing due to the depreciation of the rupee against the dollar,” our source concluded.