United’s only flight to the continent of Africa is its Houston – Lagos, Nigeria Boeing 787 service. That route will be terminated June 30, with the aircraft supporting United’s increase in San Francisco – Tel Aviv frequencies to daily this fall.
Rumors that United simply got taken in by a 419 scam are, apparently, unfounded.
United Airlines Boeing 787
Instead there are two really interesting things that we learn about this flight.
- United says they’ve been losing money on it for years, but kept it because it was important to business customers in Houston.
- It’s being terminated now due to currency controls imposed by Nigeria.
Former Spirit Airlines CEO Ben Baldanza used to describe the difference between scheduling at the ultra low cost carrier and scheduling at his former employer United Airlines (née Continental) as being that the Houston-based airline had to schedule flights that were on their own unprofitable because running a business traveler-focused hub it was crucial to take business travelers where they wanted to go, when they wanted to go. So an early Monday morning bank of flights might depart half empty, several losing money in isolation, but those losses were necessary to earn profits on other flights.
The oil industry is suffering low fuel prices, and Houston is a key energy market. It’s why Emirates downsized their Houston – Dubai flight from an A380 to a Boeing 777. It’s why SAS eliminated their all business class Houston – Stavenger, Norway flight. United has had to make adjustments in Houston as well.
Now United is eliminating the long-suffering oil route to Nigeria. The losses, likely exacerbated in the current economic climate, weren’t enough on their own to do it.
Rather, the government of Nigeria has made it difficult to repatriate funds to the US. Indeed, airlines had about $575 million stuck inside Nigeria at March 31.
At the beginning of the year American Airlines wrote off half a billion dollars trapped in Venezuela.
In Venezuela airline tickets were an arbitrage tool, an opportunity for citizens to get money out of the country and to convert currency from the black market rate to the official rate. Flights out of Venezuela became so popular that you could only buy full fare tickets when you could get seats at all. American’s Caracas – San Juan flight was carrying almost exclusively onward connecting passengers to the US because Venezuelans couldn’t get on non-stops. American thought it was a cash cow. It was a trap. Currency controls tightened on airlines and prevented them from taking currency out of the country.
That’s why airlines scaled back flying to and from Venezuela and then started refusing to sell tickets inside the country so as to avoid accepting local currency.
So United pulled the plug because its losses increased, but more importantly because it was having a hard time even accessing the funds it was generating through ticket sales in Nigeria.
(HT: Charles G.)