Scared of revenues being trapped abroad? Experts can help!
The airline industry continues to thrive as IATA predicts for the third consecutive year a profitable business outcome with over 30 billion in net profit. While the years 2015 to 2017 have seen the best performance in the industry’s history, there is an often disregarded challenge affecting airline’s bottom lines: the problem of blocked funds becomes increasingly pressing. Worldwide, more than 5 billion USD in funds are trapped within country borders with airlines unable to retrieve them and convert them into hard currencies. Especially economically challenged countries that are experiencing a drop in oil revenues or political turmoil are accumulating millions in blocked funds with Venezuela leading the field with 3.8 billion USD in airline revenues locked within the country, followed by Angola (507 USD), Sudan (125 million USD) and Nigeria (121 million USD).
But how do blocked funds occur in the first place? An airline selling tickets in a foreign market usually does so in the local currency. Before they can transfer these revenues into their own country, they need to convert the funds into their main operating currencies. Now, if a country experiences a reduction in foreign exchange inflows due to challenging circumstances internally or a general slow-down of the global economy, it might be impossible to convert revenues into the target currencies and the airline’s funds become ‘blocked’ overseas. The result: A major loss in business!
But even in other markets that do not occupy the top spots on this list, repatriating money can be quite a challenge. Many countries require the set-up of local structures, meaning a local office, a local tax identification number and a tax accountant on-site. In addition, the airline must comply with local laws in terms of employment regulations and such. This is true, for example, for Vietnam, India, Brazil, Argentina, Ukraine, Tunisia, and Azerbaijan, just to mention a few. Needless to say that many smaller or regional airlines are unable to shoulder the investments necessary to comply with these requirements and will choose not to do business in these markets at all.
While this means lost business, the alternatives often do not seem to be very attractive. Airlines ignoring special money repatriation requirements are running the risk of accumulating a lot of revenues on foreign bank accounts in local currency. Their profits are then threatened by money devaluation and (worst case) are blocked for good. On the other hand, learning to handle money repatriation is quite a task that requires expert knowledge about the conditions of hundreds of markets. Acquiring this kind of knowledge (not to speak of putting it into action!) is costly and time-consuming and therefore not an option for many airlines.
But there is a third (and better) solution available: working with experts and outsourcing the issue of money repatriation to a specialist. Partners like Hahn Air have all the necessary infrastructures already in place to guarantee that revenues are retrieved and effectively repatriated. They also keep a watchful eye on global developments and are ready to close markets for business in case the local situation is threatening to result in permanently blocked funds.
And finally, these experts can help airlines to maximise business results by deciding on the forms of payment available for each individual market. For example, in most countries, cash payment might be the best option. In countries with a lack of foreign currency, however, credit card sales are the better alternative. For markets where blocked funds are likely to become an issue, the prepaid UATP programme might be the best choice.
Whether you decide to tackle the issue of money repatriation yourself or whether you seek the support of experts, it is definitely worth looking into this topic. Ignoring local money repatriation requirements or closing entire markets for business out of a lack of knowledge is definitely not the way to maximise business results. Therefore, get into the game and do it right!