Venezuela: Airlines cannot stand the crisis anymore

Every day, the South American country is closer to complete isolation from the rest of the world

Venezuela: Airlines cannot stand the crisis anymore

Before 2015, oil prices were about USD$100 per barrel, quite beneficial for Venezuelan economy because this country is one of the largest oil producers in the world. However, around two years ago, crude prices began to decrease dramatically, reaching a value of USD$50 per value in the course of this year. This, combined with economic mismanagement, has exposed how fragile the Venezuelan economy is. The results speak for themselves. IMF estimates the country’s GDP will reduce by 7.4% and its inflation rate will rise to about 720%. There have been shortages of food, medicine, chemicals, car parts, and, over the past few years, airplane tickets have been added to the list.

In Venezuela, the dollar market has been highly regulated since Hugo Chavez’s presidency in 2003 and these measures have been reinforced by President Nicolas Maduro. Airlines are forced to sell tickets in Bolívares, The South American country's currency, and then start a long process with the government in order to convert local currency into dollars, which makes for a very unattractive business, especially for international airlines. According to the International Air Transport Association (IATA), Venezuela’s government is blocking $3.8 billion dollars in revenues owed to various airlines. Under these conditions, airlines have little to no choice but to stop operating in the said nation all together or reduce their services to the minimum.

The last company that have left Venezuela was Avianca, which decided to suspend all its services immediately on July 27, 2017.  United Airlines made the decision earlier this year; its last flight took place on June 30, 2017.  Likewise, Air Canada suspended operations in 2014, as well as Aeromexico.  In 2015, Alitalia was added to the list and Gol, Latam, and Lufthansa left in 2016.  American Airlines, Air France, and Iberia still operate in the country but they have cut some of their services down.

Aside from the struggle for airlines to repatriate their revenues, the industry has been having sales contractions.  IATA reported that international sales for the first quarter of 2017 were of $55.17 million dollars, which is 96% less than the first quarter of 2016. Demand for flights to Venezuela has decreased sharply, which definitely does not encourage companies to keep on operating in this country. 

Not only the lack of dollars and the sales contraction affect the industry. Insecurity, social instability, and protests against the regime are not making the scenario any better. This situation is quite serious and Venezuela’s government has to take action if it does not want the Latin American country to be completely isolated from the rest of the world. 

 

Latin American Post | Robert Jiménez

Copy edited by Susana Cicchetto

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