Alitalia Suspends Service to Venezuela, IATA Warns of Further Withdrawals

San Francisco, May 20th 2014. (venezuelanalysis.com)- Italian Airline Alitalia, whose services represent 22% of the routes between Europe and Venezuela, has announced the suspension of its operations in the South American nation, starting June 5th.

The estimated two-month suspension is a result of an alleged 187 million dollar debt owed to the company the Venezuelan government, according to sources within the Association of Airlines in Venezuela (ALAV).

International airlines within the country are obligated to make sales in national currency (bolivars), then receive payment in dollars through the Venezuelan government, which maintains a subsidy on the dollar. While this has made it easier for working class Venezuelans to have access to international travel, it has also meant that many Latin Americans may travel to Venezuela in order to buy much cheaper tickets to Europe.

At this point, the government is in debt by approximately 3.9 billion dollars to various airlines, and according to the Association of International Air Transit (IATA), they have made no formal agreement to resolve the deficit. Other sources say multiple proposals are currently on the table, including settlements that include Venezuelan oil as a form of payment.

IATA vice president Peter Cerda warned Thursday that as the debt grows, more and more companies might recede from Venezuela’s airways.

Other airlines, including Lufthansa, Iberia, Avianca, Air Europe, Air France, and American Airlines, have reduced their service by up to 73% to Venezuela since the start of 2014. Air Canada withdrew completely from the country in March, citing security concerns arisen from the ongoing anti-government protests. Their removal sparked an adverse reaction on behalf of Venezuelan president Nicolas Maduro, who immediately cut commercial ties with the Canadian airline while warning, “A company that leaves the country will not return while we hold power.”

Not surprisingly, the year’s first trimester has seen a 41% decrease in international ticket purchases compared to the same period in 2013.

However, since January there has been a 62% increase in the income in bolivars obtained by those airlines that still operate in the country. As for the revenue in dollars, a 7% increase was reported. The increase in profit alongside a sharp decrease in sales points to unprecedentedly high prices.

The Venezuelan government has often argued that airlines have been taking advantage of the dollar subsidy by speculating heavily in sales. In September of last year, a round trip ticket to Italy could cost up to 60,000 bolivars, which equaled about $1,300 for those who exchanged their dollars on the black market. But the government would then be responsible for remitting a whopping $9,500 to the corresponding airline, in accordance with their official exchange rate of 6.3 bolivars to the dollar at that time.

The official rate for airlines was raised in October of 2013, after a considerable amount of debt had already been incurred. In fact, since the debt began to accumulate, the value of the dollar has increased exponentially within the Venezuelan economy. Many airlines have rejected the possibility that the government pay their debt at the current rate of 11.5 bolivars to the dollar, as opposed to the rate in place when the original payment was due (as low as 4.3 in 2013).

Considering Maduro’s rebuttal to Air Canada earlier this year, many are wary of the possible repercussions of Alitalia’s decision to suspend service.

ALAV president Humberto Figuera said yesterday, “There are strong links between Venezuelan colonies in Italy and Italians in Venezuela, which makes this a sensitive issue. There are many who hope to travel to see their relatives at least once a year.”

Vice president of the Venezuelan Association for Travel Agencies and Tourism, Sandra Gonzalez, pointed out that the suspension would likely translate into serious harm in the tourism sector.

While Alitalia has promised to reimburse those who already purchased tickets, Gonzalez noted that true compensation might prove impossible. “There are people who already purchased tourist packages, and now that’s all up in the air,” she said.