Major Airlines to Regulate Fares in Venezuela as Transport and Oil Costs Rise

San Francisco, June 13th 2014 (Venezuelanalysis.com) – Yesterday Venezuelan Air and Maritime Transport Minister, Herbet Garcia Plaza, announced the government had reached an agreement with representatives of leading international airlines to regulate the cost of air travel to and from the country.

In recent months, major airlines have steadily cut back service in Venezuela as the government attempted to settle a debt with the carriers, estimated to reach a total of 3.9 billion dollars. Plaza ensured that all parties involved in yesterday’s meeting understood that these regulations were a continuation of the parameters set down during those dealings, and that the debt will continue to be paid as agreed upon last month.

At the end of May, many Venezuelans were alarmed to hear that airline prices will now be pegged to the Sicad II exchange rate, which is about 5 times higher than the rate which previously determined airfare (Sicad I).

The regulations in pricing revealed today are clearly aimed to ensure that air travel will still be accesible for middle class Venezuelans, who make up the majority of international travelers.

By adhering to the Sicad II rate in dollars, which averages 50 bolivars to the dollar, Plaza tweeted last night, “we seek to establish competitive airfare prices, in comparison with other countries.”

The new tariffs will be based on a “mutual approval” rule, meaning airlines will calculate costs depending on origin, destination, class of ticket, and mileage covered en route, then submit those numbers to the National Institute for Civic Aviation (INAC). They may also take into account such factors as high seasons, available seating, round trip or one-way fares, airport taxes, as well as other conditions and restrictions. The cost of the ticket will then be fixed accordingly.

With these measures, the government hopes to protect the tourism sector of the economy, that was hit hard by the airlines’ cutbacks.

Additionally, the Central Bank announced preferentially low interests rates, at maximum of 9.7%, on all loans for investment in the tourism industry.

OPEC Summit

The Organization of Petroleum Exporting Countries (OPEC), of which Venezuela is a founding member, held its semiannual meeting in Vienna on Thursday. Despite pressure from the International Energy Agency (IEA) to raise production by one million barrels per day to meet increased demands during the second semester of 2014, Venezuelan Oil Minister Rafael Ramirez told reporters the 12 OPEC nations had “come to a consensus to maintain the current status quo.”

The minister affirmed that Venezuela and all OPEC nations are producing at highest capacity, currently exporting 30 million barrels of crude oil daily. Only Saudi Arabia, another founding member, may be able to meet increasing demands.

As of yesterday’s summit, oil was priced at $107.4 per barrel, the highest it’s been since March. Many attribute this spike to the crisis in Iraq, an OPEC member and the uncertainty over the whether the US military will increase its interference in the region.

Inflation

Because Venezuela’s petroleum income is considered public property and the price of gasoline at the pump is subsidized by the state, any global increase in crude oil prices should benefit the general public.

However, the Central Bank of Venezuela reported a 10% increase in internal transportation costs for the month of May. This may be due to speculation of those carriers transiting the more hazardous areas prone to militant anti-government protests. The protestors’ tactic of blockading major highways with burning trash street regularly

The overall monthly inflation rate was reported at a national average of 5.7%. The capital Caracas averaged 5.4% and the southeastern city of Puerto Ordaz at 7%.

The latest monthly figure means that annual inflation continues at a Bolivarian era high, at 60.9%, but down slightly from last month. Monthly inflation has crept up from 2.4% in February.

Puerto Ordaz has been the scene of numerous attacks on public transportation, low-income food markets, and the small, wealthy city has had to reinstall most stoplights since protestors tore them down in February.

Utilities, housing, education and cultural events have seen under 2% inflation nationwide, while food, hotels, and restaurants have seen closer to 7%.