Published On: Wed, Jun 8th, 2016

Why airlines are abandoning Venezuela

In the 1970s Venezuela’s oil wealth attracted business travellers from all over the world. An Air France Concorde flew between Paris and Caracas once a week. But for airlines the supersonic boom has given way to a frustrating bust. On May 28th Lufthansa announced that it was suspending its thrice-weekly flights from Frankfurt to Caracas as of June 18th. Two days later LATAM, Latin America’s largest airline group, declared that it would cut all its services to the country after August 1st. In recent years Air Canada, American Airlines, Alitalia and Gol have all scaled back or suspended their Venezuelan operations. Why are so many airlines crossing the country off their schedules?

A nosedive in the price of oil, compounded by years of mismanagement by Hugo Chávez and his successor, Nicolás Maduro, have left Venezuela’s economy in tatters. This year the IMF forecasts the country’s GDP will shrink by 8% and inflation rise to around 500%. Shortages of food and medicine, exacerbated by widespread looting, make daily life a misery. In response to increasing social unrest the government has cracked down on public protest and political opposition. Luis Almagro, secretary-general of the Organisation of American States, has called an emergency meeting to be held later in June to discuss whether Mr Maduro’s government has violated the democratic principles set out in the organisation’s charter. A testy Mr Maduro told him to “shove it wherever it fits”.

Desperate to avert a sovereign default, which would cut off credit to the ailing oil industry, the government has tightened currency controls introduced by Mr Chávez in 2003. The restrictions make it almost impossible for companies to convert local bolívares into dollars. This has made it difficult for international airlines, who typically charge customers in local currencies, to repatriate their profits. Lufthansa has written off the more than $100m it says it is owed; LATAM says it is due $3m. The International Air Transport Association (IATA), the airlines’ trade body, estimates that Venezuela’s government is withholding $3.8 billion of airline revenues.

Demand for flights to Venezuela has, in any case, fallen in recent years as fewer business travellers visit the country. LATAM says that flights to Caracas make up less than 1% of its business. Caracas’s airport is often deserted. But the carriers’ departures are a symbolic blow to the government and exacerbate Venezuela’s isolation from the rest of the world. Just a handful of foreign airlines remain. Air France, United Airlines and Iberia have all said they will maintain their flights for the time being. But it might not be long before they, too, fly away.

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