Published On: Mon, Jul 7th, 2014

Delta follows American in cutting Venezuela routes

Delta-AirlinesCARACAS - Delta Air Lines followed some of its peers in cutting back flights to Venezuela on Monday over a dispute with the government concerning trapped revenue.

Delta said it would cut its service to the Latin American country by 85%, scaling back from a daily round trip from Atlanta and the capital Caracas to just one round-trip weekend flight starting Aug. 1.

According to the International Air Transport Association, Venezuela has blocked the repatriation of $4 billion in airline revenue because of currency control problems, the AP reported.

Delta's move follows that of American Airlines, which cut its service to Venezuela by 80% last week over similar concerns with the government. American now only flies from Miami.

On Wednesday, Delta reported weaker-than-expected international yield in June on industry wide capacity increases and lower business travel demand to South America during the World Cup in Brazil.

Meanwhile, European and Asian carriers are worried about the growing threat of Middle Eastern carriers cutting into market share in the region.

Germany's Lufthansa inked a partnership with Air China during Chancellor Angela Merkel's visit to China on Monday. The deal is a precursor to a possible joint venture formation. The two airlines are already members of the Star Alliance group.

In June, Lufthansa issued a profit warning due to the growth of Gulf carriers. European and Asian routes are "low-hanging fruit,"CRT Capital analyst Michael Derchin said in a prior interview with IBD.

U.S. carriers haven't felt the squeeze of Gulf carriers yet due to the lack of overlap in international routes from the U.S., but it could become a concern in the future, according to some analysts.

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