Latin America

Fed Up With Venezuela, American Airlines Slashes Flights


Blocking foreign airlines from taking the money they’ve earned out of a country has consequences. After growing weary of negotiating for months over sales trapped in Venezuela, American Airlines (AAL) is cutting the number of its flights to the country.

The move continues a pattern of gradually declining airline service to Venezuela by frustrated carriers, who have so far rejected the government’s repayment offers over terms deemed unacceptable. At least 11 airlines have curtailed their service to Venezuela as the unpaid debts have mounted, while the socialist government of President Nicolás Maduro seeks to protect its reserves of U.S. dollars. The country requires plane tickets be priced in bolívars.

American Airlines was owed $750 million from its business in Venezuela through March 31, although that figure is likely to have risen in months since. American will have 10 weekly flights to Venezuela beginning next month, down from 48 currently. Foreign carriers are owed $4 billion in all from their Venezuela sales, according to the International Air Transport Association. Delta Air Lines (DAL) and United Airlines (UAL) also have money trapped in Venezuela, but far less than American is owed.

Air Canada (AC/B:CN) and Alitalia have ended their flights to Venezuela in response to the issue. Last week, Lufthansa (LHA:GR) said the Venezuelan problem had cost it €60 million ($81.2 million) and contributed to the airline’s profit warning. The German carrier also suspended ticket sales in the country for several days last month and will reduce its Frankfurt-Caracas service to three weekly flights from daily beginning in July. “The airlines get to a point where they want to serve the country and they want to serve the Venezuelan people,” says IATA spokesman Jason Sinclair. “But they’re owed so much money, it just becomes not viable to operate in Venezuela.”

The Venezuelan government and a half-dozen, mostly smaller airlines in the region agreed last month to terms on repayments. The deal reduced the outstanding debt owed to the airlines by about $200 million, Sinclair says. Sixteen of 25 international airlines have not accepted payment offers from Venezuelan aviation authorities, El Universal newspaper in Caracas reported on Monday.

Most of the major international airlines in Venezuela have declined the government’s offers because they include significant discounts on the principal amounts and have long repayment schedules. “The terms were very complicated, and the offers that were made to different airlines were very different,” Sinclair says. “The discounts were arbitrary. There wasn’t a calculation to them that we saw.”

American now flies to Venezuela from Dallas-Fort Worth, Miami, New York-JFK, and San Juan, Puerto Rico. Starting July 2 it will fly only once per day from Miami to Caracas, with one extra flight on Saturdays, and will operate two weekly flights from Miami to Maracaibo. The airline says it has flown to Venezuela for 27 years and will continue to work with the government to resolve the problem.

(Updated with additional details about Luftansa service reductions in Venezuela.)

Bachman is an associate editor for Businessweek.com.

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