Venezuela is cracking down on the scrape, a bargain-travel scheme widely reported last fall—and may wind up reducing its air service as a result.
Travelers in the inflation-wracked South American nation have been able to exploit the difference between the official exchange rate and the black market rate by buying airline tickets in the local currency and exchanging up to $3,000. That provision had meant flights from Venezuela got booked up months in advance and roused the ire of government officials, who are trying to conserve their supply of hard currency (the U.S. greenback), which has dwindled to a 10-year low. Due to Venezuela’s currency controls, airlines have $3.3 billion from their local sales “trapped,” as United Airlines’ (UAL) chief financial officer phrased it last week. Airlines are balking at the government’s offer to honor that debt with bonds, cash, and jet fuel, according to the Associated Press.
Panama’s Copa Airlines (CPA) has more than $400 million stuck in Venezuela and will likely need to write off some that it won’t be able to repatriate, Raymond James analyst Savanthi Syth wrote in a client note last week. Copa shares have dropped 14.5 percent this month, mostly due to investor concerns over its Venezuelan exposure. United said Thursday that it has $80 million awaiting repatriation from Venezuela, and it has also stopped selling tickets there for Copa, a partner airline.
The government said Friday that it would allow travelers to Florida—one of the top destinations for Venezuelans—to charge only $700 annually on their credit cards, down from $2,500. The measure also applies to travel to Colombia, Costa Rica, Panama, and the Dutch Antilles. The allowance for online credit card purchases at foreign sites was reduced from $500 to $300. The government will save $1.6 billion from the new rules, Bloomberg News reported Friday, citing a foreign trade official.
Venezuela has devalued its currency multiple times, including on Jan. 22 when it erected a dual exchange rate that is established via weekly auction. The latest auction rate is 11.4 bolivars per dollar, compared with the official exchange rate of 6.3 bolivars. The official rate had previously applied to travel allowances, airline tickets, and foreign remittances but those will now be subject to the higher auction rate. The devaluations have intensified inflation—currently near 60 percent—but make Venezuela’s debt service easier to manage.
As a result of the changes, several airlines have stopped selling tickets in Venezuela, including Air Canada, Air Europa, a Spanish airline, and Tame, an Ecuadorean carrier. Tame has also suspended its daily flight from Quito to Caracas owing to difficulties in repatriating about $43 million since April 2013. An Air Canada spokeswoman said that the airline’s flights from Toronto to Caracas will continue. Martha Pantin, a spokeswoman for American Airlines (AAL)—which flies to Venezuela from Miami, New York, Dallas, and Puerto Rico—says the airline has no plans to reduce its service and is working with the government to obtain its money.