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Airlines Move to Cut Off Service to Venezuela

Angela Freitas’s plans to visit her sister in Toronto this spring just hit a patch of turbulence after Air Canada suspended all flights to Venezuela on March 19. Freitas had hoped to see her sister—who emigrated to Canada a decade ago—in May. Now those plans are on hold as she scrambles to find another flight. “It took me forever to find a seat, and then Air Canada suspended operations here,” says Freitas, who is a housewife in the central city of Maracay. “My agent said other airlines are likely to follow suit.”

In a statement, Air Canada (AC/A:CN) said it was suspending operations due to the country’s “ongoing civil unrest” and ”onerous currency restrictions imposed on all airlines preventing them from recovering their funds from Venezuela.” Air Canada spokesman Peter Fitzpatrick said “there is nothing further to add at this time,” in an e-mail responding to questions.

Air Canada, which is reportedly owed $56 million, isn’t alone. Many carriers have cut back flights to the South American country, which owes them more than $3.5 billion from sales of tickets. Others are refusing to sell tickets in the Venezuelan currency, until difficulties in exchanging bolivars for dollars are resolved. The government of President Nicolás Maduro has been distracted from finding a solution, as the country has been rocked by near daily protests and demonstrations that have claimed 28 lives and left hundreds injured since Feb. 2.

“The number of seats being offered has fallen by 38 percent year over year,” says Humberto Figuera, who is executive president of the country’s airline association. “Some carriers have cut back capacity between 10 percent and 70 percent.”

Airlines are seeking to force Venezuela to allow them to remit proceeds from local sales in dollars. Under the country’s system of foreign exchange controls, access to dollars is tightly regulated. Airlines are supposed to receive dollars for the bolivars they receive from ticket sales, but long delays have occurred as Venezuela’s economy has tanked. The tight supply of greenbacks has led to widespread shortages of food, medicines, spare parts, and other products in a nation that imports about 70 percent of the goods it consumes.

Earlier this month, the International Air Transport Association (IATA) warned that international airlines would likely stop serving Venezuela unless the country took steps to resolve the issue. Carriers don’t want to acquire more bolivars, which aren’t exchangeable outside the country.

“The situation is just getting worse and worse,” says Mildred Amaro, who owns the Barquero tourist agency in the central city of La Victoria. “Airlines have reduced the number of seats they’re offering, while other carriers, such as Colombia’s Avianca (AVH), have slashed flights. And the government doesn’t seem to realize what a problem this is.”

Government officials have made a number of proposals to airlines, offering to pay off the debt in jet fuel, bonds, and other financial instruments. Water and Air Transportation Minister Hebert García Plaza said after Air Canada’s decision that the government would soon start paying its debt from this year. He didn’t say when debts from 2012 and 2013 would be honored.

Figuera, whose association represents more than 20 international airlines, didn’t rule out additional suspensions of service.  “Each airline has its own strategy for dealing with this issue,” he says.

Smaller airlines, such as Ecuador’s Tame and Panama’s Copa (CPA), which rely more on their Venezuelan operations for profitability, are most affected and likely to take the most drastic actions, he said. Larger carriers are able to shoulder the problem better.

“I keep waiting to see what’s going to happen next in this country,” says Freitas, who admits that she is thinking about following her sister’s lead and leaving Venezuela for good. “I can’t find sugar. I can’t find coffee. I can’t find flour. And now I can’t visit my sister. Every time I think we hit bottom and nothing worse can happen, something proves me wrong.”

Wilson is a special correspondent based in Caracas.

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