Why Airlines Hate Venezuela

If you happen to live in Venezuela and want to fly out of the country, good luck. Thanks to truly terrible government policy, it’s becoming increasingly difficult to get a ticket out of town. While most airlines continue to fly to the country, one has pulled out. And the situation isn’t likely to get any better.

Airlines Hate Venezuela

I’m focusing on the US in this post to try to simplify a very complex situation, but this is a problem for airlines in every country. Though political relations between the US and Venezuela haven’t been good for a long time, airlines have continued to fly between the two quite often. It’s a huge market for American, in fact, with multiple daily flights to Caracas from Dallas/Ft Worth, New York, Miami, and even the all-but-abandoned San Juan. American also has a daily Miami to Maracaibo flight. Delta and United both have daily flights from Atlanta and Houston respectively.

You would assume that other than visiting friends and relatives (a big business especially to Florida), oil must have a lot to do with the success of these flights since that’s really the only thing keeping Venezuela from failing. While that’s probably true, even oil is on the decline in the country. In fact, it’s the overall economic problems of Venezuela that have created quite the crisis, and the airlines are paying for it to the tune of $3 billion so far. That’s the amount of money that Venezuela currently owes to airlines around the world, and there doesn’t seem to be an adequate solution in sight.

Venezuela has really strict currency regulation. When airlines (and other businesses) sell anything in Venezuela’s currency (which since 2008 has been the bolivar fuerte), the government is responsible for converting that to the company’s native currency and delivering the funds. They’ve kind of stopped doing that and instead have just been sitting on (or spending) the money for months.

You would think this would be a real problem for many airlines, but it’s worse for those who sell to a lot of Venezuelans. If United, for example, is selling tickets in US Dollars to anyone, then there is no issue getting the money. It’s just tickets sold in the Venezuelan currency that are being held hostage. And that may very well be why most airlines continue to fly there… they make enough in dollars (or euros, or whatever) to justify the flying. But not every airline feels that way.

TAME in Ecuador became the first to suspend flights. I can only assume it was more exposed to these currency issues with more people buying in bolivars. But if things don’t improve, other airlines will have to think about doing the same.

For its part, the government has been trying to negotiate a deal where they pay the airlines with a mix of cash, bonds, and jet fuel. If that sounds desperate, it’s because it is. Venezuela’s foreign cash reserves have dwindled and there isn’t much hope for that changing. To try to reverse this pain, Venezuela has made some policy changes that are going to make things even worse for airlines. It seems like a short-sighted way to try to right the ship, but it’ll have the opposite effect.

The bolivar is pegged to the US Dollar at rate of 6.3 to 1. However, the official exchange rate doesn’t reflect reality. People selling dollars on the black market can get 10 times as much because nobody wants to hold bolivars.

That black market has created quite an opportunity for Venezuelans who can travel outside the country. If you’re Venezuelan, you could buy a plane ticket to the US at the 6.3 rate. Once you got there, you could use your Venezuelan credit card to buy up to $2,500 worth of stuff and you could pull out $500 in cash at the same 6.3 rate. Take that back to Venezuela and you could make a tidy profit on the black market, possibly even paying for the trip.

To stop that, Venezuela has made two changes. First, if you go to Florida, the most popular US destination, you can now only charge up to $700 on your card and take out $300 in cash per year. That’s a huge cut.

Second, the exchange rate for purchasing travel with bolivars has abruptly changed. For air travel purchases, the rate is now tied to this strange secondary rate that is determined at weekly auctions. At last check, it was somewhere between 11 and 12 bolivars per dollar.

The upshot is this. Let’s say American wants to get $1,000 for a roundtrip ticket from Venezuela to Miami. Up until recently, it had to charge 6,300 bolivars. Now all of a sudden, it has to charge somewhere north of 11,000 bolivars. Demand should drop precipitously if people are even allowed to buy tickets at all.

For now, airlines have pulled availability tight regardless of where it’s being sold. Delta appears to only be selling full fare coach (around $3,000 from Atlanta roundtrip) while American seems to have pulled availability entirely. I assume this is temporary until there’s more confidence in this market.

As long as there’s enough demand outside Venezuela for travel into the country, airlines will likely keep flying there in some form, but I have to assume it’s becoming increasingly difficult to justify it.

[Original TAME photo by Sylvain2803 (Own work)/CC-SA 3.0 via Wikimedia Commons]

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45 Comments on "Why Airlines Hate Venezuela"

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David
Guest

If someone based in Venezuela on the Internet wants to buy a discounted round trip ticket Caracas-USA-Caracas, what are the rules that a US based airline must follow to issue a ticket ? Must it be issued by the airline’s Caracas office and paid for in bolivars ? Or can the airline charge the credit card in offshore US$ and issue the ticket from a US based office ?

If someone in the US pays US$ with a US based credit card, why will Delta sell only a full fare round trip and not a discounted fare ?

David
Guest

More to the point, why are AA not selling US originating round trip tickets at all ?

Dan
Guest

Cranky,

What is it with South American currency issues? I just got back from Buenos Aries, and they also have a black market for USD. My domestic $500 plane ticket dropped to about $320 or so by converting cash on the black market into local currency.

hsano
Member

I don’t think it is just South America. When I went to Beijing in 1993, there were two parallel currencies- Yuan for foreigners and Yuan for the Chinese. The Yuan for foreigners were worth much more than the Yuan used by locals. I think it was because the Yuan for foreigners were more readily traded for USD.

jboekhoud
Member

My brother works in China and is paid in Yuan. Before he comes home he takes it out in cash and trades it for USD at a nearby convenience store at a very favourable rate (better than the interbank rate). Apparently it has something to do with money laundering on the Chinese side.

David SF eastbay
Member

I had read some airlines stopped selling tickets in Venezuela, but were still selling tickets outside the country. Sad that forgein travel/trade is important to a country, and what Venezuela is doing right now seems to be hurting that. But who knows, maybe in the long run it will makes things better there.

Juan C. Forero
Guest
Venezuela is becoming more and more like Cuba. For a Venezuelan to fly out of there (not likely back), that person is going to have a relative or friend outside the country buying the ticket… sending toilet paper, and many other commodities… Venezuela is really going down hill for the last 14 years. Ok, ok Venezuela will use the government owned and run airline CONVIASA to let the people with ties to the regime travel to the US to get all the goodies they don’t get at home. I just saw two CONVIASA Embraer 145 at an FBO in FLL,… Read more »
Sanjeev M
Guest

The reason Venezuela and Cuba are so expensive is that there is severe undercapacity and tons of demand.

For instance if Cuba opens up, you can be sure that American Airlines will pull mainline planes ASAP away from all over the network to operate MIA-HAV shuttles every 30 min from 6am to 11pm (exaggeration). Similarly there’s a lot more need for capacity to Venezuela. Until then there are enough people willing to pay the full-Y fares.

Carl
Member
The issues in Venezuela are a hell of lot deeper than those affecting the airlines. Basically the government has systematically ruined the economy, ruined their oil industry, and destroyed or privatized most larger private businesses. It cannot end well, and the currency issues are a canary in the coal mine. The government maintained its grip on power by giveaways to the electorate. For a long time the oil wealth funded the giveaways but the government wanted more, more, more and also put cronies in charge who destroyed the oil industry. Now they have run out of money but they are… Read more »
1js7371
Member

Trust me, the demand is being driven almost completely by the black market in $USD. And the Venezuelans are VERY creative and corrupt in evading the dollar limits when returning to Venezuela. There is a real estate bubble here in Aruba with Venezuelans trying desperately to get their ever-devaluating Bolivars OUT of Venezuela to exchange them for something of real value.

Consumer Mike
Guest
Venezuela will remain a commercial (and crime) disaster zone until there is a real political change. Currently the Cuban security forces that help the Venezulean government remain have their hands full. At some point, when the government feels power slipping major violence will start and perhaps a civil war. The hand outs to the poor, which was a trade mark for Chavez to buy votes, can only continue on a dwindeling scale with the current government. No telling what this ex-bus driver president will do when things really get desparate – and they will. If he is smart (and he… Read more »
David
Guest

Thinking Venezuela might be a fantastic place to go on holiday in 3 or 4 years time. Wait for debt default, IMF goes in, capital controls imposed, bolivar floats freely against USD, shortages of consumer goods cease, 1 year of street protests about politicians being thieves cease and country becomes stable again.

Argentina was an absolute dream for foreigners with USD in late 2003…

Jorg
Guest
Trust me, you do NOT want to go to Venezuela. It’s horrible. Yep, the nature is beautiful and yes, with the black market prices you’ll have the cheapest vacation of your life. However: crime, corruption and availability of goods are horrible. I’ve been there three times in the last two years and you can forget about leaving at night, especially being a foreigner. It’s not safe at all. People get killed over a pair of shoes, toilet paper, chicken, the list of things hardly or completely not available is long. It could be a great country, but thanks to the… Read more »
David SF eastbay
Member

I was in CCS many many many years ago and we were told where not to go, don’t go out at night, etc. So it seems it hasn’t changed much.

Jorg
Guest

Unfortunately, it has changed much… Where not to go: everywhere, unless you’re with a local. At night: after 5:30p you shouldn’t be outside if not necessary.

I’m pretty tall (6’9), blonde, blue eyes, you get the picture: they don’t see me as Venezuelan ;). For me, it’s even during the day impossible to walk on the streets alone. I need at least two people next to me.

It’s horrible and only getting worse. Thanks to the ‘great’ government the country is a piece of sh*t.

Ogi
Guest

I don’t want to be terribly finicky, but bolivar should be spelled with non-cap b. It’s a currency & although it does stem from a proper name, it’s still a common noun just like the euro. :)

John S
Member

I just returned from vacation in Aruba. I was surprised at how full the flights were coming in from Venezuela. Tons of tourists coming to spend their money in Aruba. There were several daily flights from multiple cities in Venezuela. I couldn’t understand how so many of them could afford vacation in Aruba alongside Americans, Canadians and Dutch if their economy was so bad.

JRS
Guest

The airfare from Venezuela shouldn’t be too bad since Aruba is very close, that might make a difference
in affordability, I also suspect many just want a vacation from the everyday stress of living in Venezuela.

1js7371
Member

Well-heeled Venezuelans are off-shoring everything they can in Aruba right now.

Simon
Guest

American has not pulled availability, but tickets can only be purchased through certain channels (such as American city ticketing offices in Miami), and not online.

DTWJay
Guest
As someone who has been there 8x from 1999-2008, this doesn’t surprise me. My wife is from there and we try to go back to visit family. With kids now it is easier to have her mom come visit us here in the States then us go there for only 1-2 weeks tops. We have several cousins who were able to buy our tickets on American Airlines either for us to travel and we pay them in dollars when we get there or even a ticket for my mother in law. In fact I mentioned to Brett last week via… Read more »
Jorg
Guest
Did you hear the problems with Harina Pan? The government shut down their competition and posted a ban on importing food. Harina Pan couldn’t cope with the huge demand (every morning you need to eat 6 arepas at least ;) ) due to the lack of competition. Their factories in Colombia could produce more, but couldn’t send it to Venezuela. M*duro’s reaction (even his name seems swearing to me): blaming Harina Pan for only wanting to make money in other countries. It’s much easier for me (in The Netherlands) to get it than over there. And Harina Pan is part… Read more »
Consumer Mike
Guest

Crime is out of control TODAY in Venezuela. I would think that you should be more immediately concerned that your fiancee escapes before something worse can happen to her.

It could be very bad for her BEFORE the civil war. Everyday she is there is a risky gamble. Good Luck!

trackback

[…] Why Airlines Hate Venezuela […]

Carol C
Guest
This blogger creates quite an eclectic and complicated explanation and apology for US Imperialism. The reason for the high prices and non existent flight results have everything to do with Venezuela refusing to sacrifice it’s population and industry to the billionaires of the United States. The US wants to engulf Venezuela like they have the rest of the world into their playground and exploit their people an resources. Venezuela’s government tis not having that! So the US is disciplining Venezuela by making it too expensive for tourists to enter. Its a mild version of the Cuban Boycott. Remember it is… Read more »
Consumer Mike
Guest

Dear Carol C, It appears to me that you have been watching too much Government TV. Time for you to talk to your neighbors and look at the street demonstrations. Your posted opinion echos the voice of the current regime in Venezuela.

Daniela Weiser
Guest
Carol, Your statement only shows ignorance. The writer accurately described what’s happening in Venezuela regarding unpaid debts and black market currency exchange. Since Chavez took power in 1998 the economy of the country has gone down the drain. Even though the price of the oil barrel has been at its highest in history, Venezuelan are experiencing empty shelves in the supermarket, no real infrastructure growth and the level of insecurity is frightful. I am Venezuelan. I am lucky to reside in the US now, but my parents are still there. I hear my mother’s anxiety and feel the tension they… Read more »
Consumer Mike
Guest

Daniela, It just occurred to me that fom the flavor of the comments from Carol C it just may be that 1) she may have gone to Cuba to be educated, 2) She is Cuban, 3) Currently is employed by the Venezuelan government or 4) Remains one of those Chavez fanatics who truely believes the lies, propaganda and stories generated by him and his bus driver successor.

Obviously her opinion cannot be taken seriously and her misinformation is an attempt to support the current regime.

Daniela W.
Guest
It could be any of those possibilities. Ever since a few American celebrities like Sean Penn and Danny Glover decided to support Chavez and his socialist/communist “revolution”, I find myself having to explain to liberal democrats that what’s going on in Venezuela is not a democracy. It is sad that just because Chavez called Bush the devil, then suddenly liberals thought he was great. How mistaken they are. I consider myself a liberal, and I actually happen to work in the arts, theatre to be specific ie. very liberal), and I would rather have Bush in charge a thousand times… Read more »
Jorg
Guest
I think your replies are the best I’ve seen in the last couple of years about Venezuela. It’s hard for me to stay calm when someone is actually defending the dictatorship I’m seeing every day. In a week my fiancée will be with me, in Europe, and I can’t wait to see her fly out of that hell. Every since we’ve been dating, the country has been ‘difficult’, but these last weeks I really fear for her life. I sure hope that someone will get Venezuela out of this mess and I actually don’t care from which side (though I… Read more »
Daniela W.
Guest

Thanks for your comment.
I hope she makes it out safe and I wish you both happiness.
The sad thing is that everyday, more and more Venezuelans go into exile. We all leave for different reasons, but we all are still in love with our country. The brain drain that Venezuela has experienced in the last 16 years will eventually take its toll in the future.

Rick Flowers
Guest
When will this “the gringos are coming” crap ever end? It is just blatant propaganda garbage like Castro babbling about the embargo after the ungodly mess he has made of Cuba. The US buys Venezuelan oil and pays CASH $$$. It is the yanqui dollar that is feeding Venezuela at this point. Amazing how these Marxist intellectual idiots manage to spin everything to make it someone else’s fault. We give the Venezuelan government billions of dollars, they don’t pay the airlines what they are owed, the airlines leave, and it’s our fault! The first airline to leave was from Ecuador-spin… Read more »
Efrhen Gallego
Guest

Hey I am Venezuelan and what you just said makes a lot of sense. Tha US ia very convinient scapegoat for everything that goes wrong I a dictatorshi like ours. If Food is scarce or the power goes out It is a CIA or Political oponents fault. We hear the crap every week but hardly anybody believes it any more

Rick Flowers
Guest
The whole chavista revolution is just a “pardos” VS “Mestizos/Blancos” thing at the roots. It is based on a hatred of anyone with European blood or who merely looks European. Communism (socialism-same crap) is just an ideology that has learned to exploit the inherent race and class hatred in Venezuela to gain power. Venezuela is being destroyed by these idiots just like Cuba was. Their dream is ultimately to destroy the US and Canada. Marxist economics is a good example of something that sounds great on paper (according to the ivory tower professor types) but that makes an unbelievable mess… Read more »
Nick Barnard
Member

So DL cut their CCS flight down to one per week just recently.

I’m also curious how airlines are limiting sales of flights in bolivars.. Are they manipulating availability of seats for sale in bolivars or something similar?

N21K
Guest

OK, But why is every single airline charging so much for US to CCS round trip tickets? I understand the US led embargo against the people of Venezuela, but there is no reason, other than politics, for increasing the rates. In other words, 600. USD operating expenses is still worth 600. USD. If there is not much profit, it’s not because of demand. Non-stop NY->Bogota $600, NY->Caracas 1300. No justification.

Kathy
Guest

Out of curiosity I checked out flight prices to/from Caracas/Austin and Bogata/Austin. I was gobsmacked by the difference. Nearly $2,000 to Caracas and $500 for Bogata.

Why? Because the airlines have no faith in the currency exchange from Venezeala and up charge to cover that loss!

And to make matters worse, Maduro instated a visa program of $180 for USA tourists because I guess the flow of dollars into the economy was overwhelming.

Also I have read last week that incoming consumer goods were the lowest in 10 years. Time to run, my Venezealan friends. The insanity is closing in.