Avianca expects higher costs in 2014

Washington DC
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Latin American airline group Avianca expects higher costs in the first half of 2014 due to the redeployment of capacity and other fleet-related expenses.

The carrier expects revenue growth from its passenger operations but says this growth will be moderated by the reduction and redeployment of its capacity to Venezuela, as well as the grounding of its Fokker 50 fleet.

Avianca has cut capacity to Venezuela as currency controls in the South American country continue to hold up its locally earned revenues. The airline estimates it has $326 million in unremitted cash held up in Venezuela as of 31 December 2013, it says in a stock exchange filing.

Avianca also expects costs to be driven upwards by one-time write-offs due to its exercise of lease purchase options for two Boeing 767-200s, which led to the airline paying above market value. The 767s are not in service and are planned to be used by Avianca in the operations of its planned acquisition of a stake in Mexican cargo carrier AeroUnion, which is subject to regulatory approvals.

In addition, maintenance costs and write-offs associated with the grounding of Avianca's Fokker 50 fleet will also lead to increased costs in 2014.

Avianca grounded its fleet of 10 Fokker 50s in February following an engine malfunction in Cali, Colombia. The airline is in the process of replacing them with new ATR 72s that the airline had ordered. But because it has not received all of the ATR 72s, it says it has been unable to meet demand on the Fokker 50-operated routes.

Avianca says it expects to take delivery of 14 Airbus A320s, one Airbus A330 and four Boeing 787s in 2014. It will also take delivery of 10 ATR 72s in the year. The airline said in January it expects to grow capacity by 7-8% in 2014.