No flag in its future

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Venezuela has been without a flag-carrier since Viasa's demise. With no heir apparent, David Knibb assesses where the country heads from here

A single day in March said much about the transition under way in Venezuela's airline industry. Workmen changed the doorlocks of the offices of Venezuela's new director general for air transport. A Caracas court convened creditors to confer on national carrier Viasa's liquidation. And the president of another Venezuelan airline visited Toulouse to discuss aircraft needed for new routes.

Faced with Venezuela's slump into poverty, the new government which took office in February, headed by Hugo Chavez, its charismatic new president, promised a sharp departure from past policies. Chavez invokes heroes of old and stresses the importance of national pride. Yet the national airline is all but legally dead.

Viasa's routes were divided last year between three other carriers. This trio is in varying degrees of readiness, hoping to win back passengers who fled to foreign carriers when Viasa's grounding left a vacuum.

In a country where friends in high places historically have been crucial to airline success, no one knows whether the Chavez government will play local favourites, or whether it will do more to protect Venezuelan airlines against foreigners, and how each of these three new carriers will fare, with or without government help.

Viasa was the flag carrier for 36 years. And Venezuelans have mourned its loss since its last flight in January 1997.

"Viasa was such a beautiful airline," recalls Victor Delgado Monsalve, the new director general for air transport. "I am very sad about it."

Some in Caracas wonder if the Chavez government might try to revive Viasa. During last year's election campaign, Chavez made a populist appeal to Venezuela's working class, a note that struck resonance with Viasa's 2,250 former employees. As a lieutenant colonel and former paratrooper who led a coup attempt seven years ago, Chavez rallied supporters with calls for a new constitution, a step back from privatisations, less reliance on what he calls "savage" market forces, more government intervention, and "a new republic".

Fuelled by such nationalism, the spectre of a Viasa revival reached its peak at a Chavez victory rally. Amid flags and speeches, a large group of Viasa's pilots showed up in uniform. The symbolism was clear, but apparently it was only that.

Policy decision

"Chavez realises the government cannot restart a national airline," says

Daniel Piske, director of Viajes, a Caracas travel and aviation journal. "For one thing, there is no money," he adds.

Delgado tries to lay the issue to rest, saying: "I would like to see Viasa fly again, but it is not the policy of this government to run businesses like airlines."

Is the new government likely to reconsider last year's decision, fought through the courts before it was resolved, to re-allocate Viasa's international routes to other airlines?

"No, no," Delgado insists, "we will follow the former authority."

So, like a slow-motion tragedy, Viasa's court proceedings shuffle on. Warned by presiding judge Carlos Guia that immediate bankruptcy would be "more traumatic", creditors have agreed to extend Viasa's delinquency status, so that administrators can try to raise more from its office building, flight simulator, maintenance hangar, and spares.

For Viasa, it is no longer a question of whether the end will come - only of when.

Before last July, that was less clear. Moises Orozco, then minister of transport, tried to sell Viasa's routes as a package, with other assets, in an effort to keep some vestige of the airline alive. Brazil's Vasp teamed with a local company to bid on that package. But Venezuela's other airlines filed lawsuits, claiming that Viasa had forfeited its routes when it entered bankruptcy and that those routes should be re-allocated to other airlines. A court enjoined the route sale. Venezuela's supreme court then ruled in Avensa's favour on a dispute over routes to Europe. A new transport minister, Julio Marti, replaced Orozco and promptly reversed course.

Last July, Marti divided Viasa's routes among three airlines. Avensa won Portugal, Spain, and Italy, the same routes it had already won in the supreme court. Aeropostal won the rest of Europe, Germany, France, the Netherlands, and Switzerland, as well as Chile, Cuba, and Canada. To some observers, it would have made more sense to award all European routes to Avensa, because of its experience and contacts. They suspect the government divided those routes out of spite over Avensa's successful law suit.

Finally, the ministry gave Aserca the Argentina and Brazil routes. This surprised some insiders, who doubted that the Valencia-based airline had the clout to gain such important routes. According to reports, Aserca plans to launch Sao Paulo, Rio de Janeiro, and Buenos Aires flights as soon as its new-generation Boeing 737s arrive.

Avensa wasted little time launching European routes. In December it started flights to Lisbon, Madrid, Rome, and Milan. In mid-March it added Oporto, Portugal, and Santiago de Compostale, Spain, with a second leased McDonnell Douglas DC-10.

Route decree

Aeropostal expected to launch a new route to Santiago, Chile in May. In June it plans to start codesharing with Air France between Paris and Caracas. More expansion will require new equipment. David Lara, Aeropostal's sales manager for North America, says that the airline will have four more Airbus A310s and three more A320s by the end of this year. The A320s will replace DC-9s, while the A310s will boost longhauls.

Route awards in Venezuela have a unique twist. Under Decree No 4, issued by Congress some years ago, every Venezuelan airline has the right to fly any route awarded to any other Venezuelan airline. In practice, this requires satisfying two conditions: the air services bilateral must allow multiple designation; and the transport minister must designate a second (or third) carrier before it can start a new route.

Chile is the only market where one carrier seeks a route based on another's award. Avensa has filed for approval to follow Aeropostal into Santiago. Otherwise, all the carriers show more interest in developing their own routes, than in asserting Decree No 4 rights to poach from each other.

Given the government's hands-off policy on last year's route re-allocations, they are now final. Viasa's network has been sliced into thirds. No single carrier in Venezuela now has the prowess to develop a hub such as Avianca has done in neighbouring Colombia, where it brings European traffic to Bogota to feed into its own routes, fanning throughout Central and South America. Viasa had that potential. And, barring a successful take-over or assertion of Decree No 4 rights, no other Venezuelan carrier ever will.

Alliances are the alternative. "You'd have to be blind not to see that alliances are going to be the dominating factor," says Henry Lord Boulton, Avensa's chief executive. So far, however, Avensa's alliances are all route-specific - Mexicana to Mexico City, Aeroperu to Lima and talk of a pact with "the Italians".

"It would be most desirable to have a US partner by the end of this year," Boulton admits, but he only operates Servivensa, Avensa's low-cost subsidiary, to the USA. That is probably why his rivals are well ahead in the race for US alliances. Aserca and Continental Airlines have a marketing agreement. Aeropostal and Delta Airlines share codes on flights to Atlanta and Tampa. Aeropostal has also inked a comprehensive pact with American Airlines, for codesharing all domestic flights behind and beyond each other's gateways.

Aeropostal plans to keep both its Delta and American alliances.

According to Lara, Aeropostal limited its Delta agreement to Atlanta and Tampa because, "we knew in advance that we would have a comprehensive codeshare with American".

Alliance tactics

This Aeropostal-American codeshare has drawn fire and awaits approval on both sides of the Caribbean. If it gains that approval, the only unaffiliated US carrier left in Venezuela will be United Airlines.

Alliances may offset the fragmentation of Viasa's routes, but the other obstacle Venezuela's new trio faces is that the US Federal Aviation Administration still holds Venezuela in category 2. While four US carriers have added or expanded flights into Venezuela, the country'sexpansion into the USA has been frozen. To sidestep this, the Venezuelans have resorted to a variety of tactics.

Aeropostal has used two. It codeshares on US flights operated by Delta, and it wet-leases aircraft from carriers, mostly Irish charters, allowed to operate in the USA. Avensa has criticised these wet leases on the grounds, according to Boulton, that they represent "sixth freedoms for an Irish airline".

Aserca's answer to category 2 was to buy 70% of Air Aruba last year. Its aim is to access the USA from Aruba, using the Caribbean island just off Venezuela's coast as a hub for US flights. Air Aruba has unrestricted US access.

If things go as Delgado expects, however, such tactics will become obsolete after mid-year. That is when Delgado predicts that the USA will upgrade Venezuela to category 1.

"One week before taking this job, I was in the US to review this situation," says Delgado. "We are working very hard. We need a month to finish legal aspects of the regulations and a month to review. I think we will be out of category 2 in two to three months."

The Chavez government recently imposed a 10% spending cut. Could this affect the programme to gain category 1? Absolutely not, insists Delgado. "Funds from navigation fees have been earmarked for this work," he stresses. "Money is not a problem."

Category 1 would be a breakthrough for Venezuela's airlines. Servivensa could add new fleet and frequencies. Aserca could launch its first US routes, and bypass Aruba to do it. Aeropostal could fly its own aircraft across the Caribbean. It is already considering routes from Canada that would use Miami as a gateway to holiday spots in Venezuela. An upgrade to category 1 would end what Henry Boulton describes as "a very unfair situation."

If history foreshadows the future, the Venezuelan airline that emerges as dominant will have good government ties or at least not be an enemy of the state. Avensa can attest to that from its experience with the previous government.

Avensa's aeropolitics

The Boulton family that formed, and still runs, Avensa, backed the losing candidate in presidential elections five years ago. When Rafael Caldera took office, his government declared war on the airline.The transport ministry tried to retake Avensa routes and the finance ministry imposed crippling currency controls.

Julian Sevillano, a Miami-based consultant who does work for Avensa, recalls: "Boulton was a very patient man to keep operating under Caldera's punitive controls. He had to cannibalise aircraft to keep going."

This time, Boulton backed the winner and he exults in the Chavez victory. "How many nations have accepted four megacarriers to fly to their country?" he asks. He lists the UK, France, Germany, Japan, Brazil and, with a pause for emphasis, Venezuela. "We do not have the size and economic strength to justify this. We need balance. It is fortunate for us that we now have a nationalistic president," he says.

Aeropolitically, it is still too early to know how the Chavez government will differ from its predecessors. Delgado will not intervene in Viasa's fate, but he hints of a new attitude when he complains that US-Venezuela capacity is "not equal" because "four US airlines fly to Venezuela, while only one and a half of ours fly to the US". The half is a reference to Aeropostal's category 2 handcuffs.

Delgado foresees a need for bilateral adjustments, with reciprocity his top concern. How that will play out in such megamarkets as that of the USA is a key question.

Have the policies of former governments put Venezuelan airlines at a permanent disadvantage? Even if it wants to, can the Chavez government do much to help Venezuela's airlines?

Henry Boulton, who confers with Chavez on aviation matters, sounds confident: "We should have a more level field. Some cowboys could round up those horses and put them back in the stable."

Highly placed friends could also affect which of Venezuela's trio gains an edge over the others. Chavez flew Aeropostal when he paid a post-election call on the Dominican Republic's president. David Lara recalls the trip.

"He flew with us and talked to journalists about our airline. He knows what we have been doing to woo passengers back from the US carriers. The new government is aware that now Venezuela has an airline the country can feel proud of."

But Aeropostal still needs approval for its American codeshare,and Avensa is opposed. Boulton complains: "Codesharing is a wonderful management tool, but it has to be scrutinised. With codeshares you can give a foreign carrier sixth-freedom rights."

Competitive market

If Avensa holds a nationalism trump card, Aeropostal's plan to put American's code on flights within Venezuela seems a likely place to play it.

Such skulduggery, of course, is standard fare among rivals. The more significant point is that conditions in Venezuela now permit it.

Venezuela's new trio may jockey to outdo or undo each other, but that is what happens as part of a broader trend occurring throughout Latin America - a slow, sometimes jerky transition from monopoly to competition, from single to multiple transborder airlines. Brazil has progressed the farthest - it now has four carriers. Mexico is debating whether to split its big two into truly separate airlines. The monopoly enjoyed by Aerolineas is being phased out.

This trend is not uniform. Flag carriers are in trouble in Bolivia and Peru, and the second carriers of Chile and Colombia face other practical and political hurdles. Some still argue for keeping a single strong airline to match the megacarriers. Yet the trend seems inexorable.

Latin America's skies are moving toward multiple airlines. Venezuela has committed itself to that future.