Venezuela to maintain deep subsidises for international airfares

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Venezuela will continue to apply the heavily subsidised Sicad I exchange rate to purchases of international air tickets despite foreign airline opposition, says the country's newly appointed Minister of Sea and Air Transport Luis Graterol.

The announcement means that fares will be changed into Venezuelan bolivares at the subsidised rate of Bs10.6 per US dollar versus the Sicad II exchange rate of Bs50 per dollar, which is closer to the black market value of about Bs72 per dollar.

Venezuela had initially indicated to airlines that the Sicad II exchange rate would be used to convert their US dollar denominated fares into local currency.

Foreign airlines continue to face issues repatriating cash from ticket sales in Venezuela to their home countries, with a some carriers reducing their schedules significantly or pulling out of the country entirely.

Graterol's announcement adds more confusion to the situation as the subsidised currency exchange system has accumulated government debts with the airlines of more than $4 billion.

According to a senior international airline executive in Venezuela, the government has tried to "force airlines into accepting debt reductions and now tries to force them as well to offer fares below cost if they want to see at least a part of the money retained by the government until 2016".

Even Graterol admits that several airlines have not presented the required list of dollar denominated fares for all routes and fare classes operated, saying that the "deadline has been extended to give the airlines the opportunity to present [their fare schemes]".

The current minister and his predecessor have criticised foreign airlines for charging "excessive fares" in the Venezuelan market, frequently more than triple those charged to comparable destinations, such as Bogota.

But the airline source says that the uncertainty about the amount, exchange rate and date of payments makes it impossible to offer competitive rates to Venezuela.

"If we get fully liquid access to dollars at a predictable rate, we can offer predictable fares," they say. "If the government liberalises fares, we can use revenue management techniques to respond to changing demand and load factors and offer cheap tickets. What is impossible is to try to force us to slash bolivar denominated fares if we want to get our historic debt paid."

They continue: "The announcement that the liquidation will continue to be realised following the regulated Sicad I exchange rate, which has been responsible for generating the current unsustainable and unresolved situation does not allow the airlines to look with more confidence at the Venezuelan market. Even the government recognises that this exchange represents just one fifth of the real value of the currency."