When the topic of airline funds trapped in Venezuela came up for discussion at the ALTA Leaders Forum in Nassau in November, a fire alarm at the event venue went off.
"Feels like we are in the Twilight Zone," quipped CNN anchor Gabriela Frias who was moderating a panel starring Latin America's top airline chiefs at the time.
Pedro Heilbron, chief executive of Copa Airlines, joked: "Whoever pulled the alarm, thank you."
The episode was perhaps an ominous reminder of the frustration airlines face in Venezuela - a situation that has dragged on for the past year with little relief. IATA estimates that around 24 carriers have $3.6 billion still trapped in Venezuela - lower than the $4.1 billion estimated earlier this year, but a significant amount nonetheless.
"The government is slowly clearing these funds - but at deep currency rate discounts and with a poor record of keeping its promises," said IATA director general and chief executive Tony Tyler at the association's global media day in Geneva on 10 December.
“We are calling on the Venezuelan government to meet its treaty obligations and authorise full and non-discounted repatriation of funds. Airlines cannot afford to operate services for which payment is uncertain."
IATA has repeatedly expressed its concerns about Venezuela in the past year, but its pleas seem to have largely fallen on deaf ears.
In recent months, a handful of carriers have reached agreements with the Venezuelan government to repatriate some revenue. Some airlines said they will receive funds from selected months, others reached deals to repatriate funds earned in a given year. Many said they repatriated funds at less favourable exchanges rates than when they were earned, which has resulted in a hit to the airlines' financial results. The arbitrary repatriations have led to a constantly changing patchwork of which airlines are owed money at any given time, and how much.
To minimise the impact of Venezuela, foreign airlines have had no choice but to drastically reduce service. Data from Flightglobal's schedules specialist Innovata from December shows that the top five carriers with regional and international capacity to Venezuela are now all local carriers. This is a different picture from a year ago, when American Airlines, Air France and Iberia were among the top five carriers.
American, which was the second top carrier in terms of regional and international available seat kilometres to Venezuela in December 2013, slashed its flights significantly in July.
The Oneworld carrier dropped 38 of its 48 weekly flights between the USA and Venezuela, choosing to maintain only its flights between Miami and Caracas and between Miami and Maracaibo. Even then, capacity on its remaining Venezuela flights is down significantly in December year-on-year, Innovata data shows.
The impact of the Venezuela cuts has crept into American's passenger unit revenue guidance in recent quarters, with the airline forecasting flat to up 2% growth in the fourth quarter, as the carrier cited a negative impact from the Venezuela reductions.
Panama's Copa Airlines, which had operated a significant number of flights to Venezuela, has had its usually healthy financial results impacted by the capacity cuts. The carrier began pulling back Venezuela capacity significantly from May, and reduced flights further from 1 August. The airline has estimated it cut Venezuela capacity by about 50%.
Copa operates to three cities in Venezuela: Caracas, Maracaibo and Valencia. Copa's Heilbron acknowledged in the airline's third quarter financial results call that the airline under-estimated the hit that Venezuela will take on the carrier's financial results.
Operating margins for 2015 are expected to be down from 2013 and 2014, said the Star Alliance carrier. Heilbron said the airline had tried to shift the capacity it cut from Venezuela to other healthy yield markets but had a tough time doing this in September after the high demand months of July and August.
The carrier, which has $499 million in bolivares-dominated revenue held up in Venezuela as of 31 October, has meanwhile tried to reduce its exposure to the Venezuelan currency. The airline has not been accumulating bolivares since the third quarter and is shifting revenue to US dollar-dominated earnings. Heilbron estimates that in 2015, Venezuela should constitute about 6% to 7% of its revenues, and about 85% of that will be in US dollars.
This will allow Venezuela to be a "sustainable part" of Copa's business, said Heilbron.
While most international carriers have reduced flights to Venezuela, Air Canada has decided to end service to the country altogether. It announced in March that it would suspend its flights from Toronto to Caracas, citing "ongoing civil unrest". The withdrawal was criticised by Venezuelan authorities, who subsequently warned that airlines who stopped serving the country would face difficulties in the future if they choose to resume flights.
Italian carrier Alitalia, which suspended its flights to Venezuela in May in what it then called a temporary move, has since resumed its flights in September.
Despite the continued uncertainty in Venezuela, most international carriers have held off on pulling service entirely. Copa's Heilbron said that demand in Venezuela remains strong, despite the difficulties the airline is encountering operating in the country.
"Load factors are high, yields are healthy. But we are not getting paid," he said in August. "It's not a problem with demand. We can triple capacity but there's the problem of not getting paid."
IATA has warned that the hold-up in airline revenues does Venezuela no good. "The reduced connectivity, of course, is only adding to Venezuela’s very difficult economic situation. And that pressure can only increase as other investors or potential investors recognise the risks of doing business there," Tyler says.
The currency crisis has hurt Venezuela's airlines too, as they struggle with a shortage of US dollars to pay for maintenance bills and other operating expenses. State-owned Conviasa, for example, was forced to cancel some long-haul flights earlier this year after it reportedly failed to pay wet-lease bills for a Boeing 767-300.
The lack of funds faced by local carriers in Venezuela have only compounded an operating environment characterised by ageing fleets and regulatory skirmishes with the government, such as when four local carriers were ordered to suspend airport ticket sales in November over customer care procedures.
Foreign airlines' restraint in not cutting flights to Venezuela altogether is also an acknowledgement of potential difficulties they could face if they were to want to re-enter the market - a likely scenario given the combative statements of Venezuela's president Nicolas Maduro on the topic earlier this year.
Copa's Heilbron said in February: "It's an important market. It's an important country. You don't want to just exit, abandon that and then see it fixed the following day and have difficulties going back in."
As airlines head into 2015 with no major sign of reprieve from the currency crisis, one can only hope that the patience of Copa, and that of other airlines, will not be in vain.
Source: Cirium Dashboard