The situation unfolding in Venezuela fascinates me. There you have a state on the verge of failure with hyperinflation and a government suffering from a foreign currency crunch. The result: airlines are not getting paid for their service and are bailing one by one. The latest Caracas casualty is Alitalia.
For the last 11 years, Venezuela has imposed a currency control system that limits the amount of hard-currency that can be exported from the country. As the economy has worsened under the Nicolás Maduro administration, Venezuela has enacted even harsher controls over currency.
Airlines are paid for tickets and services in Venezuela by the Venezuelan bolívar fuerte, but airlines have been unable to convert those bolívars to their own currencies. Word is that Venezuela simply does not have the currency on hand to make the conversion, with the government hoarding what little is left in a rainy day fund. Even worse, the bolívar faces constant devaluation which further disincentivizes holding any cash in Venezuelan accounts.
That dispute resulted in Air Canada suspending service to Venezuela in March and now Alitalia will end service on 01 June. This month, Alitalia already reduced its service to Caracas by more than 50% (from five flights per week to two). Now it is not inconceivable that Alitalia is using the currency controls as a scapegoat for its own woeful economic performance, but slashing service is the logical response from a cash-strapped airline that is not being paid.
In wake of Air Canada pulling out, Maduro did issue a statement vowing to repay airlines based on the official exchange rate at the time of the ticket sale. That was 28 March, it is now 18 May, and the airlines are still waiting (as an aside, Maduro also vowed that Air Canada would never be allowed back into the country unless they [Air Canada] “overthrew the government”…).
Look for more carriers to pull out in the weeks to come if progress is not made. Avianca is owed $300MN (USD), COPA is owed $487MN, and Venezuela’s own carriers are failing. I can only conclude that American, Delta, Lufthansa, and United are experiencing similar problems. The International Air Transport Association (IATA) is trying to mediate the situation, but it to has not made progress.
Three years I wrote a story titled Seize the Moment: Travel While You Can and I have to think that the door on Venezuela may be closing for awhile. Venezuela is full of natural beauty and honest, hard-working people who have been shafted by the corrupt populist administrations of Hugo Chavez and Maduro. As violence spirals out of control, hyperinflation coupled with price controls has led to chronic shortages on food and consumer goods. I cannot even recommend a trip to Venezuela now–let’s watch what unfolds in the coming months and hope for the sake of the Venezuelan people that an acceptable compromise is reached so that more airlines do not cut service to a country of nearly 30 million people.