American Cuts Venezuela Flights 79% in Trapped-Cash Dispute

Jun 17, 2014 1:35 pm ET

(Updates with amount of funds trapped in fifth paragraph.)

June 17 (Bloomberg) -- American Airlines Group Inc., the U.S. carrier with the most flights to Venezuela, will reduce weekly trips there to 10 from 48 because of an unresolved dispute over cash trapped in the country.

Service will cease between Caracas and New York’s John F. Kennedy International airport, Dallas-Fort Worth and San Juan, Puerto Rico, after July 1, Casey Norton, an airline spokesman, said in an e-mail today. American Airlines had $750 million stuck in Venezuela as of March 31.

The move by American will further isolate Venezuela, where already at least 11 carriers have cut capacity, sales or routes, and Air Canada discontinued service in March. The airlines are hamstrung by strict currency controls that prevent them from repatriating earnings from tickets sold in Venezuela without government authorization.

“We value our business and longstanding relationships with the government,” Norton said. “However, since we are owed a substantial amount and have been unable to reach resolution on the debt, we will significantly reduce our flights to the country.”

Airlines had the equivalent of $4 billion locked up in Venezuela as of mid-June, according to the International Air Transport Association.

American is the world’s largest carrier based on passenger traffic, and the biggest U.S. airline to Latin America with a 53 percent market share based on flight and seat capacity.

Foreseeable Future

American’s reduced flight schedule will remain in place “for the foreseeable future,” Norton said. American continues to work with the Venezuelan government on the issue, he said. The carrier will continue a daily flight between Miami and Caracas, with two on Saturdays; and service twice weekly between Miami and Maracaibo.

Venezuelan President Nicolas Maduro said last month that any airline that pulled out of the country would not be allowed to return. He said airlines were not cutting flights to the country and were rather “reprogramming” service to Brazil to meet demand for soccer’s World Cup competition.

Adding to carriers’ problems in Venezuela, the value of revenue trapped in bolivars is being whittled away by the world’s fastest inflation rate and frequent devaluations. Annual inflation hit 61 percent in May.

Government Offer

Venezuela’s government offered last month to pay airlines for debt in installments through 2016 at a discount, the Venezuelan Airlines Association said on May 29. Some carriers, none based in the U.S., elected to receive a single payment for debt at a weaker exchange rate than what the tickets originally sold for.

Air Canada, Air France-KLM, Alitalia SpA, American, Avianca Holdings SA, Caribbean Airlines, Copa Holdings SA, Delta Air Lines Inc., FedEx Corp., Iberia, LACSA, LAN Airlines, Deutsche Lufthansa AG, Taca International Airlines SA, TAP Air Portugal and United Continental Holdings Inc. have not yet accepted the government’s proposal, the Venezuelan Airlines Association said yesterday in a statement.

American was one of the first airlines to begin cutting ticket sales in Venezuela last year as the government fell behind on payments.

Flightglobal reported American’s cuts earlier today.

--With assistance from Corina Pons in Caracas.