Enjoy it while you can, airlines

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Come and get it.
Come and get it.

When all is said and done and Misión Cadivi comes crashing down along with the rest of Chavenomics, a lot of people will be very upset. But one group who really, truly should not be upset is the airline industry.

This comes into focus nicely in this Reuters story by Girish Gupta.

Thanks to Misión Cadivi, airlines flying out of Venezuela are making a killing. Essentially, they are oversold on all their flights, and they get to charge enormous amounts of money due to excess demand for airplane tickets. In a way, Cadivi is a subsidy for the airline industry, given how they get dollars at preferential rates. Airlines get to act as gatekeepers, issuers of the one document that allows you to buy something that costs 43 at a price of 6.

Go to Kayak and search for tickets out of Caracas. A round trip coach ticket from Caracas to Miami (a three-hour trip) in mid October costs $3,687 … on Santa Barbara Airlines fer cryin’ out loud! Madrid? It’s being quoted at $3,454. Lima is at $2,075. And so on …

The distortions, they are deep. A round-trip Caracas-Santiago ticket costs $3,232. But a round-trip Santiago-Caracas ticket on the very same dates costs $1,450 – less than half the amount from Distortion-land. In other words, thanks to Cadivi, airlines get to inflate their prices by at least 100%, and they get priority access to subsidized dollars.

A few years ago, American Airlines was furious when the Caldera administration dismantled the foreign exchange controls in place during the ’90s. They alleged they had sold airplane tickets in bolívars thinking the exchange rate was going to be one thing, and the government went ahead and devalued. They lobbied the US government and convinced them to lower Venezuela’s safety category for the first time, and things between the two countries have simply gone downhill from there.

When Cadivi is thrown into the dustbin of history, you will hear a lot of grumbling from the airlines. Don’t listen to them. They’ve been making a killing for the last few years.

When the party ends, they will whine and screech loudly. It will only be the laments of those who mourn rents that have gone dry.

1 COMMENT

  1. It has made it very difficult to find a reasonable price to go back to Venezuela for a family visit. From Los Angeles it is costing about $3K round trip. It is cheaper for me to fly to Australia, London and other locations. As a matter of fact the last couple of times I opted to go instead to Rio ($1,100) and Buenos Aires (less than $1,000) and some of my siblings joined me for a nice vacation. And I avoided going thru Maiquetia airport and the whole mess the country has become.

  2. So they don’t even check if you’ve actually left the country or got on the freaking plane. We should have a Caracas Chronicles game called “Corruption or Incompetence?”

  3. What’s the story on whether the airlines actually get paid anytime close to whenever they are supposed to get paid? The degree of chance of early or late, or very very late payment has to influence notably the sorts of ticket prices they set, surely.

      • As I know they get paid even over a year later the tickets have been paid. In any case since they’re being paid in dollars that delay while important is not the end of the world.

    • They charge (as in any other market) what the market is willing to pay. For the reasons JCN explained above, the demand for tickets is uber high and couple that with high barriers of entry plus maiquetia being at capacity and you get a dreamed situation for airlines already doing business in Venezuela.

      The price has nothing to do with the cost of operation or risk.

  4. Are you sure that United can buy dollars at the preferential rate (6.3 BsF)?
    Wouldn’t these soaring prices to travel to caracas from the US also stem from the possibility that the airlines might have to buy dollars on the Black Market? In other words could the exorbitant prices also reflect the currency risk of getting paid in bolivares and having to exchange to dollars at 43 rather than at 6?

    • No, they do get dollars and preferential rate BUT there a somes “fees” (of you know what I mean) everyone has to pay in this country in order to finally get the monies which should be added to implicit costs.

      • I know what you mean but in their balances how they are going to put it? is not legal to put an account called ëxpedtion processes” at least in US accounting… They charge those prices even if you are paying in US $ from United States! I know that From Ccs to Cartagena was 800$ ( My sister paying in the US) and I was in California and I could pay last minute ticket San Diego- Cartagena 800$ –> Malaysia last minute in Thanksgiving 800 dollars!

    • Last year Cadivi liquidated 1.27 billions dollars to airlines. Misión Boeing a toda marcha ahttp://www.cadivi.gob.ve/estadisticas/resumensolicitudes.html

  5. Are they making a killing? If the airplanes are half-empty because of no-shows who are looking to get a refund on their ticket, then maybe “making a killing” is not the right term.

    Dunno.

    Personal note. Have been hunting for a ticket to go visit family in Maracaibo for last couple of months. It has been completely hopeless. Has anybody had any experience flying stand-by?

  6. I don’t understand. Every time I’ve traveled to Venezuela during the CADIVI-era, the planes have been absolutely packed with CADIVI-tourists. There’s never been a half-empty plane, including the last time I traveled, in December. Is this a new 2013 occurence? If so, then why all of a sudden?

      • Yeah, that makes sense, but I haven’t found those on my way back, either. Always packed both ways. I think it’s a 2013 phenomenon, because the difference between CADIVI and the unmentionable is now so large that people can pay for the unused plane tickets, regardless of the outrageous prices, and still make a handsome profit from the arbitrage. Call it an “Arbitrage tax”. Or maybe the half-empty planes only happen on certain routes that I don’t use.

    • until recently the real exchange rate was 2x-3x the official CADIVI one, but at the current level of 6x-7x the opportunity for arbitrage is just too good to pass up

  7. The ultra high air fares have been going on for a long time although off late they ve become scandalously higher than those applied in other countries . 3 reasons for that :
    1. Venezuela has for years been a rich country , with many people who having lots of money dont care all that much whether they pay more than is fair, Long years of exhuberant wealth have made us natural spendrifts, the ” ta barato dame dos” mentality has gone but the mental habits that went with that are still with us . This is true not only of airline fares but of many other items .
    2. Giving people the chance of making a 4 to 1 profit by gaining access to USD at official rate has totally distorted the demand for travel tickets and of course the bigger the demand vs the tickets available the higher the fares .
    3., Airlines of course must make up for the cost of having to wait a year to get paid at the official rate ,Still, the interest rate cant be 100% per anum ., they are gouging their customers and using the late payment policies of CADIVI as an excuse .!!
    If the fares bought outside the country are also inflated (despite being bought in US$) then its because cause # 2 isnt always the driving consideration .!!

      • It is not subsidized, but it is cheaper. It is like going to Luxembourg to fill your tank.

        It used to be strategic for many airlines actually to stop over in Maiquetia for refueling. I don’t think they do that any more since Maiquetia is working at max capacity (with no expansion plans).

        • Can Maiquetía expand anywhere at all? It’s the mountains or the sea, as far as I remember. Perhaps Venezuelans will develop “vertical airports”, uno nuna sabe lo que nuestros compatriotas puedan crear. Para inventar, nosotros.

        • Used to be years ago that international airlines buying aviation fuel at Venezuelan airports where charged ‘international’ prices ( without any subsidy), payable in US$ . The transactions where treated for price purposes as if the fuel was being bought to be exported . Nowadays understand that some airlines or private airplanes flying abroad are allowed to pay the same international price in local currency at the official exchange rate . The international price is probably the bulk export price rather than the retail price charged at other international airports .

      • My understanding, from asking the owner of an airplane some time ago, is that they pay “international” prices but at the official rate of exchange.

  8. One thing that I’ve noticed comparing airfares for MIA-CCS-MIA and MIA-BOG-MIA for a given date is that, while the base price may not be that different, there’s usually a huge difference in fees and taxes; which make that Caracas trip a lot more expensive.

    I was just going to double check this and could not get any “flights available” using Expedia, Despegar and the AA site; which is odd. Maybe just a computer issue.

    • Charlie,

      I just finished trying to fly a friend to Caracas- Impossibly high every way you looked.The cheapest was around 1,500 and the most expensive over 3,000.I finally had to fly him from Miami to Bogota, then from Bogota to Cucuta, then a bus from there to San Cristobal where nearby he could take an internal flight for a cheap price( around 60 dolares).I heard that a lot of people are doing that now.I also looked into ferries from Trinidad, but never got all the info on that one.
      The total price was close to 700$ ,but what a way to go 🙁

        • If you are a Venezuelan revolutionary and you want to raspar tu tarjetita CADIVI, what would you do? Go to Miami or go to Santiago? Por faaavooor!
          Because demand for Miami-Maiquetía is so high prices are higher. That’s what capitalism should teach you :-p

        • Juan,

          Yes,but add the almost 400 dollars for the flight from Miami to Bogota and it was in total over a thousand….which is why he flew to Cucuta and took a bus to cross the border and then took a cheap air flight to Caracas.Not everybody has hundreds of dollars to lose.

      • In our office we have business partners from Spain, when they come to the country they get cheaper flights connecting through Bogota. They buy a plane Madrid-Bogota-Madrid and they buy separately a Bogota-Caracas-Bogota ticket and it’s much cheaper than buying a Madrid-Caracas-Madrid direct flight ticket.

    • You can imagine what effect this is having on an already destroyed foreign tourism market.

      Who in their right mind would pay those airline prices to come to Venezuela & Isla Margarita?

      Just more nails in the coffin.

  9. CCS-YYZ-CCS on march 2014 => $1670
    YYZ-CCS-YYZ on march 2014 => $1300
    both with air canada.
    But even more, talking about oversold seats or venezuelans going crazy traveling or gods know what else. My mother in law was for a visit during the summer, she was supposed to go back on Sep 1st, that day she became sick and we had to re-schedule. Nothing was available!!, everything was full, even the guy from the air line told me “was is going on in your country?”. Until we found somethig for this week, and the guy said “take it, is the only thing until well into OCtober”

  10. It’s supply and demand at work. American can not run any flights it wants, the Government limits them also, so everything is controlled. Flights to the US are used, it is flights to Europe and Central America and the Caribbean that run half full, it is also more noticeable in the off season. It does take airlines more than a year to collect and they are not necessarily paid at the rate when the flight took place if there was a devaluation like this year. I understand they got paid at 6.3 for last years flights.

  11. This summer Santa Barbara actually had MIA to CCS for about 600.00 round trip (no joke). My friends from Maracaibo and Barquisimeto will fly into Curacao and then a round trip from there to the Washington DC/Baltimore area can be (depending on the season) an average of $500.00. About the same price as bussing into Colombia and flying from there but MUCH easier.

  12. the one thing you missed, Juan, is the other side of the coin: while flights leaving from Venezuela might be ridiculously expensive for Venezuelans living in Venezuela and earning a salary in Venezuelan currency, it’s become ridiculously cheap for everyone else. for example, a round-trip ticket from Caracas to Madrid recently appeared in the newspaper as costing BsF 20K, a lot more than one month salary for the vast majority of Venezuelans, but a very affordable $500 for anyone willing to go from Bogota, Santiago, Rio to Caracas to make the connection.

  13. Just to get the math straight:
    So the Venezuelan traveller gets $ 3,000 at Bs. 6.3 spending money (“worth” approx. Bs. 126,000 at Bs. 42 / $), yet they have to purchase the CCS – MIA – CCS ticket at $ 3,687. Is the ticket cost in Bs. paid at 6.3, or Bs 22,338? Would the arbitrage money making opportunity then be Bs. 126,000 – 22,338 = Bs. 103,662, presuming no travel takes place (no $$ are spent)?
    Am I missing something?

    • The other factor is that many of these “flights to nowhere” are being booked to Central and South America, where tickets prices are not $3600, but considerably less so the delta is greater

      • and keep in mind that back in July the actual exchange rate was 4x the official one, as you mention, but right now it’s closer to 7x… as I mentioned above, the arbitrage opportunity is just too good to pass up.

    • Yes Miguel, I remember now that you had already laid out the same scenario and done the same calculation.
      Meantime, I checked on American Airlines’ site and a roundtrip flight MIA – CCS – MIA is approx. $ 2,900, departing late October. Outrageous, one can fly roundtrip to Europe for approx. $ 1,300 – 1,500.
      Yet looking at the Bs. 22,338 ticket from my example (CCS – MIA – CCS), for somebody earning in $$ and therefore calculating the $ price at Bs. 42, it would be approx. $ 532, or just about right, maybe actually somewhat on the cheap side, but confirming that the black market $ is valued correctly.
      Conclusion: FUBAR.

      • Mike;
        The key point there is “for somebody earning in $$”. Otherwise, it is rather expensive. And if you’re traveling because you have to or just want to take a vacation, The CADIVI $3000 is just enough to pay your lodging, meal, car rental expenses for about a week.

        • Yes, but for say a family of 4 people, now you get $ 12,000 + the cash money Miguel mentions, enough for a nice one week vacation at e.g. Disney in Orlando and having several thousand $$ left over to be (if so desired) converted to Bs. at 42 and voilá, the whole vacation will at minimum be free.

          • I’m assuming a family of 4 is 2 adults and 2 children. Adults get $3000 each and all get $500 each for a total of $8000 (BsF.50,400 @ 6.3 + BsF 80,000 for airline tickets=BsF.130,400). Tickets to all attractions ($100/person/day), hotel ($100/day), meals ($75/person), car and gas ($125/day), etc. can run you up to $7,000 for 4 for the week. The balance $1,000 they’ll probably spend shopping for items they can’t find in a Venezuela. Of course, one could get much better deals too and have more money left for shopping. I do understand that this is a rather subsidized vacation, but it’s still costing you a lot of money. The way one could make money is by traveling JUST to get the cash and bring it back.

  14. If planes to Europe are half full AND the gringo cocaine market is saturated: why wouldn’t our glorious military want to make a killing by using Air France to transport cocaine?
    Didn’t French pirates destroyed my city, Valencia, in 1667?
    If you put one or two wee tonnes of cocaine in a half-full plane, who’s going to notice it?
    If the plane were chock-a-block with fat Venezuelans or Europeans, it would become more difficult, wouldn’t? So, it’s written on the stars, everything colludes.

  15. As long as you have some friends in the revolution, it looks like a good business:
    http://www.avn.info.ve/node/202597
    “Ciudad Guayana, 02 Nov. AVN.- Este sábado fue presentado en el estado Bolívar el primer avión de la Línea Aérea Margarita Internacional de Aviación, empresa que a partir del año 2014 aspira unir al estado Nueva Esparta con varios destinos en el Caribe, además del estado Bolívar y la región norte de Brasil.
    La aeronave arribó al Aeropuerto Internacional Manuel Carlos Piar de Ciudad Guayana, venía a bordo el gobernador de Nueva Esparta, Carlos Mata Figueroa y directivos de la aerolínea LaMia, quienes fueron recibidos por el gobernador bolivarense, Francisco Rangel Gómez y medios de comunicación de la entidad suroriental.”

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