Brazilian Airline Suspends Flights to Venezuela After Failing to Repatriate Revenue

02/10/2016 - 09h05

After months of fruitless negotiations with the Venezuelan government over revenues of R$351 million (US $90.3 million) which are being held in Venezuela, the Brazilian airline Gol has decided to suspend its service between São Paulo and Caracas. The route has been running since 2007.

	Moacyr Lopes Junior/Folhapress
	The commercial viability of airline operations was further compromised in 2015

Gol had already reduced flight frequency from 28 a week to just two, since 2014. However, the impasse with Venezuela, along with the recession in Brazil, has led the company to follow the example of other airlines such as Air Canada and Alitalia and suspend its operations in Venezuela.

The problem derives from the complex exchange rate system in Venezuela, where the government operates various different rates.

Airlines in Venezuela are obliged to sell fares in bolivars, the local currency. Part of the money raised is used for local expenses, such as employees' salaries, fees and kerosene. The leftover revenue, however, must be converted into dollars before being transferred to a given airline's country of origin.

In 2012, airlines were permitted to transfer the money at a preferential rate of 4.3 bolivars to the dollar. However, in 2013 the exchange rate was changed to 6.3 bolivars to the dollar, amounting to a de facto devaluation of airline assets in Venezuela.

The commercial viability of airline operations was further compromised in 2015, when the Venezuelan government adopted the rate of 12 bolivars to the dollar.

Gol had been trying to repatriate its revenues at a more favorable rate, but its negotiations were not successful. It is likely the company will invest the capital stuck in Venezuela in property or some other asset, in order to preserve its value.

Translated by TOM GATEHOUSE

Read the article in the original language