TRANSPORT-LATAM: Terror Attacks Put Salt in Airlines’ Wounds

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Sep 27 2001 (IPS) - The layoffs of 1,750 employees announced by Brazil’s flagship airline Varig marked the beginning of an adjustment period in Latin American commercial aviation, which was already in trouble but was pushed over the edge by the repercussions of the Sep 11 terrorist attacks in the United States.

Varig, Latin America’s largest airline, decided to slash approximately 10 percent of its workforce, which had been reduced from 25,000 to 17,500 over the last six years. In the first half of this year, the company racked up losses nearing 200 million dollars.

The terror attacks’ impacts on the air transport industry were the latest blow to the Latin American companies, most of which have been operating in the red, with the rare exception of companies like Lan-Chile.

The consequences of the terror attacks have been felt most by the companies that operate internationally, like Varig, whose US flights represent 15 percent of its revenues.

The damages are multifaceted. Ticket demand has fallen since terrorists crashed two commercial airliners into the twin towers of the World Trade Centre in New York, and another into the Defence Department (Pentagon) in Washington two weeks ago.

In addition, operating costs have risen as additional security measures are being implemented and insurance premiums are climbing.

The US-based airlines, meanwhile, have cut 20 percent of their flight schedule and a total of 100,000 employees are being laid off as a result of the crisis in that industry following the terror attacks.

As seen from the Latin American perspective, the imbalance in international competition will be aggravated by the 15 billion dollars the US government has earmarked to aid that country’s airlines, say Varig executives.

Brazilian authorities have made it clear that there will be no preferential resources for the airlines in this country, a position that is likely widespread throughout Latin America, where financing capacities are limited and in many cases strict fiscal adjustment measures have been implemented.

International insurance companies are now limiting coverage to 150 million dollars in the case of war or terrorist acts, a move that threatens flights to the United States, where there is a billion-dollar insurance requirement, and to the European Union, where the minimum coverage is 750 million dollars.

In Brazil, the government resolved the problem this week by providing the support necessary to ensure coverage, thus preventing the suspension of flights of national companies. But the threat of route cancellations persists in other countries of the region.

Lan-Chile, for example, announced it would slash its US flights by half if the insurance problem is not resolved by Friday. As a result of the attacks, the Chilean company already has cut its weekly flight frequency to New York from 12 to seven.

Brazilian airline representatives agreed Tuesday in Sao Paulo to ask the government to reduce some industry taxes and airport use fees as a means to re-establish conditions that would allow them to continue operating.

The Brazilian airlines are not looking for subsidies, but rather equal conditions to compete as businesses, says Varig president, Ozires Silva. Taxes and financing costs in Brazil are several times higher than they are in the United States, he points out.

The sector hopes to eliminate a tax on updating of airport technology, which has already put more than a billion dollars in government coffers since it was established in 1989. The tax now weighs heavily on companies that face rising difficulties resulting from the depreciation of the Brazilian currency, the real.

The airline industry’s debts and operating costs are generally expressed in dollars, and thus have risen sharply with the decline of the real, which has depreciated by 55 percent since 1999, and has suffered further since Sep 11.

The consequences of the terror attacks in New York and Washington have varied in degree among Latin American countries and companies. Cuba – and its socialist economy – has not felt any negative impacts, according to the travel and tourism agencies there consulted by IPS.

“There haven’t been any ticket cancellations and the flights continue at their normal frequency,” say representatives from Havanatur, which handles air traffic between Cuba and Canada. Direct flights by commercial airlines between Cuba and the United States are not permitted.

“In spite of the reduction in demand for tickets in North America, we have maintained our normal flights,” reports Sofía Valverde, media spokeswoman in Costa Rica for the TACA Group, a Salvadoran company that has absorbed three airlines based other Central American countries.

The decline in the number of passengers heading to or coming from the United States has not had much of an effect on TACA business because its operations are concentrated in Central and South America.

In Argentina, meanwhile, the repercussions have been particularly grave because the locally based airlines were already suffering from the nation’s three-year recession.

In August, embarkations for domestic flights fell 25 percent. On top of that came a 14-percent reduction in ticket sales for flights between Buenos Aires and the United States following the attacks.

In Mexico and Venezuela, the demand for airline tickets to the United States has plummeted, but their respective companies have announced that they will wait for the market to stabilise before implementing possible adjustments.

Aeroméxico, an airline that dedicates a quarter of its flights – 60 daily – to the United States, has set a 10-day waiting period before it will take any decision on proposals for cutbacks, said Alejandro Yberri, director of marketing and client services.

However, Yberri predicted there will be an eight to 10 percent decline in demand, which would “leave planes on the ground” and could mean that leased aircraft will be returned to their owners.

For another company based in that country, Mexican de Aviación, flights to the United States and Canada represent 40 percent of its income. “A collapse of 30 percent in that area of air traffic” would force cutbacks in operations, said spokesman Fernando Martínez.

The Venezuelan Association of Travel Agencies, meanwhile, has calculated that the reduction in air traffic to the United States over the last two weeks reached 65 percent, but experts there expect a turnaround in October, precluding the need for adjustment measures – at least in the short term.