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Cablegate: U.S. Airlines Expand Colombia Operations Despite

VZCZCXYZ0012
RR RUEHWEB

DE RUEHBO #4312/01 3381536
ZNR UUUUU ZZH
R 031536Z DEC 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 5903
INFO RUEHBR/AMEMBASSY BRASILIA 8541
RUEHPE/AMEMBASSY LIMA 6794
RUEHLP/AMEMBASSY LA PAZ DEC CARACAS 1384
RUEHQT/AMEMBASSY QUITO 7490
RUEHZP/AMEMBASSY PANAMA 2745
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC

UNCLAS BOGOTA 004312

SENSITIVE
SIPDIS

EEB/TRA FOR DHUTCHENS AND TROCHE; PASS TO DOT BHEDBERG

E.O. 12958: N/A
TAGS: EAIR EINV ECON PGOV ETRD EFIN CO
SUBJECT: U.S. AIRLINES EXPAND COLOMBIA OPERATIONS DESPITE
ECONOMIC CLOUDS

1. (SBU) Summary: U.S. airlines operating in Colombia have no
plans to cancel existing routes or flights, despite a
significant drop in bookings in recent weeks and concerns
about 2009 profitability. They cite the current global
financial crisis and Colombia's strict regulatory structure
-- specifically pertaining to the fuel surcharge, internet
fares and the travel agency payment schedule -- as the
sector's biggest challenges. Nevertheless, they remain
optimistic for Colombia's long-term air traffic prospects and
most are planning to increase frequencies. End Summary.

FALLING RESERVATIONS
--------------------

2. (SBU) The management of the five U.S. airlines operating
in Colombia (i.e. American, Continental, Delta, JetBlue, and
Spirit) report that bookings have fallen significantly in the
last two months. According to International Air Transport
Association (IATA) statistics, reservations for travel
between Colombia and the U.S. during the upcoming holiday
season (December-February) dropped 27 percent, compared to
the same period in 2007. While the monthly load factors have
continued to increase, albeit at a slower pace than in 2007,
experts expect those numbers to soon drop as well. Delta
Legal Representative Ricardo Garnica told us on November 24
that the decrease in holiday bookings was his biggest
concern, as it provided a snapshot of what was to come. He
highlighted that both Microsoft and 3M recently canceled
planned employee travel to the U.S., and that he feared that
numerous other companies would follow suit. Regardless,
Garnica said he was unaware of any U.S. airline with plans to
reduce flight offerings and noted that several are actually
looking to expand operations based on long-term forecasts.

DELTA ADDING DAILY FLIGHT FROM BOGOTA TO JFK
--------------------------------------------

3. (SBU) Delta presently offers one daily flight from Bogota
to Atlanta. On December 19 the carrier will begin another
daily flight to JFK in New York. Garnica stated that 70% of
Delta passengers to the U.S. are traveling for tourism, and
that the company is uncertain as to what extent the financial
crisis will a lasting effect on tourist travel.
Nevertheless, he noted it is still cheaper for most
Colombians to travel to Atlanta or Miami than to domestic
destinations within Colombia. Despite the uncertainty,
Garnica said Delta was not thinking of canceling its new
flight, especially since it took more than five years of work
with Colombia's Civil Aviation Authority (AeroCivil) to gain
approval for the route.

AMERICAN HOPES TO INITIATE CARTAGENA SERVICE
--------------------------------------------

4. (SBU) American Airlines currently has five daily flights
(one from Cali, two from Medellin and two from Bogota) to
Miami. In September 2008 American canceled service from
Barranquilla and added a flight from Medellin. Rather than
reducing flights, Country Director Jose Giraldo said American
hopes to start service out of Cartagena in the future. He
added that American is working with Cartagena's municipal
government to improve the city's tourist infrastructure. As
the majority of American's passengers to the U.S. are
traveling for family reasons or tourism, Giraldo said he is
not as concerned about reductions in business travel.
Giraldo noted that American recently applied for seven more
frequencies which became available after Continental left
Cali in mid-2008, to add an additional daily flight out of
Bogota. He was disappointed that the Department of
Transportation (DOT) awarded the frequencies to Spirit
Airlines.

NEW SPIRIT FLIGHTS FROM BOGOTA, SAN ANDRES & ARMENIA
--------------------------------------------- -------

5. (SBU) Spirit began operations in Colombia in December 2007
offering daily flights from Bogota to Ft. Lauderdale and from
Cartagena to Ft. Lauderdale. They reduced their Cartagena
flights from daily to five per week in June due to rising
fuel costs, but recently were awarded seven new frequencies
from DOT, which they plan to use to begin daily service from
Medellin to Ft. Lauderdale on March 1, 2009. Spirit is also

in discussions with AeroCivil and DOT about commencing
flights from Armenia and San Andres. Communications Director
Juan Arbelaez told us that Spirit has actually benefited from
the financial crisis because people are choosing to travel on
low cost carriers rather than the traditional larger
airlines. Unlike the other U.S. carriers, Spirit is not
concerned about future drops in load factor or bookings.

JET BLUE TO BEGIN OPERATIONS IN JANUARY 2009
--------------------------------------------

6. (SBU) Jet Blue expects to receive final operating
authority from AeroCivil in December to begin daily service
from Bogota to Orlando on January 29, with the plane
continuing to New York's JFK airport. The airline expects
tourist travel to Orlando to be their major market. Although
over 80 percent of Jet Blue,s global sales are done via
internet, they will also sell through travel agents in
Colombia. Jet Blue presently flies to 53 destinations in the
region and, according to Director of Government Affairs
Jeffrey Goodell, the airline intends to continue expanding in
the Caribbean and Central and South America, more than in the
U.S. He added that AeroCivil has been helpful and
appropriate, albeit a little slow.

CONTINENTAL EXPECTING LESS TRAVEL IN OIL & GAS SECTOR
--------------------------------------------- --------

7. (SBU) With the addition of a daily flight to Houston in
October, Continental now has 3 daily flights from Bogota (2
to Houston and 1 to Newark). However, Continental pulled out
of Cali in mid-2008 due to rising fuel costs. Country
Director Jorge Silva stated that 2009 will be a tough year
for Continental, even though the price of fuel is dropping.
Approximately 80% of Continental's passengers travel for
business, and 40% of those passengers are involved in the oil
and gas sector. Silva stated that the combination of
uncertainty regarding the economy and the drop in the price
of oil is greatly impacting Houston travel. Silva said that
Continental is nonetheless optimistic that traffic will
rebound over the medium term and, the carrier has no plans to
change its routes or flight offerings.

AEROCIVIL REGULATIONS CONTINUE TO CAUSE CONCERN
--------------------------------------------- --

8. (SBU) In addition to the difficult international financial
conditions, U.S. carriers tell us Colombian regulations still
pose a challenge to their profitability. For example,
AeroCivil regulates and sets the national fuel surcharge
rather than leaving it to industry. In March, AeroCivil
created a new formula for calculating the surcharge that
assesses based on final destination in the U.S. rather than
entry point, a sore spot for U.S. airlines, particularly
Spirit, which alleges that the formula prevents them from
being able to offer the low-cost tickets that are central to
their business. Spirit has sought a change to the
calculation, to no avail. Claudia Esguerra, AeroCivil's
Director of International Affairs, said AeroCivil is not
considering changing the policy as every airline knew of the
regulation before entering the market. No other U.S. airline
has filed a complaint.

9. (SBU) AeroCivil does normally not allow airlines to
publish internet fares lower than fares available to travel
agents, a regulation muscled through by the strong travel
agency lobby. Spirit, however, successfully gained an
exception to the rule and is allowed to publish and offer
internet fares lower than those available to travel agencies.
According to Esguerra, AeroCivil is reviewing this policy to
see whether is can be applied across the board. Thus far
neither the other U.S. carriers nor Colombian flag Avianca
have aggressively protested this discrepancy because only one
percent of passengers currently purchase flights via the
internet.

10. (SBU) Finally, in mid-2008 AeroCivil agreed to a
resolution that would increase the frequency of travel agency
payments to airlines from twice a month to every week
beginning on December 1. The measure is intended to reduce
airlines, losses due to travel agency defaults and is an
IATA practice accepted around the world. However, on

November 3, AeroCivil issued a new decree pushing the
deadline back to February 2009 to give travel agents more
time to adjust during the busy holiday season. Airline
directors told us while the delay is only three months, it
comes at a critical time of year--the industry lost more
money from defaults during last year's holiday season than
the rest of the year combined.

LONG TERM PROSPECTS BRIGHT AND COSTS SUNK
-----------------------------------------

11. (SBU) Despite economic uncertainty and challenging
AeroCivil regulations, U.S. airlines tell us they view
expansion in Colombian markets as worth the risk. They
highlight that Latin America offers more passenger growth
potential for international airlines than any other region in
the world and that no other Latin American country holds more
potential than Colombia as security continues to improve and
the economy develops. American's Giraldo predicts that the
number of travelers will continue to increase as Colombia's
progress becomes permanent. Colombia has also heavily
protected its market in the past and the airlines emphasized
to us their hesitation to give up frequencies they worked for
so many years to receive. According to Delta's Garnica, the
airlines have already sunk major investments in Colombia, so
given Colombia's long-term outlook, it is better to continue
flying through the near-term challenges.
BROWNFIELD

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