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Cablegate: Quito Airport Expensive for U.S. Carriers

VZCZCXYZ0018
OO RUEHWEB

DE RUEHQT #2168/01 2641215
ZNR UUUUU ZZH
O 211215Z SEP 07
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7762
INFO RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 2824
RULSDMK/DEPT OF TRANSPORTATION WASHDC PRIORITY

UNCLAS QUITO 002168

SIPDIS

SIPDIS

PLS PASS TO DEPT OF TRANSPORTATION: ATTN BRIAN HEDBERG

E.O. 12958: N/A
TAGS: EAIR EC EFIN ETRD
SUBJECT: QUITO AIRPORT EXPENSIVE FOR U.S. CARRIERS

REF: QUITO 2167

1. (SBU) Summary: U.S. air carriers say that their ongoing
dispute with the current Quito airport concessionaire over
usage fee increases has caused them to re-evaluate their
operations.Q The airlines say they support the new Quito
airport project (the reason for current airport fee
increases), but that current costs have caused at least one
major cargo carrier to consider moving operations to
Latacunga, south of Quito. American Airlines hints that it
may redirect some services to Guayaquil. U.S. carriers also
voiced concerns over differential fuel pricing and possible
controls over travel agent fees. End summary.

2. (U) The Embassy met with four U.S. carriers on August 31
(American, Continental, UPS and Arrow Air).

Quiport Fees
------------

3. (SBU) During the meeting the carriers focused their
complaints on what they say are high fees at the Quito
Airport. They reiterated their prior complaints that the
airport concessionaire, Quiport, has raised fees by 64% over
the previous 18 months, in large part to cover the financing
costs of the new Quito airport which is being constructed by
the same concessionaire that is operating the current
airport. They asserted that Quiport has the highest rate
structure in the region after Mexico City, although they
assert the service is far better in Mexico City. They also
complained that there is no limit on how much further Quiport
could raise rates in the future.

4. (SBU) In 2006 the airline association ARLAE (which
includes all foreign carriers) filed a request for
injunction, and the airlines began paying their fees "by
consignment" into an account managed by the courts. On
August 30, 2007, the Constitutional Court dismissed the case
without comment. American Airlines told econoffs that it
plans to file another request for injunction, but by
September 7, the Constitutional Court had still not published
its decision.

5. (SBU) According to the carriers, in August 2007, the
mayor of Quito, Paco Moncayo, proposed a mediation
commission, but the airlines complained that his choice of
mediators was biased because the nominees included the
municipality's lawyer who negotiated the airport concession.

6. (SBU) The carriers say that because the current cost of
operations is so high, they are re-evaluating their
operations. One cargo carrier, UPS, is thinking of moving to
Latacunga, south of Quito, and passenger carriers note that
if there were fewer carriers overall at the Quito airport,
the cost to those who remain would be even higher, according
to Quiport's current pay scheme. Because of this, American
Airlines hinted that these high costs may be driving the
passenger market toward Guayaquil, away from Quito.

7. (SBU) The airlines told us that they support the new
airport project, but that they are unsure of the facilities
and services they will be offered there, and therefore object
to having to pay now for future services. They alleged that
Quiport has never fully disclosed its finances (in contrast,
they said, the Guayaquil airport has reviewed its finances
with the carriers), and argued that Quiport has been given
free rein by the Quito municipality to set rates. They
argued that instead, an outside body should set the rates for
the airport, taking into consideration the financial
condition of the concessionaire, its willingness to cover
part of the construction cost with equity, and the impact the
rates will have on other economic activity, such as tourism
and the export industry.

8. (U) (Two side notes: In an AmCham meeting on September
14, a U.S. flower exporter and U.S. hotel operator complained
about the high cost of the Quito airport. The flower
operator asserted that the additional transportation cost
undermines his company's competitiveness against suppliers
from other countries. The hotel operator said that he has
lost some package tours to Guayaquil because of the high
airport fees. Separately, Quiport contacted the Embassy,
offering a tour of the new airport site and a discussion of
the new operation. The visit will take place in mid-October.

Fuel Prices and Travel Agent Fees
---------------------------------

9. (U) In an effort to broaden the conversation, Embassy
asked the U.S. carriers if they have additional concerns
beyond the Quiport fee structure. They indicated two: fuel
prices and travel agent fees.

10. (SBU) Carriers complained that domestic Ecuadorian
carriers benefit from subsidized jet fuel (reftel), and that
at least one domestic company, Aerogal, will soon begin
flights to the U.S. and will benefit from the subsidized fuel
as it competes directly with U.S. carriers. Second, the
airlines worried that the Correa government might support
efforts to regulate travel agency commissions. They did not
point to any specific signals from the current government,
but instead noted that the prior government had supported
minimum travel agents fees and asserted that the issue could
arise again (perhaps within the upcoming Constituent
Assembly). They said that travel agencies are currently
advocating for a new law to regulate their fees.

11. (SBU) Comment: The U.S. aviation industry's concern in
Ecuador is Quiport, Quiport and more Quiport; they only
brought up fuel prices and travel agent fees because we
asked. Trying to obtain any sort of relief from current or
future rate increases at the Quito airport will be thorny,
however. Relations between the carriers and Quiport are
tense, and in an earlier meeting with Quiport, the local head
of the concession implied that he was willing to cut services
for those who do not directly pay their fees. Furthermore,
the mayor of Quito sees the new airport as a pet project, and
is sensitive to any criticism, although the argument that
current fees should not pay for future services has begun to
obtain some resonance with the Municipal Council. Both the
mayor and council might also be sensitive to Quito losing
aviation services and tourism. End comment.
JEWELL

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