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