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Ecuador Removes Airline Fuel Subsidy, Which Leads to Difficulties for the Industry

Article Summary:

Following the Ecuadorian Government’s cancellation of fuel subsidiaries for domestic airlines, companies were forced to rearrange operations, cut jobs and focus instead on route reductions and frequency plans to meet their cost structures.

Photo Credit: El Universal

Original Article Text From El Universal via Google Translate :

Less Domestic Flights Remain After Measures

The private airlines are adjusting their structures to the new market reality Ecuadorian air. During the first quarter, nearly 200 people have stopped working in the sector after the local frequency reduction and elimination of routes. These adjustments have emerged in a period when airlines are facing higher operating costs following the elimination of fuel subsidy and adapt to new government regulations.

So far this year, Lan, and Aerogal Saereo are among the companies that have rearranged their operations, focusing its routes and frequency plans that meet their cost structure. And that is no longer result in multiple destinations with fewer flights. Guillermo Bernal, president of the National Airlines Association, said that the reduced frequency airlines are looking for a better level of employment whereas the fuel cost is now higher.

“This is an important factor that a line has to be restructured,” said Bernal, who predicted that the reduction in frequencies may involve the removal of aircraft. One of the first companies that applied this year was reduced LAN frequencies in the routes Quito-Guayaquil and Quito-Cuenca. This decision was accompanied with the departure of 60 employees. At the time, LAN said it was “looking to be more efficient” and “a matter of restructuring costs.”

Last week, Aerogal, which belongs to Avianca, Taca, resorted to similar measures to start reducing local frequencies, except for Galapagos. This as part of a “restructuring” that emerged from an evaluation that found an oversupply. And although the company has not directly linked to that extent the new costs of the removal of fuel, Claudia Arenas, Corporate Affairs Director said that decision a number of factors.

“In our case we see a combination of factors that stem from an oversized company in its bid,” said Arenas, who announced the measures also involved cutting 120 jobs and eliminating the route to New York. Another company that cuts adopted in respect of its operations and staff were Saereo, which temporarily suspended flights to Latacunga and Loja.

The airline argued two reasons: increased over 300% of the fuel and the incursion of Tame (with lower rates) on those routes with ATR 42-500 aircraft which came from public sources. In late January, President Rafael Correa asked Tame lower tariffs aircraft remembering that the government gave them.

“They have to lower fares and if Tame going to do what he wants, I will remove the three planes …” he said. William Birkett, Saereo manager, explained that when you place a new aircraft, not represents expenses for purchasing a business, it is likely that lower rates are managed. And it is complex compared to competing. “We were losing money,” he said.

For Jorge Cabezas, who directed domestic airlines, removal of fuel subsidy and the government’s decision to support an airline does have implications for others who do not have state aid. “There is no way to compete in these circumstances, there will be no other airline has aircraft given away,” he said. 60% is estimated that the occupancy level of the airlines.

Link to Original Article:

From El Universal

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