TFHO1: POLITICAL CRISIS LEADS TO STEEP DROP IN AIR

C O N F I D E N T I A L SECTION 01 OF 03 TEGUCIGALPA 001287

SIPDIS

E.O. 12958: DECL: 12/02/2019
TAGS: ECON EAIR EAID EFIN EINV ETRD CASC CVIS PGOV
PHUM, PREL, SOCI, KDEM, HO
SUBJECT: TFHO1: POLITICAL CRISIS LEADS TO STEEP DROP IN AIR
PASSENGER TRAFFIC

REF: A. TEGUCIGALPA 995

B. TEGUCIGALPA 956

C. TEGUCIGALPA 745

Classified By: Ambassador Hugo Llorens for reasons 1.4 b and d.


1. (SBU) Summary. EconCouns and EconOffs met with local
representatives from Continental, American and Delta Airlines
to gauge the overall health of the airline industry in light
of the international economic downturn and the Honduran
political crisis. Representatives of all three airlines said
that the political crisis has had a much bigger impact than
the economic downturn. Year-on-year sales are down 30
percent or more overall. Tegucigalpa is the most affected,
while commercial center San Pedro Sula has seen less of a
drop and passenger traffic to the resort town of Roatan is
relatively steady. In the midst of peak air travel season,
the closure of Toncontin airport on several occasions due to
the political crisis dealt a further blow to air traffic.
Representatives of all three airlines said that the State
Department travel alert discouraging all non-essential travel
(originally to the whole country and later modified to cover
only Tegucigalpa) and the two-month closure of the Embassy's
non-immigrant visa section had contributed significantly to
the drop in passenger volume. The head of the regional
regulatory body for civil aviation told us that progress
toward a resolution of the body's dispute with American
Airlines continues (reftel A). End Summary.

Downturn in Airline Industry
--------------


2. (SBU) The Economic Counselor and Economic Officer met on
November 18 with Marcela Young-Andonie, Sales Manager for
Continental Airlines Honduras, and marketing representative
Eugenia Madrid. The Continental representatives said that
year-on-year sales are down 30 percent throughout Honduras.
Before the June 28 coup d'etat, the airline operated flights
seven days a week to Tegucigalpa and San Pedro Sula. After
the coup, the airline canceled its Wednesday flights for
several months. Passenger volume to Roatan, a resort in the
Bay Islands, remains relatively strong, with a modest seven
percent overall decrease.


3. (SBU) In a November 19 meeting with EconCouns and EconOff,
American Airlines country manager Verna Osorto said that
bookings are down 45 percent for the daily Miami-Tegucigalpa
flight. San Pedro Sula has not experienced a significant
change in passenger traffic, which Osorto attributed to price
cuts. American plans to increase capacity on this route by
ten percent by changing aircraft from Boeing 737s to Boeing
757s. Overall, revenue for Honduras for the year has been
millions of dollars less than expected.


4. (SBU) Delta representative Dina Morales provided a similar
account during a November 23 meeting, reporting a 30 percent
decrease in passenger volume. However, Morales said that
Delta had not had to cancel flights during the low seasons
between summer and the December holiday period because the
airline's flight schedule allows for seasonal fluctuations.


5. (SBU) The representatives of all three carriers told us
that the political crisis following the June 28 coup has had
a much bigger impact on air travel than the global economic
downturn. In the midst of peak air travel season,
Tegucigalpa's airport was closed on July 5 following
President Zelaya's attempt to fly in to the airport and again
on September 22 and 23 following President Zelaya's actual
return to the country. (Note: Subsequent to these meetings,
all three airlines canceled their flights to Tegucigalpa on
election day, November 29, due to a security threat. End
note.) The representatives said that travel by missionary
groups, which normally make up a high percentage of passenger
traffic, has come to a virtual halt. They noted that the
post-coup travel advisory by the State Department
discouraging all non-essential travel to Honduras (modified
on November 6 to include only Tegucigalpa) and the closing of
the Embassy's non-immigrant visa section from late August to

TEGUCIGALP 00001287 002 OF 003


early November both had a significant effect. Additionally,
the Continental representatives reported a marked increase in
refund requests by Hondurans concerned that re-entry into the
country could not be guaranteed.

Perspective from FAA of Central America
--------------


6. (C) Econoff met with Bayardo Pagoada Figueroa, Executive
President of the Central American Corporation for Air
Navigation Services (COCESNA),the Honduras-based regional
regulatory body, on November 25. Pagoada informed EconOff
that the political situation had placed him in an
uncomfortable position. On June 29, Pagoada received a
directive signed by heads of state from all eight member
countries belonging to the Central American Integration
System (SICA),instructing him to cease all communication
with the de facto regime and direct all inquiries to cabinet
members named by deposed President Manuel Zelaya. Faced with
the practical need to maintain communication for operational
reasons, Pagoada subsequently directed all inquiries to
"madam" or "sir" in the appropriate government offices.


7. (SBU) American representative Osorto had expressed
concerns to us regarding COCESNA's intent to raise the fee it
charges to all air carriers by nine percent. Pagoada
confirmed that COCESNA is in the process of reviewing fees
charged to air carriers. He added that it had been five
years since a rate increase, and said that the exact
percentage had not yet been determined. Pagoada informed
EconOff that comparative study is being conducted in
neighboring countries with similar rates. As soon as results
of the study become available, U.S.-based air carriers
operating in Honduras will have an opportunity to contribute
to the discussion before COCESNA makes a final decision.

COCESNA/American Agreement
--------------


8. (SBU) With regard to a longstanding dispute between
COCESNA and American Airlines regarding whether the airline
should be allowed to pay for services in Lempiras (reftel A),
Pagoada noted that American had signed another agreement with
COCESNA on November 5 stipulating that 14 of 15 payments that
were in an escrow account with the courts would be released
to COCESNA. The remaining payment would be held by the court
until the resolution of the case. This agreement was
prompted by both COCESNA's need for the funds to cover its
expenditures and American's desire to stop paying interest
that was accruing against its outstanding payments. Osorto
added that American Airlines had invited other U.S. air
carriers as co-plaintiffs, but that no other carriers had
accepted the offer.


9. (C) Pagoada spoke freely about the American Airlines
dispute. His assessment of the situation was that American's
insistence on paying in Lempiras instead of dollars will
result in no financial gain or advantage for the airline.
According to Pagoada, allowing just one airline in one
country to pay in local currency would not significantly
impact COCESNA. However, this would set a bad precedent,
given the prohibitive cost of currency conversion for
millions of dollars' worth of transactions throughout the
region.

Comment
--------------


10. (SBU) If the political crisis is not resolved soon,
Honduras's image as a venue for short-term missionary work
and leisure travel will be severely damaged. The longer it
drags on, the more likely these groups will be to look to
more stable Central American nations to fill the void.
Representatives of all three airlines said that they were
optimistic that the situation will improve following the
inauguration of a new Presidential administration in January.
It is likely that business will pick up at least somewhat,
particularly if the security situation improves enough to

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warrant the lifting of the Department's travel alert. In
addition, the Embassy recommended a drop of the travel
advisory on December 4. However, a return to stability may
not be enough to overcome the association between Honduras
and political unrest in the minds of those who would
previously have considered volunteering, working or
vacationing here.

LLORENS