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 TEGUCIGALP 00001287 003 OF 003 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