29 de agosto 2024
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A tourism industry entrepreneur told Confidencial that the International Air Transport Association (IATA) informed them it would temporarily leave Nicaragua after the regime led by Daniel Ortega and Rosario Murillo barred them from continuing operations in the country on Monday, August 19.
The news has caused concern among travel agency owners, prompting new consultations with airlines and among themselves to determine what steps to take. “Everything will depend on each company’s working capital,” said Alfredo Gutierrez, a former leader in the tourism industry now living in exile.
“It is most likely that we will see smaller agencies that lack financial capacity shut down in response to the new scheme emerging in the current scenario,” said a businesswoman who had to close her business when it became economically unviable to continue operating.
On Monday, August 19, the government banned the legal existence of 1,500 more NGOs, including IATA. As a result, IATA’s billing and settlement system, known as BSP (Billing and Settlement Plan), ceased operations in Nicaragua.
With the elimination of IATA, the BSP disappears because no bank can maintain a bank account for an entity without legal status. The BSP is crucial for travel agencies to sell tickets and pay airlines with a delay of a couple weeks, eliminating this option puts companies in a difficult position.
The previously cited entrepreneur explained that some airlines were making exceptions, allowing payment with a corporate card or the customer’s card, “but now even that has been taken away. You can no longer buy tickets that way. And after this notification, airlines are withdrawing their ticket inventory because IATA has no way to bill us to pay them,” he detailed.
No Financial Muscle, No Survival
Although travel agencies don’t solely rely on ticket sales, the commission they earned from this function (a shrinking one from airlines and another from clients as a service fee) represented a significant portion of their income, allowing them to pay salaries, taxes, advertising, rent, basic services, etc.
Many of the travel agencies’ clients are what are termed ‘corporate clients,’ including multinational companies, businesses, or state institutions, with whom they work on credit, given the trust established with an entity that won’t disappear, disregarding the debt.
Travel agencies grant credit —sometimes several thousand dollars— for 30, 60, or 90 days to these corporate accounts, depending on the agreement they reached. In this scheme, the grace period offered by the BSP is crucial for leveraging the money, helping them stay afloat.
With this compensation mechanism gone and the options offered by airlines closed when it was known that IATA would shut down, agencies will have to reinvent themselves and find ways to reduce costs to continue operating under a new scheme that “complicates our existence,” said the entrepreneur.
Without the BSP, agencies can still book tickets and organize itineraries at the request of their clients, taking advantage of a service window airlines offer agencies. However, by purchasing or issuing the ticket and printing it from another screen, they lose the 1% commission, “which is the minimum transaction commission by law in Nicaragua. If not for that, they wouldn’t pay us anything. Before, we were paid 5% to 6%, plus sales projections and other items, plus the 1% by law,” the entrepreneur detailed.
Economic Blow to Travel Agencies
To retain corporate clients, agencies would need sufficient financial capacity to finance that credit, “and travel agencies are small businesses, so I don’t think they have that capacity, which will probably lead them to lose clientele. Only those with greater capacity will survive,” predicted the retired businesswoman.
Gutiérrez believes that those with working capital to pay the tickets to the airline immediately and wait those 30, 60, or 90 days to recover the sales amounts will continue operating.
Without the possibility of earning commissions, agencies will have to survive by charging service fees, booking airline tickets, hotel rooms, car rentals, cruises, or trains (and for changing those reservations); selling and organizing travel packages (which requires paying an additional license to Intur), as well as offering travel insurance assistance. However, the alternatives for the others are not promising.
“If they can no longer sell tickets, they’ll have to do what some agencies did in the 1980s, selling clothes, vegetables, fruits, and several other things in their establishment because the transaction of airline tickets was no longer profitable,” Gutiérrez recalled.The same concern is on the mind of the entrepreneur who spoke with Confidencial: “After this, I’m asking myself what I’m going to do. That’s what I’m doing, going crazy. I’ll have to move to a garage to save on costs, cut salaries… I don’t know… this changes everything. The entire projection will change, and people are nervous. Will I have to start offering photocopies, selling breast milk, and tickets?” she questioned.
This article was published in Spanish in Confidencial and translated by Havana Times. To get the most relevant news from our English coverage delivered straight to your inbox, subscribe to The Dispatch.
