Uruguay's Pluna Airline CEO warns of 'collapse'

MONTEVIDEO, Uruguay – Brazil's slowing growth and Argentina's bewildering trade and currency restrictions are dragging down the profits of the region's airlines, which tend to be a reliable indicator of economic misfortune.

In Uruguay, the national airline Pluna is resisting a $30 million government bailout offer, saying that unless politicians provide more protection from unfair competition, "everything we built will collapse." That warning came in an unusually frank letter that became public Monday after CEO Matias Campiani sent it to Pluna employees.

Campiani, who asked his workers to stay optimistic, work hard and "don't forget to smile for our passengers," blamed Uruguay's neighbors, competitors and politicians for his company's difficulties.

Airlines worldwide face higher fuel prices and tighter profit margins, but some are suffering more than others as competitors merge to cut costs and squeeze out smaller competitors.

Brazil's TAM and Chile's LAN each reported a 22 percent plunge in first-quarter profits, citing rises in fuel costs and other expenses among other factors. Another Brazilian airline, GOL, laid off 2,000 people to cut costs. Aerolineas Argentinas continues to bleed money, receiving more than $200 million in subsidies during the first quarter of this year alone.

Pluna, the plucky airline of little Uruguay, is particularly vulnerable, since it competes with Argentina's heavily subsidized national airline and Chile's LAN, which this month completes its merger with Brazil's TAM to create the region's largest airline, LATAM.

"We're going through strong turbulence," Campiani wrote. "All the aviation in our region is suffering from big problems, due to the major slowdown of economies that were growing at gigantic steps and now have stopped."

He blamed Brazil, where economic growth slowed to 2.7 percent last year after booming at 7.5 percent in 2010, and he cited "the restrictive policies applied by Argentina" for Pluna's change of fortune, which has come so suddenly that it still hasn't shown up in quarterly reports.

Pluna just had its best summer vacation season ever, flying nearly full planeloads of Argentines from Buenos Aires to the Uruguayan beach resort of Punta del Este. But that traffic has collapsed in the last few weeks due to draconian currency controls imposed by Argentina's government on its citizens, who have long used Uruguay as a place to shelter and hide their wealth from tax collectors.

"These Argentine currency controls have significantly reduced our traffic and made it impossible for us to bring money from Pluna Argentina to Pluna Uruguay," Campiani said.

Even more frustrating for Pluna is the Argentine government's refusal to let it fly to more destinations inside Argentina, a trade barrier made more frustrating by the Uruguayan government's agreement to let state-owned Argentine domestic carrier Austral fly to points inside Uruguay.

"All this is happening in a context where airlines are fighting for the few passengers left," Campiani wrote.

He said Pluna has fallen victim to a price war as Aerolineas Argentinas and TAM sell tickets for Buenos Aires-Sao Paulo flights at just $180, compared to $300 a year ago, despite higher costs.

Ricardo Marenco, duty manager for Pluna at Montevideo's gleaming new international airport, said Monday that he was relieved to get such an honest accounting of the company's challenges from its CEO.

"It's a feeling of support," Marenco told The Associated Press. "Without a doubt, before the letter there was a general feeling of deep concern, and now people are less anxious, and sticking together. Not just with him, but with the group, with our fellow employees."

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Associated Press writers Luis Andres Henao in Santiago, Chile; Bradley Brooks in Sao Paulo, Brazil; and Michael Warren in Buenos Aires, Argentina, contributed to this report.