A New Opportunity for Airlines to Lose Lots of Money: Scheduled Air Service to Cuba Could Resume By End of Year

Now that Americans are traveling to Cuba again and the US embassy in Havana has re-opened, the Obama administration is looking to allow scheduled air service between the US and Cuba (rather than just charter flights) by the end of the year. A key stumbling block is allowing Cuba’s state airline Cubana de Aviación to fly to the US.

Cubana, originally started as a subsidiary of Pan Am, flies predominantly Russian aircraft but has 5 leased Airbus planes (A319 and A320s) from Avion Express. Ironically for an airline owned by a communist government, the majority of their fleet offers more than one class of service. (For what it’s worth, so does Air Koryo.)

Back in May I expressed skepticism about the potential of the Cuban aviation market for US airlines. I believe it’s overhyped.

American just announced an expansion of their charter flights to Cuba, and is chomping at the bit to begin scheduled service.

American’s new charter service between Los Angeles and Havana will be sold by Cuba Travel Services and will operate on Saturdays beginning Dec.12 with Boeing 737 aircraft. In addition, American will operate a Saturday flight between Miami International Airport and Havana, also sold by Cuba Travel Services.

American has operated charter flights to Cuba since 1991. With these additions, American will offer 22 weekly flights from Miami, Tampa and Los Angeles to five destinations in the country: Camagüey, Cienfuegos, Havana, Holguin and Santa Clara.

There’s a novelty factor for US tourists, and the potential for catchup growth if the Cuban government allows it. However,

  • Pretty much all traffic for these flights will originate in the US. There’s almost no customer base to support these flights in Cuba.

  • Planes will be filled predominantly with leisure travel. Cuba isn’t a strong business destination.

  • Infrastructure in Cuba, from the airport to hotels, is wholly inadequate to match an aviation boom and influx of tourists. (Although scheduled flights versus international charters might at least move from terminal 2 in Havana to the more modern terminal 3.)

  • It’s an expensive airport to operate at, with costs that make Miami look like Branson, Missouri.

In fairness, it’s a somewhat strong tourist destination from Canada, although Air Canada’s daily Toronto-Havana flight from Toronto is operated only with a 97 seat Embraer E-190. Several airlines make once a week Cuba service work from a variety of Canadian cities to places like Holguin in Cuba bypassing Havana. So there is a market albeit not a huge one. Miami is likely to be a stronger gateway as well.

While Cuba is a new and exciting market, I believe it’s a limited one and not a new airline gold rush.

Cuba is interesting mostly as a forbidden fruit. In Argentina at least there’s a saying, “Tengo una remera del Che y no sé por qué,” or “I have a Che T-shirt and I don’t know why.” In Colombo, Sri Lanka earlier this year I came across these contradictory symbols on a local vehicle:

And of course at one time Guevara was featured at the W South Beach.

I just hope that when people do go, they’ll internalize what he — and the Cuban revolution — have meant for the lives of people.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Ummm…Your opener is incorrect. Americans have always been travelling to Cuba. The amount will start to increase, but that’s different from implying they haven’t been doing so.

    What is your basis for concluding that “There’s almost no customer base to support these flights in Cuba.”? Do you have surveys (i.e., hard data), to show that Americans have no interest in visiting Cuba more now.

    You state that “Planes will be filled predominantly with leisure travel. Cuba isn’t a strong business destination.” which is true. However that is also true for many destinations (e.g., Cancun, St Lucia, you name it). How does that fact mean that flights can’t or won’t be operated or successful?

  2. Rome was not built in a day. To think about US-CUBA air travel in terms of profitability so soon after a 50+ embargo has been lifted seems a bit misguided to me. Cuba is an anachronistic country with great potential to attract significant businesses and investors, as it embarks on the road to modernization. Whether or not US-Cuba air travel is ultimately profitable will be tied directly to the success of Cuba’s drive to modernize…

  3. I thought you were going to link to today’s interesting Ted Reed article (quoting Mike Boyd) about likely lackluster demand for Cuba travel.

    http://www.forbes.com/sites/danielreed/2015/08/18/cubas-hot-now-but-it-likely-wont-be-a-hot-travel-destination-for-many-years/

    While it’s certainly true that Cuba isn’t going to be a mass market travel destination anytime soon, there is obviously demand for Cuba travel. AA averages more than 3 charter flights to Cuba a day. When regular commercial service is launched (probably this year), logic would suggest at least a doubling of that demand. And, yes, business demand will be low unless/until Cuba changes its policies, but there’s obviously considerable friends/family demand and there will certainly be additional “curious travelers.”

    Logic also suggests that, over time, Cuba will become more economically liberal and demand will further increase. If I were a US airline — particularly AA in Miami — I would certainly want to be on the forefront on this change. It’s obviously too early to predict the future, but I think we’d all agree that more travel to Cuba is far more likely than less travel to Cuba in the future.

  4. Why would there be no business travel? This is a huge new market that has come online basically overnight. I’d think that there would be plenty of business interest.

  5. While everyone is rushing to boycott tourism to the Dominican Republic for their internal immigration policy, I am going to boycott re-opening tourism to Cuba, a country that has systematically robbed, imprisoned, and killed its own people.

  6. Non-US citizens have been going to Cuba as tourists the past 50+ years so there is a tourist infrastructure already in place.

  7. Think back to what Cuba was before the revolution. Kind of a Las Vegas of the Caribbean. I don’t know if it will get back to that, but I see huge potential once the antique communist government goes away.

  8. In general, I agree with Gary – it’s not like we’re talking about a huge country with massive industry suddenly opening its borders. Sure, there will be some room for growth, but I see it being fairly incremental.

    I wonder if US airlines are willing to fly these routes to establish themselves, so to speak, so that they are better positioned once demand increases down the road.

  9. I think you are wrong on both fronts. Before Castro, Cuba was a major US tourist destination. It’s close and with a bit of work, it can become again overrun with US tourists. There are lots of business opportunities once trade is established. Our farmers are chomping at the bit to get into the Cuban market. There is opportunity to build hotels and develop a fantastic tourist infrastructure. OTOH, Cuba as it exists today will no longer be. It will be another Cancun, or even Grand Cayman. The charm will be gone.

  10. My own two cents– Until the communist government voluntarily calls for democratic elections so the Cuban people can freely choose who governs them (highly unlikely in the short term), I’m very divided as to whether I would even visit Cuba. I’ve heard the people and the country is awesome. The government? Not so much. I really want to visit, but something doesn’t sit right with me until I know that the Cuban people are free to chose/elect/vote for their leaders. So for now, there’re a ton of other destinations I want to visit. I think liberalizing the economy will eventually trigger other changes, but I think it’s going to take years. In the meantime, I doubt the average Cuban will benefit from the wealth that a boom in tourism will likely bring.

  11. @Gary,
    What makes you think that Americans are so different from Canadians?
    1M Canadians visit Cuba every year. Only 60-70k Americans. Are the expectations that different?
    My guess is that VRA will be the next CUN.

  12. @Eric:

    Read the sentence correctly. Gary is referring to the customer base IN Cuba. Cuban residents won’t be supporting these flights owing to low disposable income.

  13. The point is that the tourism infrastructure within the country right now isn’t adequate to support a large growth of tourism right now. There is no way to accommodate a huge increase in visitors immediately. So new air service, if it is substantially beyond what now exists, will have trouble making a profit for a while. There may be millions of Americans interested in going, but they will have no hotel to stay in until many more are built, and that process doesn’t happen overnight. I think Gary is right in his analysis.

  14. @iahphx – I hadn’t seen that piece when I wrote this (i wrote the post yesterday, his piece is from this morning) but I’m familiar with Boyd’s thinking on the subject (though I have no idea if Mike is actually right about Mississippi being a better market than Cuba). I disagree with Reed that “No U.S. airline is chomping at the bit to fly to Havana” I think that several are and today’s American announcement of charter service from LAX is suggestive of that.

  15. @Eric my point is that Cubans will not be flying to the US in large numbers. So the flights have to be supported 100% by passengers by one side of the route.

  16. @Laura. I see your point but do not agree with your approach. As a past refugee from the Vietnam war, I am familiar with the atrocities of Communist regimes and the plight of war. I was just recently back and am very impressed on how it has changed. For a poor Communist country to change, it needs education, good jobs and money. Cuba offers decent education but has no money. You, the tourist, can provide that money. The next generation will be in charge before you know it. I, for one, cannot wait for the American flight from LAX. Cuban Salsa!

  17. While I agree Cuba lacks the tourism infrastructure to handle an influx of American tourists (to augment we Canadians, the Brits and Germans who have been flocking there for the past two decades…no, I’ve not been there personally). But if the Cuban government liberalizes its own issuing of passports there will be a huge flow of Cubans to the US, paid for by their American relatives who would be more than eager to bring them over for a visit. So it can be a two-way flow to keep AA’s flights pretty full. (AC up-gauges its flights in peak winter, operating from both YYZ and YUL.) Such a move by the Cubans would require the US to remove its preferred “refugee” status entry for Cubans to ensure they return home…though it seems the Republicans love Cubans even if they hate Mexicans and those from other Latin American countries.
    As for American business travellers, for the moment I suspect they will be “brokers” looking to pick up classic Chevys, Pontiacs and Plymouths, and baseball scouts seeking a whole new source of cheap players.
    But certainly a daily 738 can find customers from both sides, primarily family members until the infrastructure for more hotels and the like can be built up over the next couple of years. I just have to look at what’s happening in Myanmar where hundreds of thousands of tourists have started visiting since it was liberalized two years ago, even though the hotels for the most part were atrocious. (Didn’t stop those of us who lucked out on that F/J fare glitch from checking Rangoon out for a day or two, or venturing further afield before setting off on our marathon journeys.) Cuba is somewhat more advanced and can handle a slow build up of Americans.

  18. I was just in Cuba for a week this past January, and our tour guide openly discussed the impact of the recent changes. Apparently, the Cuban equivalent of AirBNB is already doing very brisk business (mostly for Cuban Americans visiting relatives), and he imagines that part of the mismatch between demand and supply will mean that more families will be offering up their spare bedrooms, as the rates will likely significantly increase. Capitalism at its best!

  19. Gary, What is the basis for all of the categorical, unqualified statements that fill this post? Your knowledge of ff programs is probably unparalleled but sheesh. I learn much from your posts. I only suggest clarifying for us loyal readers which statements have a basis in fact and which are merely opinion or supposition.

  20. @john which claims are you wondering about? that Cuban people aren’t likely to make up much of the demand for these flights? that landing fees at HAV are high? that US airlines are pretty eager to fly there? or that there’s not a ton of tourist infrastructure in place, and what exists is pretty much already taken up by canadian tourists?

  21. @ Gary, All of the above. I think Cuba was once the most popular Caribbean destination for Americans. Who’s to say that won’t happen again, especially if the Rs in Congress come to their senses and lift or relax the embargo. The keyword is location. I guess we should not hold our breath on that one. Nevertheless, I think there are many many Americans who are not looking for the Park Hyatt, W, or Paradise Island when they go to Cuba. At least not yet. That is the whole point of going there rather than Cancun. I’d gladly stay at a family-owned B&B, eat at a local restaurant, and take a ’57 Chevy taxi (all of which support the locals and advance the goals of free enterprise and relaxed Cuban controls on entrepreneurship for the Cuban people) rather than a corporate- or government-owned Holiday Inn, Hertz, Applebees or other chain offering. Unless the Cuban government interferes on a huge scale: supply will equal demand.

    Scheduled airline service to Cuba, even if it is currently less profitable than other alternatives, could be a good investment for any forward-looking airline. The shocker would be that any airline would think about long-term, strategic advantage rather than the next quarterly earnings report.

    All pure supposition on my part with no independent, reputable sources to cite in support.

    My apologies for the tardy response as I was out sampling the night scene in SCL.

  22. Here is another incorrect article regarding Cuba travel. The authors assertions are mostly incorrect except the fact that flights may move from Terminal 2 to Terminal 3. When the wet foot dry foot policy is eliminated and Cuban citizens are legally able to travel to the USA more easily look for much more two way traffic by Cuban citizens. 90% of requests for visas to the USA are turned down by the Cuban government. Even if they do not pay for their flight the relatives in the USA will. Business travel will explode to Cuba as they need to build out infrastructure and USA will be at the forefront of this. Look for USA tourists to replace the Canadians as number 1. The prices will go up dramatically at all of the resorts until they complete the build out. There are 6 flights a day already from Miami to Havana and that number will likely triple quickly if restrictions are eased by year end as the Wall Street Journal wrote about an executive order coming from Obama. Some of you guys in the travel business are missing the biggest opportunity in a generation and you do not even know it. The IMF projects that 10,000,000 Americans will visit Cuba annually when the travel ban is lifted. That may be high but even if 1/3 of that kind of number is accurate look for tremendous profits by those willing to take the risks. Remember in the 1950’s it was one of the most popular destinations in the hemisphere with some of the best beaches in the world. Check out Cayo Largo Cuba when you get a chance. In the 1950’s 80% of the tourists were American and now it is only 16% and most of that is Cuban Americans. I only ask that you folks do some research before you write about something you know very little about.

  23. Americans, including the governator, have been going to Cuba for a while now. Honestly if we can keep the mindless spring break crowds away from Cuban beaches the better it is for the rest of us!

  24. We live in Key West and have visited Cuba by boat numerous times. Yes, it is the “forbidden fruit” to Americans and that is haslf the appeal. Sure, the old cars are quaint as are the animals pulling carts. But you can see the same in Nicaragua, which is even poorer than Cuba (Nica is 2nd to Haiti in Western Hemisphere poverty).

    Americans forget that many others–French, Spanish, Canadians, etc–have already been visiting Cuba, and there are other international corporations doing business in Cuba. Many businesses have come and gone, due to lack of profitability. Food at tourist hotels and resorts is generally mediocre and overpriced. The locals are very savvy capitalists (remember, they receive packages from relatives in Miami, as well as those of us arriving by boat) so it’s not like we can fill them with beads and trinkets–it’s flat screen TVs and designer clothing that is the norm. And prostitution is rampant. The decades of Communism and breakdown of the family unit and traditional religious values have altered the dynamics of the society at large.

    Sure, AA will have some kind of presence in Cuba, and there will definitely be a boom in Cuba’s economy, but I think the long-term profitability is questionable. My guess is that Cuba will probably be another Venezuela or Argentina (both at one time very “it” places), in the far future.

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