Tonight, Stamford, Connecticut-based Starwood Hotels & Resorts Worldwide, became the first U.S.-based hotel company to enter Cuba in nearly 60 years, just one day after accepting a rival takeover bid from China’s Anbang Insurance Group for $13.2 billion in cash over Marriott International’s $12.2 billion bid from November 2015.
Having received authorization from the U.S. Treasury Department’s Office of Foreign Assets Control and Cuban government officials, Starwood will eventually have a total of three hotels in Cuba. The company signed agreements with long-time Havana icon, Hotel Inglaterra, which is joining Starwood’s The Luxury Collection of independent properties, and Hotel Quinta Avenida, which will be flagged as a Four Points by Sheraton. Both hotels will undergo renovations before raising their new brand flags later this year. Starwood also signed a Letter of Intent to convert the Hotel Santa Isabel into a member of The Luxury Collection.
“We are very excited to be the very first U.S.-based hotel company to enter Cuba,” Starwood CEO Thomas B. Mangas told Skift, shortly before the signing took place in Havana between Cuban government officials and members of Starwood’s legal counsel, as well as Jorge Giannattasio, Starwood’s senior vice president and chief of Latin America operations.
For Starwood, this is a huge achievement, and a sign of its reputation as a global hospitality leader with hotels in more than 100 countries around the world. “We think this is an example of our tremendous ability to build a great hotel business in all countries of the world,” Mangas said. “We are a partner that can be counted on to bring great global hotel expertise to the market. [It shows] our ability to work effectively across governments, and bring brands that consumers and owners like. This is one of a series of us showing how we can be innovative and move quickly and effectively as a partner to build hotels and brands across the globe.”
Cuba: Coveted Among U.S. Travel Companies
To say that Cuba has been sought after by U.S.-based hotel companies for many years is a bit of an understatement. During the more-than-50-year-long Cold War between the U.S. and Cuba, American businesses, hotel companies included, have not been able to do business there. In their place, a number of hotel companies from Latin America and the Europe have opened hotel properties there, and the country’s homegrown network of casas particulares (houses that rent out rooms to travelers, similar to bed-and-breakfasts) have flourished.
Airbnb began operations in Cuba in April 2015, and Marriott International—a company with which Starwood has a bit of a history with, to say the least—is also expected to receive approval to begin doing business in Cuba soon. Its CEO Arne Sorenson, who also serves as vice chair of the President’s Export Council, is joining President Obama in Havana on his historic trip tomorrow—a first for a U.S. president since Calvin Coolidge’s visit in 1928.
Last July, Sorenson also penned a piece about the need for allowing U.S. travel businesses to operate in Cuba. He wrote:
“At Marriott International, we are ready to get started right now. While U.S. law still does not allow Marriott to do business in Cuba, we learned that the steps taken by President Obama to reengage with Cuba have launched a bit of a global race involving businesses from other countries to leave as little as possible for American business when the restrictions are lifted altogether.”
“Nowhere is this clearer than in travel. Hotel companies from Latin America and Europe have been doing business in Cuba for decades. With travel to Cuba now surging, existing Cuban hotels are full and hotel companies from other countries are racing to tie up as many of the new hotels as they can before the likes of Marriott and our U.S. competitors show up.”
Sorenson is right about Cuba’s current hotel market; there’s plenty of room for Cuba’s hotel market to grow, and it’s ripe for more upscale and luxury hotels. Right now, there are an estimated 61,000 hotel rooms available in Cuba, 65 percent of which are considered four- and five-star, according to the Cuban Ministry of Tourism.
Cuba is currently seeing a boom of tourism, with record visitor numbers last year. Since Obama’s December 2014 announcement regarding a loosening of restrictions on Cuba, the number of U.S. visitors to Cuba jumped by 77 percent in 2015 versus 2014. And according to a 2015 World Travel & Tourism Council report, the number of international visitors to Cuba is estimated to reach 4.83 million by the year 2025.
Mangas, for his part, hopes that by being in Cuba, Starwood will bring even more U.S. visitors to Cuba’s shores, and that when Cubans travel to the U.S. and beyond, they’ll recognize its brands.
“I’m not an authority on policy making,” he said, “but with the easing of travel restrictions, I expect Cuba to be an incredibly popular place. Travelers are going to look for hotels and brands like ours that they know.”
Mangas also noted the strength of Starwood’s loyalty program, Starwood Preferred Guest (SPG). “We find that our hotels attract about 50 percent of occupancy from our SPG guests—that drives economic growth for our owners. As restrictions ease, I think our customers will flow into our hotels. As Cubans go to the U.S., they will look for our brands as well, seeing we were the first to open the U.S. hotel market in Cuba.”
While Airbnb and now Starwood have been given the greenlight to operate in Cuba, other tourism companies are still waiting for approvals to clear the way for them to begin doing business. Carnival Corp. and Norwegian Cruise Line, as well as a number of other U.S.-base cruise lines have clearance from U.S. officials to call in Cuba, but haven’t received approval yet from Cuban officials.
How Starwood Pulled It Off
Mangas said it has taken Starwood approximately a little more than half a year for this agreement to come together. “It’s been a long process, and it’s taken a full team effort from both our on-the-ground team in Latin America and our Stamford, Connecticut-based legal team which really helped spearhead this effort.” He said Starwood began reaching out to key contacts in both the U.S. and Cuba.
“The process probably started more than 6 months ago with reaching out to our key contacts in the U.S. government to say, as they were starting to warm up and increase the prospects of commercial relations, and ask them how we can be a leader and help them navigate that,” Mangas said.
Mangas said that, although Marriott and Starwood have had a merger agreement since November 2015—one that may no longer take place—he noted that both hotel companies have pursued permissions to operate in Cuba independently of each other.
“This was a totally independent effort,” Mangas said. “I’m sure they are pursuing their own independent efforts, but there’s been no coordination by Marriott and Starwood on this effort. We’ve been acting as competitors, and we’re excited to get these hotels signed up first.”
Since December 2014, when Obama announced plans to normalize relations between the U.S. and Cuba, the road leading to today’s announcement has been building. In August 2015, the U.S. Embassy in Cuba was reestablished. Last month, both countries signed an agreement that provides U.S. airlines the opportunity to operate up to 110 daily roundtrip flights, which would resume commercial airline service between the two countries for the first time in more than 50 years.
This past week, Obama announced further loosening of travel restrictions for Americans headed to Cuba, but it’s still difficult for the average American to legally visit Cuba for a vacation. Now that the formal people-to-people educational travel requirement has been relaxed, American travelers can go to Cuba individually, but they still have to participate in educational activities with native Cubans. There is also language that forbids Americans from mingling with members of the Cuban government.
Details on Starwood’s Newest Hotels in Cuba
The three initial properties that will fall under Starwood’s brands are all conversions, a primary focus for the company, said Mangas. “We want to move quickly and be in locations where consumers want to be. The bulk of our hotel signings this year, worldwide, are newbuilds. We will clearly want to do that in Cuba, but I think you’ll initially see us focus on conversions.”
Why open with The Luxury Collection and Four Points by Sheraton? Mangas said, “The focus of The Luxury Collection brand is to really unlock destinations that have luxury properties that are very indigenous—it’s about authenticity and cultural immersion. That is exactly what those hotels — both the Inglaterra and Santa Isabel — have. They are both fabulous historic properties that really allow consumers to understand Havana and the Cuban culture. We thought it spoke well to those brands.”
Four Points by Sheraton, Mangas said, “Has a tremendous location, and an opportunity to provide more of a value appeal to consumers, and to provide a sweet spot for what Four Points by Sheraton represents — a great room, a great value, and a great location.”
Hotel Inglaterra: Starwood is partnering with owner Gran Caribe to rebrand this 83-room property as a member of The Luxury Collection following a preservation and conversion project later this year. The national landmark, located just steps away from the Gran Teatro de La Habana in the heart of downtown Havana, first opened in 1875 and is home to the Gran Café el Louvre, a favorite among artists and travelers.
Hotel Quinta Avenida: Starwood signed an agreement with owner Grupo Hotelero Gaviota SA to rebrand the Miramar District hotel as the Four Points by Sheraton Havana later this year, catering primarily to business travelers with its 186 rooms and meeting facilities.
Hotel Santa Isabel: Starwood has signed a letter of intent with owner Habaguanex to convert this 19th-century colonial-style palace to the newest member of The Luxury Collection, pending U.S. Treasury Department approval. It is located on the Plaza de Armas overlooking Havana Harbor, and has 27 rooms, including 11 suites.
Expect to see more Starwood hotels in Cuba. “We’re not finished in Cuba,” said Mangas. “We have plans to do more and hope we can sign additional hotels into the Starwood network. This is just the first step. We want to shift to driving investment and innovation into these hotels and bringing the talent — the training systems to train the staff and help them understand what it means to be in the Starwood system. That will dramatically help these properties all look feel and operate like Starwood properties that people have known around the world.”