America, did you miss the travel industry’s memo declaring Cuba the hottest new destination?
Apparently. Service to the long-time U.S. foe began in September, but after just five months the largest carrier to the island, American Airlines Group Inc., cut daily flights by 25 percent and switched to smaller jets on some routes. Meanwhile, Silver Airways Corp. reduced weekly flights to six Cuban cities and JetBlue Airways Corp. downsized its planes so as to match lower-than-expected demand.
“It’s going to take a really, really long time for [Cuba] to become a Caribbean destination that’s as popular as some of the other ones,” Andrew Levy, the chief financial officer for United Continental Holdings Inc., told Bloomberg News in November.
While the rest of the Caribbean is hopping with the U.S. winter break crowd, Cuba has some unique problems. The big one is that airlines, with no real idea about demand, were overly ambitious when they jousted for the limited routes allowed by U.S. regulators. With a mandate for only 110 daily U.S. flights—20 into Havana, the most popular destination—the carriers tumbled over each other last year to get a piece of the pie, leaving the island oversubscribed.
The air rush into Cuba “wasn’t based on demand but speculation. They had no history to look at,” said Karen Esposito, general manager of Cuba Travel Network, which specializes in tours to the island. Now they do.
Silver Airways described additional obstacles, pointing to the complications accompanying U.S. travel arrangements to Cuba, along with too much capacity from larger carriers. Still, spokeswoman Misty Pinson said, the Fort Lauderdale, Fla.-based airline “is optimistic about the future growth potential in Cuba.”
Former President Barack Obama announced an opening of relations with Cuba in December 2014, calling previous U.S. policy, which sought to isolate the communist government, a failure.
Despite Obama’s efforts to spur U.S. engagement with the country, including a state visit in March, the 54-year-old U.S. embargo remains in place. The law prohibits tourism to the island by Americans and makes financial transactions burdensome.
Today, most people traveling to Cuba individually classify themselves as participants in “people-to-people” exchanges, one of the dozen categories authorizing travel under U.S. Treasury regulations.
The policy thaw led to an immediate surge by “early adopters” who wanted to see the tropical island, said Tom Popper, president of Insight Cuba, a tour operator in New Rochelle, N.Y. “The number of passengers we were sending tripled in very short order, and it lasted all of 2015 and most of 2016,” he said. “And much of that was just the extraordinary level of awareness” of the Cuba policy changes.
But with liberalization has come a painful lesson in capitalism—for tourists, anyway. The new interest in Cuba led to rapid price inflation (as much as 400 percent) for state-run hotels, taxis, and other traveler services—before any U.S. commercial flights had begun. Some rooms now cost as much as $650 per night, serving as a major deterrent to Americans hunting for novel warm-weather destinations.
Even the costs of classic car rides and dinners at popular paladares, private restaurants run by families, have in some cases tripled, Insight Cuba says. Prices have begun to moderate this year for the first time since 2014, the company said this week. But beyond the high prices lie additional difficulties for U.S. tourists.
Pounds of Dollars
“The airlines are also competing with limited hotel availability,” Popper said. And “you cannot pay for a room with a U.S. credit card, so you have to actually bring the cash. You’re going to be carrying around $2,500 to $3,000 in cash just to pay for the hotel room. And then you need to carry more cash to pay for other things you want to do.”
Cuba-curious Americans must also compete for winter lodging with sun-seekers from Canada and the U.K., who face no bureaucratic hurdles in booking their holiday.
The average round-trip airfare from the U.S. to Cuba did drop from $399 in September 2016 to $310 last month, according to data from Airlines Reporting Corp. That compares with an average of $486 for Cancun, the top Caribbean destination for U.S. travelers. But still, there are few Yankees heading to Havana.
Some may be worried that a trip would fall under a murky area of the U.S. law, unsure how much latitude is afforded by “people-to-people exchanges,” or cowed by the well-publicized aggressiveness of U.S. customs employees of late. No one wants to worry about that sort of thing while sipping an umbrella-adorned cocktail.
Barring a radical policy change by the new administration, such concerns are probably unwarranted, Cuba travel experts said, adding that the traveler counts this year are likely to top 2016. Said Popper: “There’s nobody from the federal government standing on the beach in Cuba.”
That may not be reassuring enough for the airlines, though. They’re not pushing Cuba as a leisure destination because of the legal uncertainties, said Michael Zuccato, general manager of Cuba Travel Services, a Los Angeles-area company that offers visa assistance and other traveler aid for customers of four carriers that serve Cuba. While airlines bear no liability if customers fib about the real reason they’re visiting Cuba, in-house lawyers may not want to push their luck.
“Because of the U.S. restrictions,” Zuccato said, “you really don’t see any advertising from the airlines promoting Cuba.”
©2017 Bloomberg L.P.
This article was written by Justin Bachman from Bloomberg and was legally licensed through the NewsCred publisher network.