Friday, September 30, 2016

Charters vs. scheduled air service to Cuba: How will it shake out?

Charters vs. scheduled air service to Cuba: How will it shake out?

Among the passengers on American Airlines' first regularly scheduled
flight to Cuba was a top executive of one of the Cuban charter companies
that have begun to feel the heat now that regularly scheduled flights to
the island have resumed after a gap of 55 years.

Although American Airlines' 56 weekly flights to Cuba represent major
competition to the charter companies that have been the mainstay of
travel between the United States and Cuba for decades, Michael Zuccato
was flying that first AA flight from Miami to Cienfuegos on Sept. 7
because the company he co-founded, Cuba Travel Services, was in the
process of reinventing itself.

CTS has become an AA vendor, helping American passengers with the Cuba
visa process. Leveraging the California-based company's long experience
in Cuba, CTS also set up AA-sponsored tours for travel agents who wanted
to become familiar with the five Cuban markets that American has already
begun to serve.

For CTS, Zuccato's trip aboard the AA flight to Cuba meant coming full
circle. A charter to Cienfuegos back in 2001 was the first Cuban market
that the company served from Miami.

When AA inaugurated its service to Cuban provincial cities the second
week in September, CTS stopped all its charter service except Havana
flights, and those also will be suspended once the commercial airlines
begin flights to the Cuban capital later this year.

Michael Zuccato, Cuba Travel Services

"It will be extremely hard to compete with scheduled flights... so we've
decided to hold off until we figure out how things shake out in the
various markets," said Zuccato, the general manager of CTS.

Besides American, five other commercial airlines have been approved by
the Department of Transportation to offer regularly scheduled flights to
Cuban cities outside Havana, and both JetBlue and Silver Airways also
have begun their service. DOT has given the green light to eight U.S.
airlines to begin service to Havana, but none have started service to
the capital yet.

Some of the charter companies that have carried millions of passengers
back and forth between the United States and Cuba since the late 1970s
are looking for new Cuba-related business opportunities. But others say
they plan to keep flying and are doubling down on the Cuban-American
market, a niche they say they can serve better than anyone else.

Some of the flight suspensions aren't really by choice. Charter
companies that leased aircraft from American and JetBlue were told their
contracts for the planes would be canceled now that the commercial
carriers are in the air.

"As we begin service [to Cuban cities], we don't keep on doing
charters," American spokeswoman Martha Pantin said.

Another company that is taking a breather on charter flights until it
sees how scheduled air service to the island develops is Marazul, one of
the pioneers of the Cuban charter business.

The company ended service to almost every Cuban destination outside
Havana on Aug. 31 when JetBlue made its first scheduled flight to Cuba.
"At the end of November, we won't be doing charters using American
aircraft and we won't be doing any Havana charters," said Bob Guild,
vice president of Marazul Charters.

But he said the company still might organize charters for groups that
want their own aircraft, and other divisions of the company will become
more active.

Marazul already handles programs for hundreds of groups making research,
educational and other specialized trips to the island. "We'll define
ourselves more in that specialty-travel category," Guild said.

Over the past 35 years, he said, the company has built up contacts with
Cuban institutions that will help in putting together special-interest
itineraries such as eco-tours and travel to conferences. Marazul plans
to develop more people-to-people trips to the provinces that are now
being served by scheduled flights.

Marazul's Miami office also will continue providing services to
Cuban-American travelers who need help getting their entry documents and
passports in order and will make reservations for them and other
travelers — on scheduled and charter flights. It also will book hotels
and private-home stays as well as make rental car reservations.

Looking to the future, Zuccato said there may be opportunities to
package hotel rooms and flights and sell them inexpensively as well as
in arranging executive charters as business ties develop between the
United States and Cuba. The company has created a travel app that makes
it easier for individual travelers to Cuba to plan their own itineraries.

The company also hopes to put together more Cuba tours. "The tour side
is where the growth is going to come from," Zuccato said. And longer
term, he said, CTS would like to manage boutique hotels in Cuba and
offer those services to CTS customers.

The end game, he said, is the lifting of the embargo, which would make
it much easier for all Americans to travel to Cuba. "Then we could be
very well-positioned," he said. Currently Americans are only allowed to
visit Cuba if they fall into 12 specific categories of travel such as
those on people-to-people tours, Cuban Americans visiting family, and
those on educational, humanitarian or religious trips.

"I do think some of the charter companies will just fade away. Those
companies that focus just on the Cuban-American market will have the
most difficulty," he said.

But Zuccato isn't predicting the end of the Cuba charter business quite
yet. He point outs that it has gone through lean times before, including
during the George W. Bush administration when Cuban Americans could only
travel to the island every three years and carry 44 pounds of luggage
with them.

"The business didn't go away then and that was more troubling to me than
this," he said.

Island Travel & Tours, a charter company, recently stopped its weekly
flight from Miami to Camagüey and its Tuesday morning flight from Miami
to Havana because they weren't filling up, but Bill Hauf, president and
owner of the company, said it was a business decision rather than a
reaction to the new scheduled flights.

Hauf said Island Travel isn't dependent on leases with any of the
commercial carriers that have been approved for Cuba routes and plans to
continue running its charters from Orlando and Tampa to Havana and
hopefully add flights to Varadero during the winter season. The company
also expects to double its three weekly flights from Tampa shortly.

"[The scheduled flights] have no impact on us, because they don't have
the same passengers," he said. "It's like apples and grapes. They don't
want to take the boxes, big screen TVs, bicycles that we transport for

The commercial airlines, which make their money filling up planes with
passengers, have far more restrictive baggage policies than the
charters, which make most of their money carrying the goods that Cuban
Americans are taking to their families on the island.

Vivian Mannerud, whose company Airline Brokers arranges charters for
special events and sells Cuba-travel-related services, says how the
charter vs. scheduled flights equation develops "all depends on the
luggage fees." The industry standard for charters is generally the first
44 pounds free and then $1 or $2 per pound. Some charters allow the
first 20 pounds free and then impose a $20 charge on the first bag if it
exceeds that weight.

American Airlines passengers, in contrast, are limited to up to five
pieces of luggage or boxes, and overweight and oversize charges apply as
well as a $25 fee for the first bag, $40 for the second, $150 for the
third and charges of $200 on both a fourth and fifth bag. And from Nov.
19 to Jan. 6, excess, oversize and overweight boxes and luggage won't be
accepted on AA's Cuba flights. First and second bags are free for
passengers with elite status or who travel business or first class.

Right now, Mannerud said, many of the commercial airlines are offering
special introductory rates. "We'll see what the bottom line is and what
the fares are in January, but the baggage fees are key," she said.

The commercial airlines are expected to begin offering flights from the
United States to Havana in late November and early December and that's
also expected to have a big impact on the charter business.

The Christmas holidays have been a peak travel time for charters, and
Zuccato said that depending on demand, CTS might offer charters during
the holidays or on an ad hoc basis.

At the heart of Island Travel's Cuba business are older Cubans and Cuban
Americans who are making family visits. "They don't want to go online
and book their tickets. They will pay cash and want to come into the
office and kiss you on the cheek and schmooze," he said.

"Our clients want to go early in the morning so they get a full first
day in Cuba and they want to leave Cuba later in the day so they get a
full last day," Hauf said. American, in contrast, has scheduled its Cuba
flights for mid-morning departures from Miami to allow for connecting
flights from elsewhere in its system.

The charter companies that plan to continue to fly are hoping for a
number of decisions from the Cuban government that may lower landing
fees and make them more competitive with the commercial air carriers. A
combination of landing fees and insurance accounts for $194 of each
passenger's ticket price on charters while the commercial airlines pay
far less.

"I hope we can equalize the price with commercial airlines," said
Xiomara Almaguer-Levy, president and chief executive of Xael Charters,
which offers flights from Miami to Havana and Holguin. She said the
company intends to continue running charter flights to the island.

"We have the experience and many clients who want to continue to fly
with us," Almaguer-Levy said.

The company also offers people-to-people trips to Cuba and plans to
continue that part of the business as well.

It may take a while for all the additional air lift to Cuba to pay off.
Hotels, especially in Havana, are chock-full. Even though Cuba has a
hotel-building campaign in progress and more Cubans are renting rooms in
their homes to visitors, there is still limited lodging capacity.

"I expect this current [shortage] situation to go on for the next 1 1/2
to two years," Guild said. "The real challenge will be getting
accommodations at all."

Source: Charters vs. scheduled air service to Cuba: How will it shake
out? | In Cuba Today -

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