Tuesday, March 21, 2017

Airlines rushed to fly to Cuba. Here's why they've now pulled back.

Airlines rushed to fly to Cuba. Here's why they've now pulled back.
Mar 20, 2017, 2:02pm EDT
INDUSTRIES & TAGS Travel & Tourism

Multiple commercial airlines in recent days have announced they will
drop their flights to Cuba, a stark reversal from the enthusiasm the
industry displayed when bidding for permission to fly those routes just
last year.

Even airlines that aren't dropping their routes entirely are adjusting
to what they're finding passengers want. Both American Airlines (NASDAQ:
AAL) and JetBlue (NASDAQ: JBLU) have scaled back service from what they
initially offered.

The reductions come as airline executives cite an excess of capacity and
lower sustained demand than expected. So, was the industry wrong to be
so eager to get flights to the island in the first place?

There are multiple theories about how the airline industry ended up in
this spot. One Cuba tour executive suggested to NBC News that it was a
simple matter of lack of data. Tom Popper of Insight Cuba said in that
report, "Not having any historical data for 50-plus years on what
commercial flight capacity and volume would be, everybody wanted to
apply for one of the available routes. Once all the flight routes were
granted they went to market to see what would happen."

Another theory proffered in that report is that even though the number
of Americans visiting Cuba has spiked — a state-run Cuban news source
placed it at 43,200 visitors in January, more than double the count from
a year earlier — that may be in part due to the novelty. There may have
been a good number of people interested in going to Cuba for a first
visit, the theory holds, but not nearly as interested in returning again
and again, NBC News said.

In the end, American tourism to Cuba is in a state of flux, and it's not
just airlines that have to adjust. NBC News pointed out that a relative
lack of hotel rooms on the island for the increased number of visitors
has led to inflated lodging prices. Increased taxi and restaurant prices
have come as well.

There is, however, one segment of the tourism industry that appears well
positioned for continued business with Cuba: cruises. The Miami Herald
reported that about 172,000 people are expected to visit Cuba from the
United States via ship this year.

Unlike airlines and hotels, the Herald reported, cruises are less
exposed to shortcomings with Cuba's infrastructure since their business
is already built around full-service accommodations. To be sure, cruise
lines aren't completely insulated from those concerns, the Herald said,
but for now, they're looking to grow their business to the island.

There is one additional possible complication that could be outside the
airlines' and cruise companies' control. All this tourism to Cuba is
made possible by executive policy changes put in motion by the Obama
administration, and there's no guarantee the Trump administration will
maintain those policies.

As the Herald noted in a separate story, from January, the new
administration has already said it would review the United States' Cuba
policy, and Trump himself has suggested he might end the normalization
process unless the Cuban government gives in to certain demands. That
kind of change would put a major crimp on tourism to Cuba, drastically
affecting business for multiple industries, including airlines and cruises.

David A. Arnott is the National News Desk Editor with The Business Journals.

Source: Airlines rushed to fly to Cuba. Here's why they've now pulled
back. - The Business Journals -

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