Saturday, July 8, 2017

The "Undead" Market: Long-Dormant U.S.-Cuba Air Travel Market Still Isn't Alive

The "Undead" Market: Long-Dormant U.S.-Cuba Air Travel Market Still
Isn't Alive
I write about airlines, the travel biz, and related industries
Opinions expressed by Forbes Contributors are their own.

When you shoot a zombie, does it count as murder, or at least attempted

That question actually is of some epistemological importance in the
context of President Donald Trump's decision last month to reverse most
– but not quite all – of his predecessor's actions opening up travel to
and trade with the Caribbean communist island of Cuba. That policy
change triggered accusations from some quarters that Trump is killing
the U.S.-Cuba travel market.

But can one kill that which was already dead?

U.S. airlines jumped in to the U.S.-Cuba market with great fanfare in
2016. The early projections from the Obama White House and economic team
were that soon there would be 1.8 million passengers a year flying
between this nation of 320 million people who are, by Cuban standards,
nearly all insanely wealthy, and the impoverished island 90 miles south
of Florida.

So, most U.S. carriers rushed to offer service to Cuba. Since no market
existed previously, and since the Cuban economy is so stunted it's
likely that they did not expect the kind of immediate profitability that
the Obama Administration had implied. So perhaps they rushed to launch
service to Cuba in an effort to stake an early claim in a market that
they might eventually actually be worthwhile to serve, to grab free
service rights that they might be able to sell later at a profit to a
stronger competitor, or to protect their market share positions in U.S.
markets like south Florida where large numbers of Cuban-Americans live
and conceivably might want to visit their familial homeland and
relatives from time to time.

But it never made any economic or marketing sense for U.S. carriers to
pour 10,000 seats a month into the U.S.-Cuba air market, as U.S. carrier
did initially. The per capita income in Cuba is around $5,500 a year, or
roughly one-seventh that of the state of Mississippi, which at just
under $37,000 ranked last in 2014 among the 50 states in per capita
income. But while Mississippi ranks just 31st in population among the
states with just under 3 million residents Cuba's population of 11.4
million would place it 8th, if it were a state, just behind Ohio and
just ahead of Georgia. That means Cuba has, in relative terms, an
inordinate number of extremely poor people. Developing profitable
traffic demand among such a population likely will take decades, even if
they eventually are allowed to travel at will, a right they still don't
have today.

Thus, nearly all of the passengers flying between the two nations were –
and continue to be – Americans. Indeed, restrictions still imposed by
the Castro regime block most Cubans from flying north, even if their
American family members pay for the tickets. And most of those Americans
flying to Cuba are, and likely will be for the foreseeable future, Cuban
Americans traveling to visit family and friends who still live on the
island. As leisure, rather than business travelers, they can be expected
to be very price sensitive, a factor that promises to make it even more
difficult for U.S. carriers to earn profits from their Cuban routes.

Meanwhile Americans who did fly to Cuba after the market opened last
year quickly discovered that there's not much to do there.

Source: The "Undead" Market: Long-Dormant U.S.-Cuba Air Travel Market
Still Isn't Alive -

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