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Exactly one year to the day after the Obama and Castro administrations announced they would pursue the normalisation of politics between the US and Cuba, the countries announced on 15 December 2015 a significant achievement in the development of relations between the two states in the form of a deal on air transportation. The deal will allow for the development of regular commercial air travel services between the US and Cuba, paving the way for a widely forecast boom in tourism activity as legal barriers to travel between these markets have been largely removed in the last 12 months.

Now boarding – regularly scheduled flights

Despite an easing in permissions for people looking to travel between the US and Cuba, logistical difficulties remained a significant barrier in 2015 for tourists looking to travel between the US and Cuba. Airline companies have operated occasional charter flights between the US and Cuba, generally from Miami, and the frequency of these flights, offered by airlines including Jet Blue and American Airlines, increased significantly in 2015 as the number of outbound US tourists grew sharply over the course of the year, in light of relaxed restrictions. Non-US airlines currently serve Cuba, including Air Canada, Avianca, and Aeromexico, but do not offer flights connecting Cuba and the US. US travellers could illegally fly to Cuba via a third destination, for example flying to Mexico City and then on to Havana, but this practice was discouraged by the US government, and few US travellers were so determined to visit Cuba that this practice seemed worthwhile.

Inbound Arrivals to Cuba

Inbound arrivals to cuba 2011-2014

Source: UNWTO and Euromonitor International

As part of the trade embargo, the US and Cuba has not had a commercial air agreement covering topics, including safety, for years, and a new one had to be in place before regularly scheduled commercial flights could take place. Thursday’s announcement that a commercial air agreement had been reached resolves this issue and removes one of the last remaining officially enforced barriers to open tourism flows between the US and Cuba.

The existing charter flights will likely serve as an introduction for US airlines to launch regular, scheduled flights, since companies operating charter flights will have built some knowledge that potentially can ease issues around safety, cultural differences, and airport logistics. Non-US carriers will likely leverage their existing knowledge of the Cuban air market to introduce more US-Cuba connections. Seat capacity between various cities in the US, not just Miami, and Cuba will likely grow quickly as Delta, United and American, as well as low-cost carriers like Spirit, Southwest and Jet Blue, have all prioritised increasing their route coverage to Latin America and the Caribbean in recent years.

2014 talk becomes 2015 action

The commercial air travel agreement caps off a year of steps that loosen requirements for US travellers looking to visit Cuba. Travel has long remained heavily restricted between Cuba and the US, despite significant historic and personal ties between the two countries and the fact that Cuba is located just 90 miles away from southern Florida, making it the US’ closest geographical neighbour after Canada and Mexico. Travel restrictions were eased considerably in January 2015, following the December 2014 announcement that the US and Cuba would seek to normalise relations. Under the new rules, bureaucratic procedures were reduced and a formal application process was dropped. In most cases, travellers from the US to Cuba in 2015 were effectively able to self-license trips that met criteria for one of a list of numerous approved activities, including family visits, educational activities, humanitarian projects, journalism, and a broadly defined “people-to-people” activities designation.

Travel for general leisure tourism purposes was not one of the newly legalised travel activities, but, in practice, how well a trip met official criteria for allowable travel was not monitored very closely by the US government. Still, throughout 2015, obstacles, including the ban on scheduled air travel between the US and Cuba, remained and independent travel was still challenging for a variety of reasons. First, the intent to normalise relationships does not automatically normalise them. In the months following the White House announcement, negotiations took place between representatives of the two governments on a host of topics, ranging from economic to political and human rights issues. These conversations have remained ongoing throughout 2015.

A second barrier is the state of Cuban infrastructure. Internet access remains limited in Cuba, as is card payment processing equipment. As of July 2015, US credit cards were still not accepted at points of sale throughout the island, and ATMs remain relatively uncommon compared to the US or top tourism destinations for US travellers. Tourism-specific infrastructure, including hotels, taxi services and airports, have developed to support the existing levels of inbound tourism flows to Cuba (in 2014, just under three million travellers from countries other than the US visited Cuba, according to Euromonitor International and UNWTO estimates), but existing capacity is reportedly insufficient for the spike in American tourists widely expected to want to visit Cuba in light of increasingly loosening travel restrictions. US officials claimed that inbound flows of American tourists in Cuba increased by 50% in 2015 compared to 2014, regardless of persisting difficulties and inconveniences, and many tourism agencies are reporting that tour packages and accommodations are already booked for the next 12 to 18 months.

Early winners

In spite of these challenges, expectations are high for inbound tourism in Cuba in the years to come. In 2014, Cuba registered just under three million inbound tourists, more arrivals than countries like Costa Rica, Iceland and New Zealand, according to the UNWTO. A 2008 study by the International Monetary Fund, to date one of the most thorough analyses of tourism demand to Cuba, estimated that 10 million Americans would go to Cuba each year if they were legally allowed. If even half of that estimate materialised, Cuba would register approximately as many inbound arrivals as India or Australia, and more than Brazil and Argentina.

Inbound Arrivals to Cuba by Source Market

inbound arrivals to Cuba by source market

Source: UNWTO and Euromonitor International

This presents a significant opportunity for companies that can establish themselves in Cuba before the rush of tourists arrive. Early winners include Airbnb, which has capitalised on the limited nature of Cuba’s existing hotel stock, its ability to quickly add capacity by recruiting property owners rather than building its own lodging infrastructure, and its ability to leverage its peer-to-peer positioning to market itself towards travellers visiting for “people-to-people” reasons, the broadest class of approved activity by the US government. Maritime companies, not limited by air agreements in the way the airlines were, have also launched Cuba offerings. As of May 2015, passenger ferries were approved to shuttle visitors between Florida and Cuba. MSC Cruises is scheduled to base a cruise ship in Cuba starting in December 2015, Carnival Cruises has announced intentions to offer a “culturally-themed” cruise starting in May 2016, and Norwegian Cruises and Royal Caribbean have acknowledged similar interest in the island.

Still, more investment will be necessary to develop Cuba for the likely increase in tourists to come, and as will careful management of the development of the industry by the Cuban government.  Continuing to improve telecommunications infrastructure, specifically internet access, is a priority to facilitate tourism operators’ ability to reach US consumers, who gather much of the travel information and make a large amount of travel plans online, as well as to allow travelers to maintain the level of connectivity they now broadly expect, even while traveling.  Increasing hotel as well as air and ground transport capacity should also be viewed as a key task.

Many airlines will be looking to more fully join the ranks of these early entrants to serve the US inbound market in Cuba in the first half of 2016, now that they can coordinate and advertise regular schedules and routes. Greater connectivity with the US, including routes that connect Cuba to cities other than Miami, is the next step to normalising tourism patterns between the US and Cuba and sets the stage for very significant growth – not to mention changes – in Cuba’s tourism industry in 2016.

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