Drop the Hype: Cuba is a Vapor Opportunity For U.S. Airlines

Friday, September 18, 2015
By leading aviation consultant, Michael Boyd, in Forbes:

Cuba: A Vapor Opportunity For US Airlines

Cuba Is A Long Way From Being A Viable Destination… Even Mississippi Has A Lot More To Offer

There’s nothing like a one-sided grand opening.

Here’s the visual: The customers are all excited, crowding at the doors for the grand opening of a new department store, one that’s been promised by the media – not by the store itself – to be an incredible experience. Emotions are running high – “everybody” has said this was going to be the deal of the century.

The joke’s on them, however. On the other side of the doors, the place is empty. Matter of fact, the supposed vendor could care less, and had little to do with all the hoopla that brought these people trying to stampede through the doors. Not only that, but the shelves are empty. He has very little to sell, and actually isn’t interested in selling anything, anyway.

That’s a near-perfect description of the embarrassing burlesque that’s surrounding the opening of diplomatic relations with Cuba. A lot of excitement based on fantasy.

An Embassy Does Not A Market Make. With diplomatic relations restored, the travel media is in a frenzy, talking about the great “pent-up demand” for US tourism to Cuba, and reporting on all sorts of adventurous trips to see the place. Seems they think that a stint at a gated beach resort with limited supply of soap is just what the vacationers from Scarsdale have been hankerin’ for.

But not to worry, there’s also the business sector that supposedly is crowding airline departure gates, ready to invest in the Cuban economy – if only that US embargo can be eliminated. Of course, that’s not what the Cuban government wants – they are decidedly against opening toward a truly free economy.

But you’re really out of the consensus unless you buy the vision – this is supposedly the first step to eventually having boatloads of North Dakota grain heading for the hungry folks in Santiago and Holquin and Santa Maria. Not to mention ships chocked full of US goodies, too – even though most of our consumer goods and clothing aren’t made in this county. Minor point.

Yessir, a nation with an economic system that delivers an average monthly income of under $200 is supposedly going to be the next big thing in consumer demand. And, according to some, the next tsunami of tourist traffic for US airlines.

Rain On The Parade: The Economic Isolation of Cuba Is A Cuban Policy. Never mind the fact that Cuba has open access to grain from Canada, New Zealand, and the rest of the world. Same with consumer goods. They haven’t bought much because of internal policies and political programs within Cuba itself. There isn’t much business being done there, and that’s by unilateral choice of their government. Further, according to the Cuban government itself, that’s not going to change, either.

The fact that the US embargo is just that – a US embargo, not a global embargo – has been lost in the din of excitement due to a US flag raised over an embassy building that’s probably been wired by the Cubans with more electronics than a big-box appliance store at Christmas time.

Hard To Succeed In A Market With Just One-Way Traffic. Let’s cut to the chase: Cuba will be a strong charter market for airlines carrying adventure tourists… not much different from a safari to look at oh-so-cute lions eating hapless zebras in Zimbabwe. It’s niche tourism, nothing more.

As a major leisure destination, there aren’t hotels or infrastructure in Cuba that can compete in quantity or quality with other venues. There are more hotel rooms on just the Las Vegas Strip than in all of Cuba – and what’s there is far from five star properties, too. Whatever Cuba has in beaches and resorts, there are none that are standouts from the rest of the Caribbean.

They Don’t Want Business Investment – Even If There Were Consumers There. As for the rah-rah about the business opportunities in Cuba, when it comes to this travel sector, airlines can be assured of carrying mostly sailboat fuel.

In fact, the Cuban government has made it clear that they aren’t going to do anything to change their economic policies, US embassy or not. In fact, now that diplomatic exchanges have been made, Fidel Castro has come out demanding the US pay damages to Cuba. Again, the welcome and excitement are all on the US side.

Unless There Are Major Changes On The Cuban Side, It’s An Air Service Cadaver. Oh, yeah, this sure is the place for airline expansion, right? Sounds good on paper, but when the facts are outlined, trying to toss an A-320 into José Martí International on a daily, scheduled basis, intended to capture all that vapor traffic would be pretty embarrassing to the carrier’s bottom line. Remember, there is little or no outbound traffic from Cuba – regardless of what the Cuban government might say, the population is not allowed to freely leave the country. There aren’t going to be a lot of round-trip tickets sold in Havana.

So, here’s the reality. The tourist sector will be adventure travelers, not mass volume. There is no business base in Cuba, and that means business travel is going to be zip. And finally, Cubans don’t have the money or the permission to book a seat out of the country.

Drop The Hype. In Context, There Are Much Better Places To Expand. Here’s a news flash for the US airline industry. Havana isn’t high on list for fully-scheduled daily flights – from anywhere in the US. Business is business.

The Medianoches May Not Be As Good, But There’s More Revenue In Mississippi. For US airlines looking for new scheduled revenue opportunities, there are far more productive places in the US than Havana, or Santiago, or Cienfuegos, or Santa Maria. All the airline press releases about “how we’re excited about the Cuba opportunity” are pro-forma, and in the hard light of raw economics, Havana makes less sense for a 737 than Presque Isle. If political pressures or corporate hubris push carriers to operate daily scheduled flights, they’ll be loss leaders.

Regardless of public comments, US airlines are going to put their resources where they have the highest return. And Havana is a long way from the top of the list. As just one example, Golden Triangle Airport in Mississippi has more air service potential in the foreseeable future than does Havana.  Lots more. We’re talking global revenue, not news-capturing excitement of a ribbon-cutting in Cuba. This sounds weird, but, again, business is business.

That is not hyperbole. Let’s repeat it: there are much stronger airline revenue opportunities at GTR than there are at HAV – or all of Cuba, for that matter. Columbus, Mississippi has what Cuba does not have – a burgeoning manufacturing industry, a trained workforce, and an incredible foundation of global businesses based in Japan, Israel, France, and the Netherlands, all of which generate enormous levels of international traffic.

Havana? It’s got the Malecón and Hemingway’s house. All may be quaint and mysterious, but from an economic perspective that can deliver system air passenger traffic, it’s got bupkis compared to other places to which airlines can toss airplanes. Cuba has no heavy industry to speak of. No ready mass tourism that’s much beyond the curious fringes. No ready and trained workforce that has discretionary money to spend on travel. And nobody in the rank-and-file populace who has the pesos or the permission to travel out of town, anyway.

Let’s get real. If an airline planner suggested service to a place in the US with those characteristics, his career would get drop-kicked out the front door of the building.

To the travel industry: stand down. Cuba has enormous airline potential. But it’s at least five years and one government change away.