Trump’s new rules on Cuba travel have industry assessing damage

Tours through Havana in a 1950s classic car are considered a cultural and educational activity under the people-to-people travel rules for Cuba. Photo Credit: Tom Stieghorst

President Trump’s decision to reverse several hallmarks of President Obama’s Cuba policy, including individual people-to-people travel to Cuba, left many in the industry scratching their heads.

Trump called the Obama administration’s deal with Cuba “terrible and misguided” before signing a policy that will require anyone traveling under the people-to-people category to be part of a group, a rollback to pre-2016 rules.

It will also prevent Americans from doing business with Gaesa, Cuba’s Armed Forces Business Enterprises Group, which is involved in myriad parts of the Cuban economy. That prohibition is expected to limit the number of hotels and restaurants tourists can visit.

Trump asserted that “easing restrictions on travel and trade does not help the people; it only enriches the Cuban regime.”

Cuba experts last week disagreed.

William LeoGrande, an American University professor who has written extensively on U.S.-Cuba relations, said, “The irony is the president justified the policy as trying to help the private sector and starve the military, when in fact by banning individual people-to-people travel, the burden of that falls directly on the Cuban private sector.”

On the other hand, the experts agreed that the rollback could have been much more painful. For example, the new policy exempts airlines and cruise ships, which will continue to be allowed to operate. “I think there was a mismatch between the rhetoric during his speech, which was the worst of the hostile Cold War rhetoric, and the actual sanctions that he imposed, which were relatively limited compared to what he might have done,” LeoGrande said. “There is a lot of Barack Obama policy toward Cuba still in place.”

LeoGrande said he believes Trump got a fair amount of pushback from the business community, Republicans in Congress and human rights organizations, all of which objected to reversing the policy of engagement. Moreover, opening Cuba was popular with Americans, with some opinion polls showing as much as 75% supporting Obama’s policy.

Details of the new policy will not be known until the actual regulations are forged by the Department of the Treasury in the coming months.

But last week, as the industry began grappling with what has already been revealed about the changes, Travel Weekly’s editors explored how each industry sector currently expects to be impacted and how each is adapting.

— Johanna Jainchill

Cruise

Question: When does a joyride through Havana in a ’57 Chevy qualify as a cultural and educational experience?

Answer: When it’s part of a people-to-people visit organized under the new, more restrictive rules on visiting Cuba.

Trump’s crackdown on individual visits to Cuba by most U.S. citizens shifted the focus to group travel, including the shore excursions run by the cruise lines that visit Havana and other Cuban cities.

While some of those excursions clearly fit the parameters of the people-to-people, educational activities authorized under an exception to the U.S. trade embargo with Cuba — museums, concerts, school visits, etc. — others seem more like garden-variety tourism.

Visitors on cruise ships can be taken to a show at the Tropicana Cabaret, drink at bars that writer Ernest Hemingway used to frequent or take a ride across the city in a vintage 1950s American car.

Most cruise lines that visit Havana, including those operated by Carnival Corp., Norwegian Cruise Line Holdings and Royal Caribbean Cruises Ltd. (RCCL), offer a version of touring Havana in classic American cars.

For $299 per car or $99 per person, depending on the cruise line, passengers can spend a couple hours in a car that sports the fins, chrome, rocket taillights and two-toned pastels popular in the 1950s.

“Feel the breeze through your hair as you ride along the Malecon and through downtown, passing the U.S. Embassy, El Capitolio and the Gran Teatro,” reads the promotion for one such tour.

While this doesn’t seem like the eat-your-spinach experience implied in the phrase “educational exchange,” long a cornerstone of allowed tourism, cruise lines said the classic American car tours still fit the bill.

Moreover, the car tours have all been approved by the U.S. Treasury’s Office of Foreign Asset Control (OFAC), which has to sign off on such exchanges offered by sponsors of people-to-people contact, such as the cruise lines.

Harry Liu, spokesman for Norwegian Cruise Line Holdings, whose tour is called Modern Havana in an American Classic, said it falls under a “cultural and educational experience” under OFAC rules.

“We’re exploring the culture and learning about the culture, and part of the Cuban culture is these cars,” Liu said. “They’re well known for their classic car culture.”

The large number of operational 1950s American cars stems partly from the U.S. embargo and partly from Cuban law, which until a few years ago banned private ownership of vehicles that weren’t owned prior to the 1959 revolution. The result is a distinct experience not common to any other city, the cruise lines argue.

A second line of argument is that cultural exchange takes place between cruise passengers and their Cuban driver and guide. Thousands of Havana residents make a living as taxi drivers or tour guides, and each has a different story and point of view.

“The driver is driving you through his city, and this is a cultural exchange,” Liu said.

A third rationale is that the tour stops are educational in themselves. One Royal Caribbean International tour takes passengers to two grand parks, past the Cuban capitol building and to the vast Plaza de la Revolucion, site of a monument to Cuban patriot Jose Marti.

RCCL global corporate communications manager Owen Torres said the excursion “provides a guided group exchange activity where our guests visit many of Havana’s notable historical landmarks … and are provided an opportunity to engage in meaningful interaction with individuals in Cuba.”

Cruise lines have to meet defined criteria to offer excursions as people-to-people exchanges, said Seth Unger, deputy assistant secretary for public affairs at the U.S. Department of the Treasury.

Among other things, they must structure tours so that travelers “maintain a full-time schedule of educational exchange activities intended to enhance contact with the Cuban people, support civil society in Cuba or promote the Cuban people’s independence from Cuban authorities.”

Unger didn’t comment on how specific cases meet the criteria.

Another issue that could impact cruise passengers is whether they will be permitted to walk off the ship and explore on their own, as they are now, or if because of the new directive they will have to take official shore excursions. Until the policy is formed, the cruise lines don’t know.

— Tom Stieghorst

Tours

Tour operators offering licensed people-to-people group tours to Cuba have been doing damage control to confront uncertainty surrounding the new policy, even as they consider the potential boon to their business that the end of individual travel could mean.

“The new regulations have already increased the confusion that exists around travel to Cuba,” said Tamar Lowell, CEO of Access Trips. “When people see headlines such as ‘Trump clamps down on travel to Cuba,’ they think that they have missed the opportunity to visit the island nation. It is important for us to get the word out that our tours are not changing and that we are here to help them realize their dream of exploring Cuba’s fascinating culture.”

Lowell said that confusion could dampen the potential increase in demand that tour operators are hoping to experience with independent people-to-people travel suddenly off the table.

However, Todd Powell, co-founder and CEO of Vacations by Rail, which began offering Cuba packages under President Obama, said it’s up to tour operators to seize on the increased exposure Cuba is getting and to change the dialogue.

“Cuba’s back in the news,” Powell said. “Once it’s back in the news, people are looking at it. That still raises the visibility of it as a destination. It’s always regrettable whenever there’s a restriction on travel, whether it’s Cuba or elsewhere, [but] it provides an opportunity to say this is still available and we can provide you with options.”

Licensed tour operators doing business in Cuba don’t expect much to change for them regarding regulations. But like much of the industry, they are in wait-and-see mode regarding whether any of the accommodations, eateries or other businesses they interact with on their tours will be off limits until the State Department determines what those entities are.

Tom Popper, president of Insight Cuba, said that based on the initial guidance provided by OFAC, his company has already audited many of its partners on the ground to get a sense of which ones the company ultimately might be required to disqualify.

“There’s a question of one or two hotels that may be affected,” Popper said.

Due to the shortfall in hotel capacity created when demand to Cuba ballooned during Obama’s presidency, some tour operators had already been relying more on less conventional accommodations such as vacation rentals and home stays, which are less likely to be affected by the new rules.

Access Trips, for example, only uses private accommodations, such as villas and apartments, for its Cuba program.

How the new regulations will impact inventory, demand and pricing remains to be seen. While it could result in fewer travelers choosing to go to Cuba in the short term, the possible loss of some hotel inventory for U.S. tour operators could ultimately mean that Cuba isn’t going to get any cheaper anytime soon.

“If other tour operators begin using private accommodations, the competition for the best properties will remain high,” Lowell said, noting that prices for private accommodations have skyrocketed in the past 18 months. “The new policy will absolutely dissuade people who might have otherwise traveled independently on a budget. People-to-people tours are not inexpensive.”

— Michelle Baran

Hotels

Hotels could be the sector most damaged by the new policy, with Trump’s moves likely to constrain hotel investment from both the U.S. and overseas. It will also eliminate some of the increased pay Cuban hospitality workers have received as inbound tourism has jumped in recent years, according to industry players and analysts.

With Americans accounting for more than 15% of the record 4 million inbound visitors to Cuba last year, both Marriott International, which oversees Cuba’s only U.S.-run hotel, and Geneva-based Kempinski, which earlier this month opened what it called Cuba’s first five-star luxury hotel, were critical of the policy change.

Trump’s decision and its “full effect on our current and planned operations in Cuba may depend on related forthcoming regulations,” Marriott said in a statement. “As Cuba moves to reform its economy in the post-Castro era, American businesses should be present to lead by example.”

Prior to Trump’s June 16 announcement, Kempinski had stated that further U.S. travel restrictions “would not be favorable for any kind of businesses connected to tourism,” but the hotelier declined to comment further.

The Trump administration’s decision to target entities controlled by the Cuban military will have a particularly acute impact because the military controls Gaviota SA, which accounts for about 40% of the island’s approximately 64,000 rooms, according to the Brookings Institute. Another 56% of Cuba’s hotel rooms are controlled by the Ministry of Tourism’s three hotel divisions: Cubanacan, Gran Caribe and Islazul.

Gaviota owns both the 246-room Kempinski and the 186-room Four Points by Sheraton Havana.

Starwood last year reached an agreement to add Havana’s 83-room Hotel Inglaterra to its Luxury Collection, though Marriott, which acquired Starwood in September, has yet to take over the Gran Caribe-owned property.

Trump’s decision comes at a particularly dicey time, because many of Cuba’s notable hotels have been neglected for decades and are slated to receive improvements that require financing from non-Cuban hotel companies such as Marriott, Iberostar and Melia, according to Collin Laverty, president of Cuba Educational Travel.

“The Inglaterra needs a lot of work,” said Laverty, who regularly visits Cuba. “The Habana Libre, that’s in tough shape. And the Hotel Riviera [which was built by organized crime boss Meyer Lansky in 1957] is falling down, though Iberostar has signed on to repair that.”

Moreover, Trump’s assertion that increased U.S. travel to Cuba primarily benefits the country’s military belies the impact that tourism and room demand has on the country’s hospitality workers, Laverty said.

About 30% of Cuba’s hotel revenue gets paid out in wages, according to the Brookings Institute. While daily rates can range from $25 at independent boarding house/hostel-type accommodations to about $200 at the Four Points by Sheraton Havana to as much as $1,400 for the Kempinski’s Suite Esquina, Cuba’s average daily rate last year was $95, according to STR. With 2016 revenue per available room jumping 11%, to about $61, Cuba’s 2016 hotel revenue was about $1.2 billion, suggesting that some $360 million was paid to Cuban hotel workers last year.

And while those workers’ base wages are as low as $25 a month, workers can earn 10 times that amount in tips, according to the authors of the Brookings Institute report and Laverty. And those figures don’t factor in Airbnb, which claims that its Cuba hosts have generated about $40 million from 560,000 guest arrivals since Airbnb debuted in Cuba in April 2015.

— Danny King

Airlines

Also exempt from the new directive, airlines have mostly steered clear of commenting on the impact the Trump travel policy could have on their nascent commercial service to Cuba.

For example, JetBlue issued a statement that said, “As we do in all of our markets, we will continue to evaluate demand and route performance and will adjust capacity as needed.”

JetBlue did note that it would continue to pursue its pending request before the DOT for approval of a weekly Boston-Havana flight as well as six additional flights per week to Havana from Fort Lauderdale. Southwest will also pursue its request for an additional daily Fort Lauderdale-Havana frequency.

Still, John Kavulich, president of the U.S.-Cuba Trade and Economic Council, said airlines are likely to reduce frequencies and aircraft size.

“The most progressive and proactive strategy for airlines,” he said, “is to lobby the government of Cuba to permit as many proposals from U.S. companies as possible during the next 90 days, so the landscape that will be disrupted by regulations will be as limited as possible.”

— Robert Silk

Travel agents

Most agents said that they expect their businesses will see little impact from the new directive, because despite the recently relaxed rules, they have been mostly booking group travel to Cuba all along. Some even said the reversals could drive business their way.

“I don’t know how much harm it’s really going to have to the agency sales of Cuba,” said Libbie Rice, co-president of Ensemble Travel Group. She said the agency community mostly books group tours.

In the longer term, however, Rice said Cuban infrastructure could suffer from a lack of investment by American companies.

“The feeling was that there were not enough hotel products for what the American market wants in terms of four- and five-star properties,” she said. “That is going to slow down, so that when it does in theory open again, they will not be ready, again, for it.”

Joe Pcolinsky, who handles Frosch’s destination specialists portfolio, has been a proponent of using tour operators licensed to operate in Cuba all along, which he said most agents do. He predicted agents might even see a bump in business from consumers who need assistance navigating the new rules.

“It’s one of those few destinations that someone will … spend five minutes online and say, ‘Screw this, I’m calling a travel agent,'” he said. “In a way, it’s going to help us, [and] it’s going to help our partners.”

Erika Richter, ASTA’s director of communications, also predicted that the new regulations would highlight the need for travel professionals. However, ASTA is currently focused on getting involved in the rulemaking process and communicating to members what the changes mean.

Questions remain regarding several key areas, she said, such as the impact on tourists as a result of outlawing direct transactions with companies controlled by the Cuban military. Questions also remain about what audits on American travel to Cuba might look like with the enhanced restrictions.

“Not only are we going to be a part of the rulemaking process, but we have an eye toward keeping Cuba a viable destination for U.S. travelers to the extent possible,” Richter said. “So we plan on pushing that as hard as we can but at the same time, keeping our members updated.”

— Jamie Biesiada

Travel Weekly, June 25, 2017

This entry was posted in Normalization of Relations. Bookmark the permalink.