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Cuba: at the dawn of a revolution, a look at a century of tourism

The United States President, Barack Obama, announced renewed relations with Cuba two weeks ago after 52 years of embargo. While he must also convince Congress -still hostile to totally lifting the embargo- to allow United States citizens to travel to Cuba, this news could totally change the picture for Cuban tourism. The history of tourism in the island offers hindsights about what the country's touristic future could be, should this "revolution" come true.

Key figures:

  • Population : 11.3 million including 2.1 million in Havana
  • Number of visitors: 2.8 million (2013)
  • Number of hotels: 304
  • Number of beds: 107,246 beds




With nearly 3 million visitors each year, Cuba has all it takes to be a leading touristic island: beach resorts such as Varadero, Unesco World Heritage Sites (center of Havana and Camaguey), ten international airports, a tropical climate, internationally famous specialties (cigars, rum), etc. Today, three major tourism centers drive tourism on the island: the capital of Havana, the beach resort Varadero and Guardalavaca and its paradise beach. Despite excellent health and education systems, the island has remained stuck in a precarious economic situation for decades due to the American embargo. Supported by the former USSR until its collapse, Cuba then found itself isolated from the international arena. Tourism quickly became its saving grace after being initially decried by Fidel Castro and later being accepted as one of the primary sources of revenues (and international currency) on the Island.

Tourism to revive the country's economy







    Tourism benefited Cuba very early on. The sector began to develop in 1915, especially in Havana which was then the most touristic city in the Caribbean. The nearby United States played an important role since an important number of tourists in the North East became used to travel there during the rigorous New England winters. It must also be remembered that at the time Havana had a good level of hygiene compared to other cities in the Caribbean Islands. Finally, the prohibition (alcohol and gambling) in the United States had a powerful impact and Cuba benefited from it until the 1930s. The Great Depression and the Second World War then slowed the economy in the country, and it wouldn't be until the 1950s that tourism would make a comeback, with the mafia, gambling, drugs and prostitution as its backdrop.

    But in 1959, Fidel Castro overthrew the pro-American dictator Fulgencio Batista. This Cuban revolution led to the prohibition of gambling, drugs and prostitution. Castro viewed tourism unfavorably. With the instauration of new policies and above all the American embargo that began in 1962 under John Fitzgerald Kennedy, the number of American tourists dropped. As 90% of foreign arrivals were from the United States (the island had received 275,000 American arrivals in 1957), tourism collapsed. The American embargo forced Cuba to turn toward the USSR and the island lived of the USSR until the regime collapsed. Cuba exported sugar and nickel to the USSR. But the USSR's difficulties would make Cuba even more fragile and Castro needed to find new growth engines for Cuba's economy.

    By 1986, Castro campaigned to "rectify mistakes and negative trends". In the early 90s the fall of the USSR plunged Cuba into a serious crisis and exports fell 70%. To put Cuba's economy back on its feet, a whole series of reforms were implemented to encourage tourism, which became a key lever the island's economy. Thanks to these reforms, the number of international tourists rose back. National corporations invested in the sector with help from foreign firms. More than thirty or so joint ventures were thus created with Canadian, French and Spanish funds.

    Tourism development driven by Canadians and Europeans

    Tourism has been growing at a solid rate since 1985 despite periods when it dropped. Until the 2000s, international tourist arrivals grew constantly prior to experiencing a first significant drop in 2002. There was in fact a global slump in tourist flux due to different events: the 9/11 terrorist attacks in New York, and then, to a lesser extent, the SARS epidemic. The increase in prices for airline tickets to Cuba and the development of competing beach resorts in the Caribbean, and especially in the Dominican Republic, have also slowed tourist activity in Cuba. In 2006 and 2007, Cuba experienced a new drop in international arrivals due to a market that remained very competitive in the Caribbean. The George W. Bush administration also strongly enforced the embargo and made it more difficult for Cubans residing in the United States to obtain visas to travel to the island.

    The American continent is the main source market for tourism in Cuba with a strong presence of tourists from Canada and Quebec in particular -244,000 in 2013. Overall, Canada and its 35 million inhabitants generated more than 1 million tourist arrivals in Cuba. Despite the embargo and difficulties obtaining visas, tourists from the United States accounted for more than more than 180,000 arrivals in 2005 (business travel, sports, Cubans living in the United States). However, considering the size of the US market (with a population of 316 million) and its geographic proximity to Cuba, the number of American tourists to Cuba could in theory be 9 to 10 times greater than its Canadian counterpart, thus representing a large untapped potential for Cuban tourism.

    European guests are the next most present in Cuba although their number stagnated between 2008 and 2013, due to the crisis. Germans, British and French tourists are the primary nationalities. Tourists from Africa and the Middle East are not very present while Asian and Pacific clientele have increased in recent years.

    While Cuba benefits from the presence of Canadian and European tourists, the American embargo led to considerable profit loss: fewer tourists from the United States (who accounted for 90% of total arrivals sixty years ago), fewer revenues, and the rising strength of competitors - like the Dominican Republic or Puerto Rico - in the archipelago. The Caribbean is also one of the most attractive for cruise tourism with 50% of world traffic. Nonetheless Cuba does not currently benefit from this attractiveness since cruise companies, like clientele, mostly come from the United States.

    Cuban hotels: caught between protectionism and opening up to the world

    Since 1990, driven by the reopening of the island to tourism, Cuba has experienced constant growth in terms of number of beds to reach more than 107,000 beds in 2013. Many hotels are operated by the Cuban government which has 5 national hotel chains: Gran Caribe, Cubanacán, Islazul, Gaviota and Habaguanex. The most important, Cubanacán, is a mixed company, 51% owned by Cuban authorities, that operates 58 hotels and 48 restaurants. Early on, Cuba opened its companies to foreign capital, especially Canadian and European. International chains that are not American were thus able to invest in Cuba's hotel market, always in the form of a joint venture: Meliá (26 hotels), Barcelo, Accor (3 hotels), NH Hoteles, Oasis Hotels, etc. In January 2015 the Spanish hotel group Meliá will inaugurate its biggest 5-star hotel worldwide in Cayo Coco with 1,176 rooms. Accor will open a Pullman in 2015 and other projects are under study for 2020, with the possibility of an Ibis in particular. When it comes to Club Med which closed its only complex in Varadero, today it plans to reopen a property there. Finally, since 2010, the government simplified procedures for foreign groups to acquire land with a 99-year lease.

    In terms of hotel performances, Cuba experienced a significant drop in hotel occupancy rates between 1989 and today. In 1989, the occupancy rate flirted with 80% while in 2013, it struggled to reach 60%. Between 1989 and 1994, the average occupancy rate followed a downtrend. The lowest point was reached in 1994 when the OR was 53%. After improvements until 2000, the occupancy rate fell again in 2001 and then remained relatively stable, as growth in supply and demand balanced. Competition from other islands together with the embargo may explain these hotel results that are average in terms of occupancy even if the cost structure (personnel in particular) makes hotel operations viable, even for those with mediocre occupancy rates. The increase in number of rooms and the regularization of casas particulares (accommodations private homes) also had an impact on the performance of Cuba's hotel industry. But performances (occupancy, average daily rates, RevPAR) and the current offer would naturally be revolutionized by the return of clientele from America a natural source for the island. International chains would be well positioned to benefit from this, particularly since their performance is already higher than the local average, with occupancy rates generally above 65% in 2014 (source: MKG Hospitality Database).





    Can Cuba rise and reach its potential?

    Since 2010, Raul Castro, who became president further to Fidel Castro's health problems, has undertaken many reforms in favor of tourism, particularly in terms of infrastructures: golf courses, marinas, thalassotherapy centers, modernization of the port of Havana... Today Cuba remains a relatively expensive destination for Europeans compared to the Dominican Republic, which has frequent air service from Europe. Meanwhile, Cuba is not expensive for Canadian clientele who benefit from good and cheap airline connections. But the end of the American embargo and potential authorization of tourism to Cuba could revolutionize the island's market: new cheap air connections from the US could arise quickly as Americans rush to discover the island for the first time, and Cuban-Americans eagerly return to their roots. 

    Aware of its tourism potential and with 3 million visitors per year, Cuba hopes to develop tourism trends that will boost revenues from tourist arrivals: luxury tourism - with golf as enticement -, nature tourism (national parks) and marine tourism (scuba diving).

    The evolution of tourism in Cuba will largely depend on the United States Congress's decision whether it will allow (or not) tourism to the island. If the embargo is officially lifted, Cuba could experience a large wave of tourist arrivals that would revolutionize its hotel results and revenues and the country's economic environment overall.
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