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Cuban tourism: when détente brings a new revolution

It would be hard not to notice the leading role played by Cuba in the news following Barack Obama’s historic announcement setting the stage for lifting the embargo on Cuba. On December 17, 2014, the American President turned the page on a tumultuous and painful history of more than fifty years, putting an end to this singular anachronism to finally “bury the last remnants of the Cold War in the Americas.” If there is one sector that is feeling the impact of this tectonic shift, it is certainly the tourism and the hotel industry.

Plenty of airplanes full of other visitors have landed on the tarmac in Havana in the wake of Air Force One last March for the first visit of an American President on the biggest island in the Caribbean since 1928. Thus, on August 31, the first scheduled flight from the United States landed in Santa Clara, the final home of Ernesto “Che” Guevara, a symbol following the cessation of airline connections between the two countries in 1961. Many American tourists, however, did not wait for this summer to plan their stay in the socialist republic that had been a forbidden fruit for so many decades – lest they undergo a complex procedure requiring specific recourse to a limited number of agencies approved by the federal administration.

One such agency is insight Cuba, and it is directed by Tom Popper. With more than fifteen years of experience on the Cuban market, he is at the forefront to witness the tourism wave that spread across the island in the last two years. “Following Obama’s announcement, the number of tourists assisted by insightCuba for travel within the ‘people-to-people’ category increased by +50% between 2014 and 2015 – and we expect to see further growth in this figure by +30% in 2016.” This dynamic is confirmed by Cuban tourism authorities: close to 160,000 visitors travelled to the island on American passports in 2015, representing rapid growth by +77% with respect to the previous year. According to the President of insightCuba, “this phenomenon is firmly anchored in the American psyche. Since 1961, Americans were told: ‘you can’t go there.’ And yet the United States are so close not only geographically but also through the Cuban culture, food, music… This is a special relationship, which explains this desire to discover this country for what it really is. Once they go down the plane’s stairs, breathe the Caribbean air, visitors have this unique feeling that they are discovering a society that is bustling. Today, our clients quote two reasons for their wish to visit the country: because they can, and because they want to ‘see Cuba before it changes forever’.” This is the message conveyed by the one million additional tourists who were drawn to the charm of the island last year, consecrating it as one of the new unmissable destinations in the global tourist landscape. This is especially true for Canadians (+17.4%), who constitute the leading source market for Cuban tourism with 1.3 million visitors. The major European markets are no exception: Germans (+26%), British (+25.7%), French (+33.8%), Italian (+22.9%) did not skimp on reservations, surpassing the major source countries in Latin America: Mexico, Venezuela and Argentina.

With the entire globe keen to explore this strip of land lapped by the waves of the Caribbean, this sudden interest could be felt rapidly by tour operators and hoteliers. Indeed, hotels remain full and prices continue to rise, while construction and renovation projects multiply in the colourful streets of Havana and other destinations in the country. Many aim to revive the former luster of the casas particulares, homes that are rented to tourists by Cubans – a practice authorized since 1997 to provide local populations with an additional source of revenue.



Alongside the national champion Gaviota, Spanish operators Melia Hotels International (28 properties totaling 12,447 rooms) and Iberostar Hotels & Resorts (11 hotels and resorts, 4,351 rooms) currently dominate Cuba’s hotel market, with a portfolio that is particularly dense at the leading beach destinations in the country. Now that they are authorized to operate properties on the island, American groups are no longer out of the game. “Given the growth opportunities for our industry in Cuba, there should be plenty of opportunities for US firms once the doors are open,” estimates Frank Comito, CEO and Director General of the Caribbean Hotel and Tourism Association (CHTA). Further to agreements between Starwood Hotels & Resorts and Cuban authorities last March, the operator, recently acquired by Marriott International, inaugurated its first unit on the Cuban market this summer under the brand Four Points by Sheraton. This announcement constitutes an event in that it will be the first address operated by an American hotel group since 1959 and the start of the Cuban revolution. Once again located in the capital, in the Miramar neighborhood, the property is a reconversion of the Quinta Avenida Habana hotel. Managed by the American group, the property is owned by the Gaviota group, a key stakeholder in the country’s tourism industry. After renovations to bring it up to international standards, the address now has 186 rooms. During Barack Obama’s history-making trip to Cuba, the hotel group announced the signature of contracts with a goal to develop three units in the Cuban capital. Starwood will also manage the Hotel Inglaterra (83 rooms) and hopes to obtain that of the Santa Isabel (27 rooms), as these two properties should join the upscale brand Luxury Collection.



According to insightCuba’s president Tom Popper, “the timing is perfect” to give a new boost to Cuba’s hotel supply. “It’s the right time to improve existing properties, particularly through the development of management contracts. Hotel groups clearly wish to join the market, and are ready to cover expenses for refurbishment works or the construction of new properties. It is also necessary to develop new direct flights, which are not sufficient for certain shoreline destinations – although flights to Cuba are opening up each month from China, Europe... With the end of the embargo in sight, it is time to invest in Cuban tourism.” According to the CEO of the CHTA Frank Comito, this trend should gain momentum “with hotel investments in historic urban centers, not just Havana but also destinations such as Trinidad and Santiago. The marina sector is poised for growth, and with that we should see new hotels in and around the emerging marinas. Cuba’s master plan for tourism maps out a range of areas targeted for touristic development.”

The segmentation of these new hotel addresses should not upset the current balance of Cuba’s hotel supply. According to data from the Oficina Nacional de Estadísticas e Información, in 2014 5-star properties represented a total capacity of 19,809 rooms in thirty properties, while addresses with 4-star classification were represented by 73 hotels for 20,206 rooms. These two categories alone thus represented 72% of the national supply in terms of number of rooms. From this point of view, the socialist republic is hardly any different from the leading markets in the region that for the most part have opted for generally mid- and upscale resort tourism, as have Jamaica, the Dominican Republic, and just under 200 kilometers to the west, the celebrated Mexican beach resort Cancun.



It is hardly surprising to see hotel projects multiply as the normalization process between Cuba and the United States gets underway, inciting optimism despite the delicacy of the task. While the Cuban government considers the sector to be more strategic than ever for the country’s economy, the Ministry of Tourism is examining the increasing numbers of proposals from foreign investors. The goal is to considerably strengthen the hotel supply in the country, and increase its capacity to grow from close to 63,000 rooms in January 2016 to more than 85,000 units in the next five years. The country also counts on these investments to develop tourism infrastructures, golf courses, marinas and resorts. According to Cuban authorities, the primary challenge consists of modernizing sometimes aging infrastructures while preserving the authenticity that enabled the destination to gain popularity in recent years: even prior to the improved relations between Cuba and the US, the island was the second destination in the Caribbean after the Dominican Republic in terms of number of visitors. In the capital, a dozen leading edge hotel and tourism projects are under study following proposals from international investors, and Spanish ones in particular. Hispanic operators are ahead with respect to their American homologues, after more than a half century of embargo that has left scars. Addressing European tourism representatives at the beginning of the year, the Tourism Minister Manuel Marrero declared, “Cuba would never turn its back on those who collaborated with us when times were tough.”

Hotel development should speed up, as the lack of infrastructures and the increase in rates that went along with its opening is turning into a major handicap for the destination. “The current capacity of Cuba’s hotel supply is still very limited” for hosting this unprecedented volume of tourism arrivals. “Today the properties post occupancy rates of 85%” for the year in the country’s leading destinations, reports Tom Popper. The Bouygues group, a French construction giant, aims to develop upscale properties in cooperation with the public group Gaviota to reach several thousand rooms – including the hotel Manzana de Gomez (246 rooms and suites once renovations are complete), which will open its doors under the Kempinski brand by the end of the year. A pioneering address for the famous luxury hotel group in Cuba, the hotel is located in the center of the UNESCO World Heritage site of Old Havana, the capital’s emblematic neighborhood. Other properties should rapidly follow suit. Developed and operated by Iberostar, the Packard Hotel (300 rooms) should welcome its first guests at its waterfront location in 2017 following renovations; works will be carried out by the Spanish architect and recipient of the Pritzker Prize Rafael Moneo, who conceived the extension of the Prado Museum and the Cathedral of Our Lady of the Angels in Los Angeles, among others. The Sofitel So La Habana (218 rooms, end 2018) will also strengthen the hotel supply in the capital, while necessarily ambitious renovation projects have been evoked regarding the Gran Hotel, the Regis Hotel and the Metropolitano Hotel.





Tourists with more modest budgets may attempt to reserve a room at existing economy properties, although many of these need refreshing in order to rival with international standards – with occasional water and power outages among the factors to be taken into consideration. This is the type of clientele – generally younger and more adventurous – that actors in alternative accommodations, with Airbnb in the lead, are focusing on. The company registered the strongest growth in its history in 2015 on the Cuban market. At the beginning of the year, between 10 and 20% of American tourists to Cuba were already using the platform to choose their accommodations. So it should come as no surprise that Barack Obama, during his recent visit to the island, brought along Airbnb’s founder Brian Chesky, as he felt the service is an undeniable demonstration “of the power of internet.”

While more than 4,000 accommodations are being offered by the platform throughout the country, accommodations with locals are far from being an innovation for Cuba’s tourism industry: according to the Californian entrepreneur, close to 20,000 private accommodations are available in the capital of Havana alone. As the only type of accommodation available at some secondary destinations on the island, where they make up for the shortage of hotels throughout the market today, these thousands of casas particulares are an inestimable resource for tour-operators… as well as for many Cubans, considering the multiplication of renovations taking place in private homes, in a country where tourism professionals and taxi drivers often have higher revenues than doctors.

According to Frank Comito, “It’s an additional accommodations offering, in response to new consumer interest and demand. This should continue to be an area of growth. Cuba may face a challenge similar to that facing most Caribbean jurisdictions – capturing tax revenue from the sector and implementing the necessary standards to protect the guest, the host property, and the reputation of the destination.” Despite its particularities, the Cuban market thus must deal with the same problems as most popular tourist destinations. According to Tom Popper, the possibility of staying with locals is “a fantastic option. In a way, Cubans invented this concept, long before Airbnb! It has become really widespread in recent years, and now authorities provide real support for it. Hotels are not always up to par in the provinces, so we don’t hesitate to use alternative accommodations: there is a broad choice, comfortable accommodations, great service… Visitors are also seeking contact with locals.”

Cuba’s recent opening is thus not the only explanation for its growing popularity as a tourist destination. The island has a unique character that has long enchanted artists, writers, and thinkers. While Cuba's natural riches rival those of other shoreline destinations in the Caribbean and the Gulf of Mexico, its history and heritage are truly unique in this world. The country, which has seven UNESCO World Heritage sites, is particularly well known for the inimitable appeal of its capital, charming small towns with their colorful colonial architecture, and beaches whose beauty rivals that of neighboring Jamaica.



With this diversified offer, the destination can appeal to different profiles of travelers. Urban tourism fans have a wide selection to choose from between the wild nights of Havana (the only city that has a developed, albeit insufficient, hotel supply), the preserved heritage of Trinidad and Camagüey, and to follow in the footsteps of “Che” from Santiago de Cuba to Santa Clara. Lovers of fine white beaches will find their dream come true in the many resort destinations on the archipelago of Jardines del Rey (especially on Cayo Coco, Cayo Guillermo and Cayo Santa María), the region of Varadero, and on tourism dedicated islands such as Cayo Largo del Sur. These regions have a concentration of upscale properties operated by the leading international – especially Spanish - operators, which generally offer ‘all inclusive’ packages at the seaside. Finally, adventurers and ecotourism aficionados alike can head inland to discover the natural riches of the Vallée de Viñales (“The Cuban Yosemite”) or one of the country’s seven national parks. The country is very safe, but the destinations that are farthest from the beaten path continue to suffer from a major shortage of accommodations despite the multiplication of sustainable accommodations.

The Republic of Cuba, which has 253 natural protected areas, actually has a head start on competing markets. It has long been a pioneer in the field of eco-responsible hotels and sustainable tourism growth. “It is a priority for Cuban tourism,” affirms Tom Popper. “Development should be organic; the situation is different from the phenomenon that occurred in some destinations such as Cancun with the tourism explosion in the 1980s. Growth will be visibly slower, thanks to appropriate planning and better monitoring. It is also about resources.” Moreover, it is not just a matter of sustainable development: as is often the case in Cuba, it is also a question of culture and heritage. “It is a central aspect for the character and architecture of Cuba’s hotels. Authorities and in habitants want to preserve buildings and their unique characteristics, there are very strict requirements for restoring buildings dating back to the 1920s, 1930s, or 1950s. Even with a hotel supply that remains low, it is essential to stay in touch with Cuba’s heritage.” Frank Comito is also confident in the capacity of Cuba’s players in terms of pursuing responsible development: “Managing growth and ensuring that the development of physical and human infrastructure and product offerings are up to world class standards is a challenge for Cuba. Much thought has gone into this and the country is in a good position to manage it.”

Despite the optimism that now sees Cuban and American flags flying side by side, some clouds continue to obscure in Cuba’s blue sky. As in the rest of Latin America and the Caribbean, the propagation of the Zika virus has discouraged many potential visitors who are now waiting for a better moment to book their tickets. An inclement winter, competition with the Brazilian market which hosted the Olympics in the summer of 2016, and the drop in tourism flows that generally go hand in hand with the presidential campaigns in the United States, have also weakened growth in arrivals. Cuban authorities are now aiming for 5 to 6% growth in 2016, which should allow the country to surpass 3.7 million visitors. Beyond this difficult economic period currently affecting the entire region, Cuba’s tourism potential remains immense – and that despite the imbalances of a hotel supply that is undergoing restructuring and the fact that the embargo remains a reality. There is thus a strong chance that -beyond current hopes- Cuba’s New Dawn for tourism is yet to come.

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