US Travel Companies Need a Long-Term Perspective to Capitalize on Cuba

US Travel Companies Need a Long-Term Perspective to Capitalize on Cuba

US Travel Companies Need a Long-Term Perspective to Capitalize on Cuba

The FINANCIAL -- Two years after travel restrictions between the US and Cuba started to ease, interest in the island remains strong and growing among US travelers.

According to a recent article by The Boston Consulting Group (BCG), more than 2 million US citizens could visit Cuba each year by 2025, accounting for more than half the travelers to the island at that point. The article, titled “Taking the Long View on Cuba’s Tourism Opportunity,” is being published today.

Just 90 miles from Miami, Cuba represents one of the last authentic travel destinations in the Caribbean. Direct flights from the US to Cuba, along with new cruise itineraries that include stops on the island, are making it far more accessible to US travelers. From 2014 through 2016, the number of US travelers to Cuba increased 77%. Moreover, BCG analysis shows that many travelers could begin opting for trips to Cuba instead of other Caribbean destinations, such as the Dominican Republic, the Virgin Islands, Mexico, or the Bahamas.

As US travel to Cuba increases, however, growing pains are inevitable. Travel infrastructure on the island is severely outdated, meaning rough roads, unreliable tourism services, and inadequate customer service levels. In addition, some skeptics say that recent announcements by US travel companies indicate that the industry might have overestimated demand. Several US airlines have scaled back the number of flights to Cuba, and one cruise line has pulled out of the market.

Yet the article suggests that such fears are overblown, and it underscores that the long-term outlook for US travel to Cuba is still extremely positive. “These shifts are the fairly typical of what you see in any fast-growing market,” says Marguerite Fitzgerald, a partner at BCG and the author of the article. “The reality is that US travel to Cuba is still in the nascent stages, and players in all segments are still figuring out how to make it work.”

Key Takeaways for Three Segments

The article offers specific prescriptions for travel companies in different segments:

Airlines must address an imbalance in demand for Cuban destinations. About 80% of survey respondents cited the capital city Havana as their primary destination, and most simply aren’t familiar with other Cuban cities. As a result, about 60% of the island’s flight capacity goes through Havana—where the airport is bursting at the seams—even as carriers see empty seats on flights to other destinations on the island. Airlines could address this imbalance by educating US travelers about other Cuban cities, potentially promoting them as more authentic and undeveloped. Airlines could also capitalize on growing demand from Cubans living in those cities who want to travel elsewhere.

Cruise lines must address infrastructure constraints in port cities. Current travel restrictions mean that US travelers need to visit Cuba as part of a cultural exchange. For cruise passengers, that requires a cultural element—such as a museum visit—at each port stop, for a one-day influx of about 2,000 travelers. Getting meals in port cities is also a challenge, given that Cuban residents routinely experience food shortages. In response, cruise lines will likely need to work directly with Cuba’s Ministry of Tourism to ensure that destination cities can handle the rush.

Hotel companies must increase the number of available rooms and improve customer service. The growing interest in Cuba—and particularly in Havana—is leading to a shortage of hotel rooms, and rates are much higher than average for the region. US hotel operators that don’t move fast to increase capacity might find travelers choosing alternative lodging such as Airbnb (which operates on the island). In addition, US hotel chains will need to take concerted steps to improve customer service—a particular challenge given that employees on the island, even those hired by US companies, must technically be employed through the Cuban government. As with cruise lines, hotel companies will need to work directly with state agencies.

Despite these challenges, Cuba represents an extremely promising growth opportunity for the US travel industry. “Success will require unusual—and unorthodox—approaches,” says Fitzgerald. “The demand is strong and growing. Companies that take a long-term approach can capitalize on this once-in-a-generation opportunity.”