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

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

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.

The Four Points by Sheraton Havana is owned by Gaviota SA, which is controlled by the Cuban military. Gaviota controls about 40% of hotel rooms in Cuba.

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

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