Commercial Air Travel Will Stunt Charter Flights

HCG BUSINESS INTELLIGENCE UNIT

When commercial airline transportation is established, charter airlines - who have dominated the market since the end of the 1970s -will lose business while travelers will see a reduction in air fares


 Passenger air travel between the U.S. and Cuba has been dominated by charter flights for many years. Regularly-scheduled flights between the U.S. and Cuba were suspended in 1961, with charter flights since then the only means of passenger air travel between the two nations. In the last six years, charter flights grew by leaps and bounds, particularly since President Obama eliminated the regulation put in place by his predecessor President Bush that allowed CubanAmericans to travel to the island only once every three years. 

As shown in Figure 1, the number of charter flights to the island has grown steadily , rising by 135.62% between 2010 and 2015, from 1,996 flights in 2010 to 4,794 in 2015.

Figure 1. Charter flights from Miami and Tampa grew by 135.6% since 2010.

Another factor boosting the number of charter flights is the relaxation of requirements on the travel of American citizens to Cuba under academic and cultural exchange programs generally known as people-to-people travel.  At present, such people-to-people travel is authorized for 12 categories of travelers.  To accomodate the growth in demand for travel to Cuba in 2010-2013, numerous agencies organizing charter travel services and selling charter travel tickets sprung up in the U.S. Between 2011 and 2013, the number of agencies organizing charter flights to Cuba grew by 158.33%, while the number of agencies selling charter travel tickets rose by 382.35%, as can be seen from Figure 2 .

Figure 2.Agencies and ticket sales had a healthy growth in 2011-2013.

The average price of airline tickets to Cuba has risen in response to the strong demand for travel. In 2012, the average price was $419 dollars per ticket, while it was $486 in 2015, 16% higher . Figure 3.

Figure 3.The average price of airline tickets rose by 16% since 2012.

The estimated value of airline ticket sales to Cuba in 2012 was $177.6 million dollars, compared to $348.48 million dollars in 2015, an increase of 96.16%. See Figure 4.

Figure 4.The value of sales of airline tickets to Cuba almost doubled since 2012

In 2015, the market for charter flights to Cuba was dominated by the airline World Atlantic, which flew 1,142 flights, followed by mega-company American Airlines with 977 flights. See Figure 5.

 Figure 5.The top five airlines conducted 78% of the charter flights.

Commercial Air Travel

In the context of the thaw in U.S.-Cuba relations, the two countries reached an understanding that will open the way for the resumption of commercial flights . This development raises several questions for the owners and clients of travel agencies: Will prices of airline tickets fall in the future? Will it be possible to buy tickets online? Will charter flights disappear altogether? Will the small agencies that until now enjoyed a monopoly over charter flights survive? Which airlines will participate in the commercial air flight market? The monopoly held by charter flights is very likely to disappear in the near future, bringing about a radically different scenario in which there will be some competition.  It is conceivable that large U.S.

commercial airlines such as American Airlines, Delta and Jet Blue could break into the Cuban market, introducing flights priced at between $150 and $250 dollars to more than 9 destinations in the island.  This would mean prices between 48.55 % and 69.13% lower than the the average price for charter flights from the U.S. to Cuba in 2015. That is, at the lower prices, it would be possible for two travelers to fly to the island for the price one traveling on a charter flight in 2015.

 

In Figure 6 we project the number of flights to Cuba for the next four years based on the historical record of charter flights from 2011 to 2015 and the increasing demand of air passenger transportation from the U.S. over this period. According to the projections, the number of commercial flights from the U.S. could reach 3,192 or 67.89% of the projected number of flights in 2017 , compared to 1,850 charter flights or 21.11%. See Figure 6.

In the short term, American Airlines will probably lead commercial flights to Cuba with a projected 3,976 flights or 68.84% of the market in 2018, followed