When the era of the thaw in diplomatic relations between the governments of Cuba and the United States began on December 17, 2014, the Cuban tourism industry received a strong shock, anticipating the entry of American tourism to the Cuban economy.
One of the sectors of the tourism industry from which Cuba could benefit is the cruise business. Nevertheless for more than half a century cruise ships could reach Cuban shores from the US. With the thaw, this changed and the tourism industry of the region was renewed with the full incorporation of Cuba to the circuits of the North American tourist ships in the Caribbean. Havana and other ports of the island had received cruise ships for years, but they were vessels of small size and not owned by US cruise lines.
This event opened a new space for the re-launching of the Caribbean as a destination for cruise travel. American tourists, already saturated with the Caribbean destination. could now return to cruise ship vacations in the Caribbean with the possibility of visiting and enjoying places that had been closed to them for more than half a century. Undoubtedly, Cuba, with its colonial cities, beautiful beaches, and history, has the potential to refresh the industry.
Despite the avalanche of companies interested in doing business through cruises and ferries, Cuba has missed the opportunity to attract investments to prepare the Cuban ports to create the conditions to receive the so-called "floating hotels" and be part of the travel circuits that now exist in the Caribbean. Nevertheless, some 20 companies managed licenses through OFAC to operate in Cuba. See Figure 1.
Figure 1. Cruise and ferry companies that obtained an OFAC license to operate in Cuba
Source: Havana Consulting Group based on information published by various media
Note: * refers to European companies
Instead, the Cuban authorities gave priority to tourism that arrived by air, because it resulted in higher levels of revenue, an erroneous view of the tourism business that Cuban authorities had developed from earlier years.
Background
The first foreign investments in cruise terminals in Cuba occurred in 1998. A joint venture was created between the Cuban company Cubanco, S.A. and the Italian company Silares Terminales del Caribe. The venture was set up to administer cruise terminals in Havana, the Isle of Youth and Santiago de Cuba.[i] This opened the way for more than a dozen European cruise companies -- mainly from Spain, Britain, Italy, Germany and France -- to operate in Cuba.
The Cuban government gave Silares S.A. the concession to administer several Cuban ports for 20 years, with the possibility of extending the term for 20 more years. The docking facilities leased in this contract were Sierra Maestra 1, 2 y 3 in Havana Bay; the Osvaldo Padrón pier in Mariel; the Rolando Roca Pacheco dock in Santiago de Cuba; Punta Francés in the Isle of Youth; and Matanzas[ii].
In a matter of a few years, the number of cruise arrivals to Cuba showed a notable increase. In 2002, around 46,000 tourists visited the island in approximately 60 cruise ship stopovers. In 2004, the figure had risen to 102,440 tourists in 123 stopovers. Revenue from cruise ship tourism expanded rapidly. To give a more precise idea, Cuba gained from passenger fees alone $1.15 million in 2005. The earnings from side trips and spending by these passengers in Cuban retail chains amounted to $8.2 million.
Figure 2. Tourist arrivals by cruises, 1995-2007
Source: MITRANS
However, in 2005, the Cuban government cancelled the ports concession that it had given to Silares S.A.[i] From this point forward, administration of terminals and cruise operations was handed over to the company Aries Transporte S.A., a wholly-owned Cuban entity belonging to the Ministry of Transportation.[ii]
Through this action, the Cuban government took control of a wide range of revenue sources that included port fees, consumption and direct spending by cruise passengers and additional stays in hotels of cruise travellers. In the end, this turned out to be a bad strategy and bad precedent for the future.
Cuba currently lacks the capital and the infrastructure that it needs to develop the cruise industry. Nor does it have the know-how to organize the onshore infrastructure needed to receive cruise tourists or the capacity to act as a touroperator to bring in cruise ship tourists.
Current scenario
The Cuban tourist industry in the last two years showed great growth, above all as a result of the increase in North American visitors as a result of the thaw in relations with the United States. For the first time in six decades, Americans were allowed to travel to Cuba in 12 categories. The tourist boom generated by the restoration of diplomatic relations between Cuba and the United States saturated Cuba's tourist infrastructure not only because of the avalanche of American tourism, but also because of the domino effect it had on the main European markets emitting tourists to the island.
In just two years, the arrival of tourists to the country increased by more than 1 million, something never seen in the Cuban tourist industry, at a rate of growth of more than half a million tourists annually. The United States became the fastest growing tourism market, with growth of 146.73% in 2016. The five main European markets grew more than 56% each. See Figure 3.
Figure 2. Arrival of tourists to the island before and after the thaw
Source: Havana Consulting Group based on statistics published by the National Office of Statistics and Information (ONEI).
However, Hurricane Irma, the diplomatic crisis between Cuba and the US related to the sonic attacks on US diplomats, and the new measures announced by the Trump administration - which include the elimination of individual trips by American tourists and the prohibition of doing business with a list of 180 Cuban entities controlled by the Cuban armed forces, including 83 hotels[i] - have put a brake on growth of American tourists, who had already achieved a record number of visits in the first half of the year, reaching 555,515 tourists, including Cuban-Americans and cruise passengers.[ii] See Figure 4.
Figure 4. Travelers to Cuba from the US by air and cruises, first semester 2017
Source: Havana Consulting Group and data published in the report "International tourism in Cuba. Recent scenario" by Professor José Luis Perelló of the University of Havana.
American tourism plummetted under the new circumstances. Several dozens of groups that were ready to travel to Cuba in the last quarter of 2017 saw their plans suddenly canceled, creating a serious problem for travel agencies, many of which have had to reduce personnel and adapt to the new market conditions. Flights to the island from the US dropped significantly, to the point that the airline Alaska Airlines announced that it was withdrawing from the Cuban market at the end of January 2018.
However, the situation created by these multiple factors opened a great opportunity for the cruise business from the US to the island, whose activity was moderate compared to cruises from other countries that traveled to the island in the 2016-2017 period. See Figure 5.
Figure 5. Cruises that arrived in Havana in the period 2016-2017 * and number of stopovers
Source: Honey, M., Betancourt, R., Perelló, J. L. y Wilkins, J. (2017). “Lecciones aprendidas del Turismo de Cruceros en el Caribe”. Center for Responsible Travel, CREST y Ediciones TEMAS. (en edición)
Note: * Number of stopovers in Havana through the month of October 2017.
Cruises from the US, which belonged to the Carnival-Fathom Companies Royal Caribbean. Norwegian Cruise Lines and Pearl Seas, together made 41 stopovers in the port of Havana, cruises from other companies made 228.
In the last five years, statistics show an increase in the number of stopovers made by cruise ships in 9 Cuban ports. See Figure 6.
Figure 6. Cruise stopover in Cuban ports, 2012-2016
Source: Honey, M., Betancourt, R., Perelló, J. L. y Wilkins, J. (2017). “Lecciones aprendidas del Turismo de Cruceros en el Caribe”. Center for Responsible Travel, CREST y Ediciones TEMAS. (en edición)
The number of travelers arriving on the island via cruise ships has increased considerably in the last 2 years. In 2015, the number of visitors arriving in Cuba on cruises jumped to 28,983, some 20,000 more than in 2014, when only 8,085 tourists arrived through this means. But the figure grew even more in 2016, when some 130,002 cruise passengers were received, some 4.48 times higher than in 2015. See Figure 7.
Figure 7. Number of tourists who traveled on a cruise to the island, 2010-2016
Source: Honey, M., Betancourt, R., Perelló, J. L. y Wilkins, J. (2017). “Lecciones aprendidas del Turismo de Cruceros en el Caribe”. Center for Responsible Travel, CREST y Ediciones TEMAS. (en edición)
These figures are still very low, however, compared to the main tourist destinations in the Caribbean, which each receive more than 1 million cruise passengers annually. For example, 2014 cruise ship arrivals were as follows (in millions): Nassau (2.94), Cozumel (2.43), San Martin (1.85), US Virgin Islands (1.83), Cayman Islands (1.44), Puerto Rico (1.39) and Jamaica (1.34). In total these destinations received in 2014, 13.32 million cruise passengers, while Cuba received 8,045 in that same year.[i]
This suggests that there is tremendous potential in the Caribbean region for Cuba to enter the cruise business. The incorporation of Cuba, with its very attractive destinations, and its integration into existing cruise ship routes in the Caribbean could generate large revenues for the Cuban economy. Likewise, it would have a positive impact on the profits of US companies involved in the business, be they cruise companies, travel agencies, or the ports in the United States that are part of these circuits.
Should the cruise ship business take hold, numerous doors would open to foreign investment to develop the infrastructure that Cuba needs to become a leading destination in the region.
Where are the opportunities?
At present, the following factors present growth opportunities for Cuban tourism:
- Devastation of several islands of the Caribbean by Hurricanes Irma and María.
- Limitations of accommodations for American tourists in 86 Cuban hotels under the structure of the Armed Forces.
- The new regulations of the Trump's Administration did not affect cruises travel.
- Growth of national tourism.
Hurricane Irma changed the tourist map of the Caribbean. For a long time, perhaps dozens of months, many of the paradisiacal islands, with white sand beaches and blue waters, that have been magnets for foreign tourists were devastated by winds, rain and floods, will be without tourist activity, fully engaged in major reconstruction not only of villas and resorts, but also of energy networks, communications, and roads infrastructure.
The most affected islands were St. Martin, Puerto Rico (especially the small islands of Culebra and Vieques), Barbuda, St. Barts, Anguilla, Turks and Caicos and the British and North American Virgin Islands. These locations were inserted into the more than 200 cruise circuits that exist in the Caribbean.
St. Martin, the half Dutch and half French island, was 95% destroyed. In Barbuda 90% of the buildings were destroyed and the island completely devastated.[ii]
This widespread destruction led several cruise lines to reschedule travel routes to other destinations in the Caribbean for the rest of 2017 and the first half of 2018. This scenario represents a great opportunity for Cuba to insert itself strongly in the cruise business given that it is the largest island of the Caribbean and has several locations in its geography where stopovers could be made.
To this we must add that the new regulations issued by Trump Administration with respect to Cuba have limited the lodging capacity of the island to accommodate American tourism, by prohibiting lodging by U.S. visitors in 86 hotels under the structure of the Armed Forces, most of them 4 and 5 stars, which opens a possibility to cruises to fill the void. It should be noted that the new regulations issued by President Trump's administration did not affect cruise trips to the island.
In the last quarter of 2017, travel agencies promoting cruises to Cuba were very active, a sign that they were redesigning trips to the island offered by the agencies in an effort to revive the market after the abrupt fall in flights to Cuba starting in September due to the crisis generated by the sonic attacks on US diplomats.[iii] See Figure 8.
Figure 8. US flights to Cuba. January-October, 2014-2017
Source: Havana Consulting Group
The growth of national tourism in recent years, the number of trips Cubans are making abroad and the lack of good offers for them in the national market, open a good opportunity to offer cruise trips to Cuban residents on the island, something that has been forbidden for almost six decades, especially given the growing tendency of Cubans to seek better travel offers to other competing markets in the region to meet their leisure needs.
This would reorient the Cuban tourist industry and create a good space to insert cruise tourism as one of the modalities of the country's tourism sector, not only geared to the needs of international tourism, but also national tourism.
Conclusions
Cuba has a new opportunity to revitalize its tourism industry. Inserting itself in the cruise business could enhance its position as a destination in the Caribbean region. Given its geographical position, size, places of interest to visit and number of points in its geography where to make a stopover, the island could become not only the most visited destination in the Caribbean, but also the point of connection of the largest number of routes cruises that are currently offered in the region.
Several factors converge on the need to further diversify the Cuban tourism industry to give higher prominence to cruise travel: the growth of the arrival of international tourists to the island, the limited infrastructure on land to absorb the high demand for lodging, the growth of domestic tourism, and the new measures announced by the Trump administration that limit personal travel of American tourists -- but did not affect cruise travel. The devastation among competing destinations in the region hit by hurricanes provide a golden opportunity for Cuba.
The reestablishment of diplomatic relations between Cuba and the United States opened not only the doors of the North American market to the island, but gave an opportunity to American cruise companies to connect the island with more than 200 cruise travel circuits that currently exist in the region.
However, to position itself as a leading destination in the Caribbean region, Cuba requires large investments in the infrastructure of ports and on land that would allow it to receive more cruise ships than it can receive today. There is no doubt that with the adequate infrastructure in ports and internal logistics, the island could become the most visited destination in the region by cruise ships in the next 5-10 years.
Given this opportunity and this new change of scenery, who will be the strategic partners to make the investments required to turn the island into the Caribbean's main destination in the cruise business? China, Spain, or the US?
In future editions we will analyze the potential of these potential strategic partners in the new scenario that is approaching with the impending retirement of Raúl Castro and the emergence of new leadership for the Cuban government. Will China stop being a cautious partner and launch with all its power to invest in this multi-million-dollar business in the Caribbean region? Will Spain take advantage of its leadership in the Cuban tourist industry gained as the main investor in the indusry to insert itself strongly in the cruise business to expand its presence and investment hegemony in the Cuban tourist sector? Will the US allow China and Spain to benefit from the new map that is looming in the cruise business in the Caribbean?
References
[i] HCG Business Intelligence Unit. “Cruises to Cuba: A strategic challenge”. THCG Business Report, June 2016 Nº 3, THCG & TECH.
[ii] Ventura, Andrea. “Turismo en el Caribe: recalculando después de Irma”. La Nación. Septiembre 2017. http://www.lanacion.com.ar/2063009-futuro-incierto-en-el-caribe-despues-de-la-furia-de-irma
[iii] Adams, David. “Trump administration announces new Cuba travel sanctions”. UNIVISION. http://www.univision.com/univision-news/politics/trump-administration-announces-new-cuba-travel-sanctions
[i] DEPARTMENT OF STATE.” The State Department’s List of Entities and Subentities Associated with Cuba”. Noviembre 2017. https://www.federalregister.gov/documents/2017/11/09/2017-24449/the-state-departments-list-of-entities-and-subentities-associated-with-cuba-cuba-restricted-list
[ii] HCG Business Intelligence Unit. “Cuba: the 'zombie' market that generates hundreds of millions of dollars”. THCG Business Report, August 2017 Nº 4, THCG & TECH.
[i] AP. “Fidel Castro le declaró la guerra a los cruceros”. Diario La Prensa. Agosto 2005. http://www.laprensa.com.ar/NotePrint.aspx?Note=291005
[ii] Fernández, Loileth. “La modalidad de turismo de cruceros: evolución, desempeño y perspectivas”. http://www.monografias.com/trabajos-pdf/turismo-cruceros-evolucion-perspectivas/turismo-cruceros-evolucion-perspectivas4.shtml
[i] Fernández, Loileth. “La modalidad de turismo de cruceros: evolución, desempeño y perspectivas”. http://www.monografias.com/trabajos-pdf/turismo-cruceros-evolucion-perspectivas/turismo-cruceros-evolucion-perspectivas4.shtml
[ii] Fernández, Loileth. “La modalidad de turismo de cruceros: evolución, desempeño y perspectivas”. http://www.monografias.com/trabajos-pdf/turismo-cruceros-evolucion-perspectivas/turismo-cruceros-evolucion-perspectivas4.shtml
