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Cuba takes a knock after early promise

The rapid development in seat capacity between the US and Cuba following an Obama-led revival in relations has now gone into reverse after airlines over-estimated the value of new direct routes.

June 2017 | by Garry Stasiulevicuis, President 

Donald Trump’s twitter interventions last year may not have been much help either – and the administration is expected to make an official announcement on Cuba as early as this week.

Analysis by travel retail analyst, research and category expert, CiR, has been crunching the numbers via its Business Lounge modelling tool and found that, from a standing start of zero seats in April 2016, US scheduled air traffic to Cuba peaked in January this year at 189k seats before falling away to 152k by May. The forecast to September 2017 indicates a further fall to 130k seats which amounts to a sizeable slide of -31% from the January peak.

A market reset

However, there is still hope for duty free and travel retailers hoping to make some gains from this important new market. The months ahead looks to be a stabilisation period for airlines as they recalibrate both demand and profitability in order to find the right level of capacity going forward.

In November 2016 Trump (then president elect) said that he planned to roll back some of Obama’s efforts to normalise the US-Cuba relationship. He tweeted on 28 November: “If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal.”

That didn’t happen but what did was the realisation that the level of seat capacity to Cuba from the US was unsustainable. Since scheduled flights took off in December 2016, three airlines – Frontier, Silver Airways and the low-cost carrier Spirit – have announced they are suspending their routes to Cuba, citing reasons such as lack of demand, over-capacity and non-profitability.

Capacity cuts to bite this year

Meanwhile bigger airlines are also cutting capacity by almost -30% (when comparing October 2017 versus January 2017) by downsizing to smaller aircraft or reducing their number of flights, but in most cases keeping the same number of routes. For example the capacity cut from American Airlines will be -31%, and -28% from Jet Blue.

The airports affected the most by the airline reset are in Florida, home to the biggest Cuban-American population in the US with a 68% share (source: 2010 census). Miami International Airport has a 37% slice of the air market, followed by Fort Lauderdale International with 35% (source: CiR Business Lounge).

Airports next in line command just a 4% share each and include New York’s JFK and Newark (EWR), Los Angeles (LAX) and Tampa (TPA) in Florida. 

The main Cuban destination for flights is Havana (HAV), but Varadero (VRA), Santa Clara (SNU), Holguin (HOG), Camaguey (CMW) and Cienfuegos (CFG) airports also have direct flights (based on schedules from May until October 2017). 

Looking ahead to 2018 a more sure-footed approach to the market might just be possible once airlines are satisfied their routes are viable – assuming there are no political interventions forthcoming. As early as this week the Trump administration is set to unveil potential roll-backs on the Obama Cuba deal. Airports and airlines can only hope that direct travel will not be one of the casualties.