Airlines Start Their Engines As Scheduled Service Returns To Cuba

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Includes: AAL, JBLU, UAL
by: Frank Holmes

Summary

The U.S. and Cuba agreed this week to reestablish scheduled air service.

Currently Americans visit Cuba for up to 12 different approved reasons.

Americans are starting to abandon their Cold War-era attitudes.

For millions of tourists every year, Las Vegas is the premiere travel destination for luxury hotels, glitzy nightclubs and extravagant casinos. But for a time, hordes of high-rolling American celebrities and affluent vacationers were beckoned also by the sultry nightlife of Havana, Cuba. Dozens of regularly scheduled flights by the day carried pleasure-seekers from Miami to the glittering shores of the Cuban capital.

This all came to an end, of course, once the U.S. imposed a strict embargo on the Caribbean nation, following the coup led by Fidel Castro, whose rise to power devastated Cuba's once-thriving economy.

Now, more than 50 years later, this market is set to open up once again, and airlines couldn't be more delighted. The U.S. and Cuba both agreed this week to reestablish scheduled air service, authorizing up to 120 commercial flights a day-20 between the U.S. and Havana, another 10 between the U.S. and nine other Cuban cities.

Competition to secure route access is likely to become red hot. American Airlines (NASDAQ:AAL), United (NYSE:UAL) and JetBlue (NASDAQ:JBLU) have already expressed interest, with American saying it "looks forward to submitting a Cuba service proposal." But expect many more carriers to submit counter proposals in an attempt to gain the first-mover advantage.

Once regular service begins, possibly as early as this summer, an estimated 1.5 million American tourists will make their way to Cuba within the first year alone. This raises the question of whether the island's tourism infrastructure is ready for such an influx of visitors, representing a huge opportunity for not just airlines but also car rental companies, food and beverage companies and hotel chains. To prepare for this explosion of visitors, the Cuban government is already seeking foreign investors.

It's important to point out here that the embargo has been lifted for all forms of travel to Cuba except pure tourism. Americans can currently visit for up to 12 different approved reasons-including business, family, education and religious activities-but if policy continues to evolve at its current rate, pleasure should also be included one day.

American Business Returns to Cuba

Just as American tourists once flocked to Havana, so too were American businesses deeply entrenched in Cuba. Before the embargo, U.S. financial interests were involved in Cuban mines, utilities, railways, sugar production and more.

That's set to change too, as the U.S. government just granted an Alabama company permission to build a small factory in Cuba-the first to do so in over half a century, it's believed. The company, Cleber, will produce affordable tractors designed for the Cuban market.

With normalization between the U.S. and Cuba being restored, and populations trending younger, many Americans are starting to abandon their Cold War-era attitudes. Since 1996, Gallop has polled Americans on their overall opinion toward Cuba, and for the first time this year, a majority of respondents-54 percent-held a favorable view of the island-nation.

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Favorability has been rising steadily since 2006, in fact, which suggests that Americans increasingly see Cuba as a potential place to visit and do business in. This is what U.S. airlines, not to mention companies in other industries, are hoping to capitalize on.

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