The Capacity Issue

Cuba: The Capacity Issue
TOUR OPERATOR | DAVID COGSWELL | JUNE 15, 2015

With so much attention and apprehension focused on whether the U.S.
government will or will not allow travel to Cuba, and how the politics
will play out, there has been little attention paid to the issue of
capacity. But with demand for Cuba growing by leaps and bounds, that
issue cannot be avoided for long.
"More than two years ago I said that once travel restrictions are eased,
demand will soar without the proper infrastructure to accommodate it in
Cuba," said Ronen Paldi, president of Ya'lla Tours. "Unfortunately that
time is here."
With Americans flooding to Cuba in ever larger numbers, and nationals of
other countries rushing to see Cuba before the American influx, it is
inevitable that tour operators and travelers will bump up against
capacity issues.
"Oh yeah, the capacity issues are definitely here," said Tom Popper,
president of Insight Cuba. "Most of the hotels that Americans stay in
are booked solid in Havana through the peak season."
As an example, said Popper, Insight Cuba had booked 100 rooms for the
Havana Marathon in early December and late November of last year. The
marathon does not take place until next Nov. 15.
"In January we tried to increase that amount by 10, 20, 30 rooms," said
Popper. "This was five months ago. We couldn't get 10, 20, 30 rooms for
next November. All the hotels have stopped sale. They're all sold out.
Most hotels from November through April 2016 are sold out. Many of the
better casa particulares [small private hotels] are sold out in
provinces and in Havana."
Demand for Cuba is mushrooming, and not just from the U.S.
"Everyone says Americans are flooding in, and that's true," said Popper.
"But the reason hotel capacity is limited to the extent that it
currently is because the Canadian market is going in much larger numbers
than in the past."
As with most of the changes in the Cuba market in recent times, the
established tour operators are not feeling many repercussions.
"For companies like Insight Cuba it's not affecting us because we secure
blocks of rooms far in advance," said Popper. "Right now we're booked
through 2017. We have our space secured. For tour operators that have
been doing business and are able to secure space it's not an issue.
Where it is creating an issue is with people just wanting to go, or
other companies or travel agents who want to do something new, maybe
book hotels on their own."
For most dates throughout the rest of 2015 there is no capacity
available, said Popper. There is some availability in summer and early
fall, Cuba's off-peak season. But even then, there's not very much.
"There are hotels in Playa or the Miramar district, which is still in
Havana but along the ocean," said Popper. "It's sort of a residential
district and there's a series of larger conference center-type hotels
along the water. Those typically all have capacity. But now even those
hotels are selling out."
Inevitably when demand outstrips capacity by such a large margin, the
hotels will raise prices.
"Prices have been on the rise since January," said Ya'lla's Paldi. "And
with the Pope's visit planned for September they will rise even further."
"We have already seen a wave of price increases," said Peggy Goldman,
president of Friendly Planet Travel. "Rates in Cuba are controlled by
the government and operators have less ability to negotiate rates than
in other destinations. Also, as Americans, we pay higher rates than
visitors from other countries. I expect rates will continue to increase
as demand grows."
Although Goldman expects prices to rise, she doesn't expect it to have
much effect on American demand.
"Cuba remains an enigma," said Goldman, "where poverty doesn't mean
downtrodden, and where people have created a unique space that is well
worth the cost of the visit for many travelers, I'm not sure the cost
will stop travelers."
"All this was anticipated," said Popper, "because there are only so many
hotels and so many rooms. So if you increase number by double-digit
percentages, one way to dampen demand is to raise prices. So it's
becoming more expensive. Hopefully over time new hotels and other
alternatives will pop up. But for the immediate future it's going to be
hard. It doesn't mean that nobody is getting to Cuba, that's for sure.
Plenty of people are going."
Ironically, one thing that increases risk for investors in hotels is the
fact that the potentially huge U.S. market is not determined by market
forces but by government regulations and politics.
"There was an interesting discussion I had with the head of one of the
Cuban travel agencies in 2011," said Popper. "He said, 'We were very
excited to have the U.S. market here between 2000 and 2003. Americans
came and they were filling up our rooms and business was great. Then all
of the sudden because the Bush administration cut off people to people
travel, overnight our hotels were empty. We didn't have a backup plan.
So we had to develop new markets. We went to Italy and Brazil and we
started marketing to Mexico. It was as if we had to start again. So
we're ambivalent towards the U.S. market because it's so volatile. It's
based on politics and not market forces.'"
Will the tourism infrastructure be so strained that the Cuban government
will cap the number of visitors? No one knows for sure and opinions
differ. Paldi thinks the government will impose limits.
"They are already very worried about too many Americans interacting and
mingling with the locals," said Paldi, "and I expect that they will put
quotas for U.S. travelers, and increase the price even more."
Many more changes are in store in an extremely dynamic marketplace. What
lies ahead will probably create greater challenges than what have been
seen so far. Under strict U.S. government control, only highly
structured people to people programs are available to tourists, but this
is very likely to change.
"The biggest factor will be when — not 'if' — things open up for leisure
travel," said Stachnik. "We all know this is coming, we just don't know
when. The giants — Funjet, Apple, Travel Impressions and the like will
swoop in with a vengeance and take control of every leisure lodging.
There is nothing wrong with that, it is a fact of life in our industry.
This will be the single greatest change to the Cuban travel scene, and
we all need to be ready for it and to accept it."
In spite of the attempt of the Obama administration to loosen
restrictions on travel to Cuba, any full and free opening of the market
is still beyond the present horizon.
"The embargo toward Cuba is not yet resolved," said Gianni Miradoli,
president of Central Holidays. "There are still a lot of limitations.
There is a lot of misunderstanding about what the situation between the
USA and Cuba is currently. U.S. citizens are still not permitted to
simply book a flight directly and take a vacation on a Cuban beach from
the USA. Unfortunately this is what some of the market believes.
People-to-people rules are still very strongly in effect and those rules
have not changed in any dramatic fashion. New flights from the New York
area and other cities are scheduled but still as charters, and
passengers cannot book individually. A lot has still to be done to make
Cuba a true tourist destination for the U.S."
For tour operators, the underlying mantra continues to hold true through
the various upheavals in the Cuba market over the last two decades.
"The message is consistent," said Popper. "Go now while you can."

Source: Cuba: The Capacity Issue | TravelPulse -
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