Consider the hurdles that await US hoteliers in Cuba
 
Consider the hurdles that await US hoteliers in Cuba
13 APRIL 2016 7:10 AM

After years of discussion on if and when Cuba would open for U.S.-based hotel companies, the day is finally near. Despite the opportunities ahead, many questions remain before the island nation becomes a viable expansion option for U.S. companies.

Cuba is one of two topics I’ve commented on most often over the course of the past two decades—the other being the effect a crumbling infrastructure in the United States is having on the tourism industry. In the past, my comments were mostly speculative: “If Cuba opens up” was usually part of my wording.

Today, the great Cuban opportunity for the U.S. hotel industry has gone from speculation to near reality. My guess is before President Barack Obama leaves office next January, at least one U.S.-flagged hotel will be open and operating in this once forbidden island nation.

Starwood Hotels & Resorts Worldwide has signed three conversion properties for the island, and Marriott International President and CEO Arne Sorenson recently said he expects a Marriott-branded hotel to open on the island in 2017. And, of course, that pesky sharing economy website Airbnb has already received permission to begin operations in Cuba.

Of course, where does the industry go from here? There are plenty of development opportunities on an island the size of Cuba—which is the largest in the Caribbean—with plenty of unspoiled beaches, historic sites and untapped cultural options for tourists. Yet, there are as many pitfalls and challenges as there are opportunities. A number of hurdles are ahead for Starwood, Marriott and other U.S. hotel companies as they ponder moving into Cuba.

American travel interest in Cuba
It’s difficult to gauge how intrigued American consumers really are with visiting Cuba. One survey from Google showed 25% of Americans have an interest of going to Cuba in the next year. Not surprisingly, the results skewed toward a younger demographic: 37% of older millennials (age 25 to 34) said they’re interested in making the trip. In another more recent survey, 70% of travelers said it’s unlikely they would go to Cuba.

Lack of traditional amenities
Given Cuba’s decades-long isolation from many western countries, especially the U.S., the country’s infrastructure is reportedly in disrepair and far from what many Americans are accustomed to when they travel. Internet service is spotty, ATM machines are not networked to American banks and U.S.-issued credit cards can’t yet be used there. It will be interesting to see how long it will be before the first hotels converted to U.S. brands will be able to meet prevailing chain standards.

U.S. political uncertainty
While President Obama has been very aggressive in his quest to restore U.S.-Cuba relations and open the country to American businesses, especially those in the travel sector, that could all change next January. Whether a Democrat or Republican enters the White House next year, there is no way to know whether he or she will continue on the road to normalization.

The disadvantage for U.S. brands
Hotel companies from other parts of the world, and Spain in particular, have had a long head start in Cuba.

According to STR, parent company of Hotel News Now, there are 197 hotels with 48,824 rooms in Cuba. The development pipeline includes five projects with more than 2,500 rooms. So far, the pipeline in Cuba is dominated by European companies that will be partnering with the government on projects. Companies active on the island include AccorHotels, Kempinski, Meliá Hotels International, Ocean by H10 Hotels, Warwick International Hotels & Resorts and others.

The threat from China
U.S. hotel companies might face their biggest competition from China, which has been slowly and effectively gaining a foothold in the Caribbean tourism business, including in Cuba. Several Chinese firms are partnering with the Cuban government to build hotels and resorts. One is a $462-million luxury resort and golf course complex under development east of Havana.

Although the list of challenges is considerable, Cuba represents a game-changing opportunity for U.S. hotel companies when—not if—the country opens completely to commerce. Some island nations in the Caribbean have not been developed to their full capacities as resort destinations, but none hold the long-range promise that Cuba does.

Email Ed Watkins or find him on Twitter.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

1 Comment

  • HV April 13, 2016 10:29 AM Reply

    How do these government-private partnerships work considering there is no rule of law or private ownership of assets? Does the government become owners of the asset and operators are just in for the operation part of the business?

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