Cuba Travel
Congress is taking the first steps towards opening up Cuba for American travelers, but it must pass additional legislation to open up the country to American businesses, especially lodging companies who can build new infrastructure in that country to accommodate these additional travelers.
Travel and trade with Cuba, America’s nearest Caribbean island neighbor, has been restricted since the 1961 Communist revolution in that country. However, with the election of the Obama Administration and the new 111th Congress, a new era of openness is being signaled in 2009 with legislation opening up the island nation by reducing or removing travel restrictions. This relaxation of Cuban travel restrictions may signal further changes in U.S.-Cuba relations that could lead to new American investment opportunities in that country.
In the late 1970s, travel restrictions were briefly lifted for families of Cuban citizens living in the United States, but were reimposed by the Reagan Administration in 1982. Further restrictions were placed on trade by American companies with Cuba in 2001.
The rest of the world allows their citizens to maintain direct contacts with Cuban citizens, but the U.S. government prohibits almost all Americans from traveling to the island nation. Since being imposed over 45 years ago, the U.S. travel ban has done nothing to promote reform in Cuba or weaken the Castro regime that has ruled the nation since taking power.
Cuban tourism today
Cuba began encouraging international tourism after the fall of the Soviet Union, and its top feeder countries are Canada, Britain, Italy, Spain and France. Foreign tourist visits jumped 9.3 percent last year to a record 2.35 million, generating $2.7 billion or 11 percent more than 2007, according to the Cuban government. Despite the global economic downturn, international visitor rates to Cuba have increased 4.5 percent through February as compared to the first two months of 2008.
Presently, European, Latin American, Israeli and Arab investors already have a presence in Cuba in the hotel industries. From 1990 to 2000, the number of hotel rooms grew from 12,000 to 35,000.
An influx of Americans could create a lodging crunch. The Communist state has partnered with foreign companies such as the Spanish lodging chain Sol Melia to offer nationwide about 46,000 hotel rooms by the end of 2008. Some 17,300 of those rooms are concentrated in the Cuban beach resort of Varadero.
Cuba plans to build 30 new hotels nationwide to tap into the market for boutique accommodations. The Qatari Diar Real Estate Investment Company in 2007 began building a $75 million, 200-room 5-star hotel on Cayo Largo del Sur, Cuba's most beautiful key. Some of those projects have been completed, but many aging properties have been shut down for remodeling, leaving the total number of rooms flat since 2006. According to Smith Travel Research, the 349 hotels in Miami and Hialeah, Florida, alone have about as many rooms as all of Cuba, which is the size of Pennsylvania.
Much of the investment and management of Cuba’s hotels today come from foreign companies such as Accor, Super Clubs, and Barcelo, and Sol Melia. All projects are mandated by Cuban law to be joint ventures with the Communist government.
American tourism to Cuba
With no American competition to worry about, non-American hotel firms are looking at a windfall when U.S. sanctions are eventually lifted. Cuba was a vacation destination for American visitors in the 1950s, with tourist numbers growing at 8 percent a year until the 1961 revolution. At its peak in 1957, Cuba attracted 272,000 American visitors.
The U.S. Treasury’s Office of Foreign Asset Control (OFAC) is the governing body that monitors American corporations and their foreign business subsidiaries for compliance with the Cuban investment restrictions. There is strong interest by the American business community to have the current legislation amended to add language directing OFAC to revise the U.S. government’s sanctions on Cuba.
If the U.S. government restrictions are lifted, travel experts predict that the first American companies to return to the island will be cruise ship companies, who only require port facilities to land guests for short trips. At present, the island’s deteriorated physical infrastructure of poor roads, small airports, spotty electric service, and socialist labor policies would hamper any immediate further commercial hotel development. There is much opportunity in Cuba for American companies to invest in improvements for the nation's travel infrastructure, if only allowed to do so by the U.S. government.
The American Society of Travel Agents estimated in 2007 that nearly 1.8 million Americans could visit in the first three years after travel rules were loosened. The increase in air travel, cruises and a ripple effect through the travel industry would produce $1.2 billion to $1.6 billion a year, according to a 2002 economic study, creating as many as 23,000 jobs in the U.S. travel industry.
AH&LA is part of the Cuba Working Group, an ad hoc coalition of groups seeking to change U.S. policy towards that nation. AH&LA believes that our early involvement in this issue will lead to more opportunities for our member’s investment choices.
In the 111th Congress, a Senate bill (S. 428) would end all restrictions on Americans traveling to Cuba. This bill has generated interest within the greater American business community, especially the travel and agricultural industries. The bill’s sponsor, Sen. Byron Dorgan (D-ND), held a press conference, along with Sens. Chris Dodd, (D-CT) Mike Enzi (R-WY), and Richard Lugar (R-IN). “[We] believe engagement with trade and travel is the best way to promote democracy and open up those countries,” said Dorgan at the March 30, 2009, press conference. “But our policy with Cuba punishes Americans by prohibiting their right to travel….It’s long past the time to change this ill-advised policy.”
The “Freedom to Travel to Cuba Act” would eliminate travel restrictions to the country, and allow Americans to travel there freely without U.S. government interference. A similar bill introduced by Rep. Bill Delahunt in the House (H.R. 874) also awaits action. President Obama has not said he would lift the overall travel ban, but has taken the lead on Cuba policy changes.
On April 13, 2009, President Barack Obama directed his Administration to begin allowing unlimited travel and money transfers by Cuban-Americans to family in Cuba, allowing gift parcels to be sent to relatives, and issuing licenses allowing American companies to increase domestic cellular communications infrastructure in the island nation. About 1.5 million Americans have relatives in Cuba.
Both bills face opposition by anti-Castro lawmakers, who see any restoration of travel and business ties with that country as supporting the Communist dictatorship. However, the Congressional climate for lifting the Cuba travel restrictions is seen as one of the best in years.
Both of these bills, while supported by AH&LA, are only a first-step towards opening up business opportunities for American hotel companies in Cuba. Neither bill removes the current restrictions on investment by American corporations in that country.
AH&LA calls on Congress to continue down this path of cultural and economic openness and allow American companies also to enjoy the same investment opportunities as they do in almost every other foreign country. Hotels offer some of the best opportunities for cultural interaction between Americans and Cubans, all of which lead to a better understanding of America and our unique heritage of liberty and freedom.
For more information, contact AH&LA Vice President of Political Affairs Lisa Costello at (202) 289-3124, lcostello@ahla.com.
(Updated April 2009)