Monday Insight – September 23, 2019

Cuba Air Service…

For US Carriers, An Investment Pending Political Change, Or Just A Financial Venus Flytrap?

Just in from Havana…

… Fuel rationing has now become full-blown fuel shortages…

… Basic foodstuffs still tightly rationed…

… Belt-tightening in all areas predicted by the government…

… Electric blackouts now predicted

Well, it is a unique destination. Let’s face it. There isn’t another destination in the Western Hemisphere where you can see all that with one simple ticket.

Yessir, just the place that’s ripe for air service from the USA, with happy vacationers just hankerin’ to get down to the wonderous resorts where an extra roll of the local version of Charmin is a big deal, and to stroll along the Malecón in quaint Havana, navigating around the lines of Cubans waiting patiently to claim their weekly bar of soap and rice ration.

‘Course, none of these things are new to Cuba over the past 60 years. The latest piñatas to blame are the US embargo, and the fact that equally-challenged Socialist partner Venezuela can’t send free oil, anymore.

And it’s a line of hype that a lot of the US media just repeats without any discussion of the fact that there is very little in the way of Cuba buying oil on the open market. As for the embargo, it’s a US embargo, not a global one. Cuba can buy locomotives from China – which they do. Or cars from South Korea – which they do. Or food from across the planet – which their defunct political system cannot afford.

Their problem is a Socialist system that has trashed the entire nation.

And that’s the reason that the predicted air service tsunami between the USA and Cuba has never been more than a ripple in a polluted pond. And it will remain so for at least for the foreseeable future.

Ten years ago, before the Obama rush to open relations with the Castro folks, Boyd Group International published the first independent analysis of the air service potential between the USA and Cuba. Five years later, in the midst of the euphoria of newly-permitted air service, we updated the report.

In both cases, we concluded that U.S. airlines had far more traffic and revenue potential in expanding to Columbus, Mississippi than just about anywhere in Cuba. (That’s not just hyperbole, either.)

Any market planner who might suggest adding a domestic market with the attributes of the Cuba potential would find himself with a newly limited career path.

When The Opportunity Came – Prudent Planning Said Jump On It. In reality, even with the dismal economic factors, US airlines actually had no choice but to take a chance on Cuba route authority when it was offered.

As we noted in our studies, Cuba represents probably the biggest future market bonanza ever faced by the North American airline industry. When that door to route authorities was opened, getting in., even ahead of a pending a collapse of the Socialist paradise set up by Fidel Castro, would be an investment in the future.

But now it’s clear this is at least one complete Cuban government change away, and then a few years of cleaning up the economic mess made by the Castro clique.

For the foreseeable future, other than VFR traffic, and a smattering of adventure tourists, (and even there, only to Havana) there isn’t any opportunity for expanding Cuba air service.

The question comes up in regard to whether there are better applications of airline resources than flying to a place where there is near-zero true market growth on the horizon. Yet, once the Cuban government kleptocracy collapses, these route authorities will take on whole new economic potential.

Just a matter of how long.