A few words about markets, U.S. airlines, and that other travel ban (Cuba)

Today’s message, quite simply, is this: Recent headlines that read The Cuba travel bubble is popping and Now That Cuba Is Open, Americans Aren’t Going  got it wrong. So, we’ve written this essay to try and set the facts straight.

Travel from the U.S. to Cuba is going up, and it could be doing even better if policy makers would just legalize all forms of it, the way a majority of Americans want them to.

This is worth digging into. First, let’s start at a comfortable cruising altitude of 30,000 feet before diving into the weeds.

As Cuba Journal reminded us recently, “Cuba is the only country in the world where Americans face travel restrictions.” You can even visit North Korea as a tourist without asking permission from President Trump or Supreme Leader Kim Jong Un, although it’s a risky place for U.S. travelers. Meanwhile, travel to Cuba for tourist activities remains prohibited by U.S. law.

President Obama took significant steps to reduce U.S. restrictions on non-tourist travel to Cuba – ending limits on travel by Cuban Americans with family on the island, restoring people-to-people visits and, critically, using diplomacy with Cuba’s government to restart regularly scheduled commercial flights to the island by U.S. carriers in the middle of 2016.

As Brookings reported late last year, the relative trickle of 91,000 visitors to Cuba in 2014 rose to 161,000 visits in 2015, and to a veritable flood of over 280,000 visits in 2016, according to this recent estimate.

Before the recent changes, charter carriers remained stalwart for decades serving the Cuban market under onerous travel rules that restricted flights and kept prices high. When restrictions were loosened, traditional economic forces went to work. “As generations of U.S.- or U.K.-trained economists would predict,” a U.S.-trained economist told us, “prices fell and the total number of seats sold went up.”

Bloomberg, normally fact-based, got it wrong when it reported in February, “still, there are few Yankees heading to Havana.” On the contrary, U.S. demand is both strong and rising rapidly now, and the trend points the same way. As Travel Pulse reports, travel agents are seeing “an explosion of Cuba bookings” going forward. They say, “Nearly 22 percent of its leisure-focused travel agents have already booked clients for Cuba travel in 2017 while more than 59 percent said clients are interested in going this year.”

In fact, many of the carriers awarded routes to Cuba are doing well – this comes not from promotional materials but filings by American Airlines, Southwest, and Delta with the Securities and Exchange Commission.

Southwest, for example, lists its 44th consecutive year of profitability and its decision to launch “service to Cuba with daily flights to Varadero, followed by service to Havana, our 100th city served, and Santa Clara” in its 2016 list of a dozen notable accomplishments.

By the same token, some U.S. airlines are dropping flights, as NBC News reported in its refreshingly informed piece. Silver Airways is dropping out the market entirely on April 22, explaining that “other airlines continue to serve this market with too many flights and oversized aircraft.” Frontier Airlines is terminating its Miami-Havana flight on June 4, saying “costs in Havana to turn an aircraft significantly exceeded our initial assumptions.”

While claiming the mantle of “Economics 101,” Fabiola Sanchez, in her Miami Herald column, was actually practicing Cold War Ideology 1.0. “Blame over the lack of greater demand sits squarely with the paranoid and repressive Cuban state,” she writes, “which fails to modernize politically and economically, no matter how much this country and the rest of the world opens up to them.”

What is so important about travel to Cuba is that it allows Americans to visit the island, speak directly to Cubans, and learn from them how they view their lives, their opportunities and, yes, their government.  The portrait they paint can be both inspiring and worrisome in the same conversation. What is consistent is that Cubans don’t tell visitors from the States to go home, but to come back.

The adjustment taking place in the Cuban market is not about politics, but economics and regulation. One of the things that Bloomberg got right is that our airlines, “with no idea about demand, were overly ambitious when they jousted for the limited routes allowed by U.S. regulators. With a mandate for only 110 daily U.S. flights – 20 into Havana, the most popular destination – the carriers tumbled over each other last year to get a piece of the pie, leaving the island oversubscribed.”

It isn’t a surprise that Silver and Frontier are folding their tents, or that carriers like JetBlue have cut back. In a globalized economy, and with a new, emerging market, this happens all the time. Our friend the economist observes: “Airlines spend millions on programs to strategically and tactically game prices and routes, and flights to Cuba are now part of that game. Entrants will come and go, seasonal variations may increase, demand will be sensitive to US economic trends. All of this is normal. Year over year, the market continues to grow. That is the fundamental fact to date.”

The market is going to continue to adjust, and Cuba’s government and its tourism industry will have to be part of that adjustment if it wants first-time travelers to return, rather than losing them to equally warm and less expensive destinations in the Caribbean.

But, the airlines need to step up as well. They’re running this advertisement in Washington, appealing to President Trump to protect American jobs and to enforce the so-called “Open Skies” Agreement which, they say, benefits U.S. airlines, workers, and passengers.

If they want to continue doing business in Cuba, their voices need to be heard – loudly, urgently, presently – to stop the administration or Congress from rolling back our hard won rights to visit Cuba now, and urge the end of the unconstitutional ban on tourist travel as soon as possible.

Cuba isn’t North Korea, and America needs to act like America and demonstrate it knows the difference.

This week in Cuba news…

U.S.-Cuba Relations

Senator Jerry Moran reintroduces Cuba Trade Act

Senator Jerry Moran (KS) has reintroduced the Cuba Trade Act of 2017. If passed into law, the bill would lift the U.S. trade embargo on Cuba. The bill gives farmers, ranchers, small businesses and other private sector industries the opportunity to export U.S. goods and services to Cuba. The bill allows private U.S. institutions to extend credit to Cuba, but maintains restrictions on U.S. government-backed loans, loan guarantees, and financial assistance.

Moran stated, “The Cuban embargo was well-intentioned at the time it was enacted. Today, however, it only serves to hurt our own national interests by restricting Americans’ freedoms [sic] to conduct business with that country.” He sees a chance for his bill to advance in the 115th Congress as an amendment to another bill, as reported by the Kansas City Star.

In the House of Representative, Rep. Tom Emmer (MN-06) introduced his version of the Cuba Trade Act in January 2017, which would also end the embargo on Cuba. His legislation has 8 Republican and 8 Democratic cosponsors.

President Trump’s budget proposes deep cuts in diplomacy and development

President Trump this week submitted a “budget blueprint” to the U.S. Congress, which proposes steep cuts in State Department accounts while bolstering spending on the military and border security.

As Foreignpolicy.com writes, “as a political document, it reflects the White House’s preference for a narrow definition of U.S. interests not seen since before World War II. Titled “America First,” the Trump budget also reflects a deep skepticism of government programs meant to defuse conflicts, fight poverty abroad, or battle transnational challenges like climate change.”

Politico reported that insiders call the cuts as deep as 37%, a reduction amounting to nearly $20 billion out of budget last sized at $58.8 billion. The Washington Office on Latin America says that billions in budget reductions “would come from eliminating small but critical programs that do good work in Latin America, like the Emergency Refugee and Migration account, the Inter-American Foundation, the U.S. Institute for Peace, and the Woodrow Wilson Center for Scholars.”

Until Congress adopts a budget and begins working on appropriation measures for each federal department, the cuts identified by WOLA and others must be considered as estimates. It is also the case that funding for programs can be increased. For example, the specific level of appropriations for programs funded under the Helms-Burton law to spur regime change in Cuba – a favorite of pro-embargo hardliners – will be determined as the legislative process unfolds.

In Cuba

Cuba seeks solutions as 71% of territory is affected by drought

Cuba is calling for water-saving measures and seeking solutions to cope with a drought that is affecting 71% of its territory, reports el Nuevo Herald, the Spanish-language edition of the Miami Herald.

Media officials in Cuba stated that municipalities across the island are suffering from varying degrees of water shortages, extreme and severe drought, affecting a total of 94,000 Cubans. Potential solutions include operating desalination and water treatment plants in addition to digging wells, the Herald reports.

Cuba’s National Institute for Hydraulic Resources (Inrh) stated that the drought, which is primarily affecting the central and eastern regions of the country, is due mainly to a shortage of rainfall. Per the Inrh, Cuba’s central region is currently facing a record number of consecutive months in drought. Currently, 130 out of Cuba’s 242 dams hold less than half of their capacity for water supply.

Drought, an endemic problem in Cuba, is often exacerbated by reservoir leaks and outdated irrigation technologies. Between 2014 and 2016 Cuba suffered its worst drought in over 100 years, leaving over one million people facing limited access to water in May 2016.

Cuba’s Foreign Relations

Cuba offers 1,000 medical school scholarships to support Colombian peace accord

Cuba’s Latin American School of Medicine (ELAM) will offer 1,000 scholarships to people affected by the decades-long civil conflict in Colombia, including former members of the rebel Revolutionary Armed Forces of Colombia (FARC), reports Associated Press.

The tenuous peace accord in Colombia reached in November 2016 came after a failed plebiscite and four years of negotiation hosted in Havana and facilitated by the governments of Cuba and Norway, as we previously reported. Implementation of the peace deal, which includes disarming more than 7,000 FARC rebels and reintegrating them back into Colombian society, is proving to be challenging. Colombian government and FARC leadership accused one another this week of non-compliance, reports the Los Angeles Times.

The ELAM scholarship program for Colombians will grant 200 scholarships annually for the next five years beginning in September 2017. ELAM graduated 879 international students in 2016, including 20 from the United States, as we previously reported.

Recommended Reading

Op-Ed: Lifting History: Why it’s time to end the Cuban trade embargo, Rep. James Comer, Ohio County Monitor

Following his participation in a congressional delegation to Cuba organized by Center for Democracy in the Americas, U.S. Representative James Comer (KY-01) argues that the time has come for the U.S. to end the embargo on Cuba. Comer states: “Lifting the US embargo against Cuba is an overall win-win. It is a win for foreign policy because countries that the US trades with are countries with which we have good relations. Similarly, countries we ban trade with are the ones where conflict often arises… It is also a win for trade, especially agricultural trade.”

Cuba’s nascent tech industry is growing fast, Angelo Young, Salon

Young describes Cuba’s burgeoning tech scene and interviews Cuban entrepreneurs who are behind the development of online services and applications that aim to facilitate pre-paid phone access for Cubans and remittances from family abroad via credit card payments. Cuban computer programmers and engineers already do freelance work for companies in Canada and Spain, and are now being increasingly noticed by U.S. firms eager to find new talent.

The Tampa-Cuba Connection, Doreen Hemlock, Cuba Trade Magazine

Hemlock surveys the long and rich history of relations between Tampa Bay and Cuba, from José Martí to contemporary Tampa, which boasts Florida’s largest seaport that already handles Cuba-bound cargo and is home to Florida’s second-largest Cuban-American community after Miami.

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