Growing flow of Americans remakes Cuba

 

Dudley Althaus, in Dow Jones Business News Comment

 

HAVANA, Cuba -- Though the U.S. embargo still officially bars them from hitting Cuba's beaches as tourists, Americans are nevertheless shaking up the country's tourism industry and communist economy as they flock to the island.

 

For decades, Cuba's tourism sector catered instead to Canadians and Europeans booking inexpensive package deals in Varadero and other beach resorts. That sort of tourism generally kept foreigners isolated from most ordinary Cubans, in line with the government's preferences.

 

Cuban leaders, meanwhile, are gambling that a tourism windfall will bolster the island's economy and ease public pressure for deeper political overhauls.

 

"The tourism sector is thriving," said Emilio Morales, a former Cuban official and now president of the Havana Consulting Group in Miami. "If the revolution depends upon sustaining the economy, they have seen that this is the only thing that works."

 

Tourism as such remains illegal under the U.S. embargo, but in promoting so-called purposeful travel, the Obama administration allows Americans to visit Cuba under 12 exemptions to the ban -- from medical and religious missions to cultural exchanges and "people-to-people" visits.

 

As a result, tourism has been surging here through 18 months of improving relations between the island's leaders and the Obama administration. More than 450,000 U.S. citizens or residents were among the 3.5 million tourists to visit the island last year, when the total number of visitors rose 17% from 2014, the Cuban government says.

 

Total American visitors through June grew 26% from the first half of 2015 to about 304,000, making them Cuba's second-largest tourist contingent after Canadians, according to a preliminary tally by José Luis Perelló, dean of the University of Havana's tourism program.

 

While Cuban-Americans visiting family on the island made up most of the U.S. contingent, almost 136,000 people came on other exemptions to the embargo's travel restrictions in the past six months -- a nearly 90% rise over the same period a year earlier.

 

An estimated 2.1 million visitors arrived on the island through June, according to Mr. Perelló's tally, meaning growth is running far ahead of Cuban officials' estimate of 3.8 million tourists by year's end. The number of American visitors is expected to further increase this coming winter season, once direct commercial flights begin from U.S. cities.

 

Washington regulators on Thursday awarded eight U.S. airlines a total of 20 daily nonstop commercial routes between American cities and Havana. The regulators last month authorized six U.S. airlines to serve nine Cuban provincial destinations.

 

Despite the influx of visitors, the Cuban economy grew by just 1% through June, sharply slowing from 2015's GDP growth, President Raúl Castro told legislators Friday, as he outlined belt-tightening measures amid cutbacks of oil imports from Venezuela and other woes. He also laid out plans to focus investments on economic areas, such as tourism, that generate foreign income.

 

"We will not give up the intention to continue re-establishing the international credibility of the Cuban economy," Mr. Castro said.

 

Cuban officials say they will build scores of new hotels and 108,000 rooms in the next 14 years, compared with the 65,000 that exist now. Grupo de Turismo Gaviota, the Cuban armed forces' company that owns most of the beach resort hotels, has said it would self-finance and build 50,000 of those rooms by decade's end, all but 2,000 of them on the beach.

 

Outside industry experts judge those goals to be impossible to meet without significant outside investment.

 

While foreign hospitality companies have management contracts for many hotels -- and almost all the beach resorts - - there are barely two dozen joint ventures, with the Cuban government always the majority partner. Connecticut-based Starwood Hotels and Resorts Worldwide Inc. signed contracts in March to manage two Havana hotels. More deals for U.S. companies are in the works, industry experts say.

 

Many of Havana's existing hotel rooms are badly in need of renovation but also often booked solid. Room rates in the handful of good hotels have doubled or more in recent months, with further sharp increases expected.

 

"The planners never thought they would see normalization in the short or long term," said Mr. Perelló, explaining how Cuban officials miscalculated the market in their tourism planning.

 

Short on options, urban visitors increasingly turn to the private bed-and-breakfasts, and shun government-run restaurants in favor of private ones, called paladares, where food and service are considered far better.

 

"The really big boom in Havana and other tourist cities is in bed-and-breakfasts," said Richard Feinberg, an economist at the University of California, San Diego, whose book "Open for Business" dissects Cuba's changing economy.

 

There are already nearly 50,000 rooms for rent in private homes across the island and more are being built, Mr. Morales of the Havana Consulting Group calculates. The number of paladares nationwide has exploded from 113 five years ago to more than 1,600 today, he says.

 

"Tourists in general, and U.S. tourists in particular, are curious to see the real Cuba, to see how Cubans live, think and organize their lives," said Mauricio Alonso, an engineer who with his wife operates a bed-and-breakfast in their suburban Havana penthouse. "What makes the experience here unique is the contact with Cuban people, and that above all is achieved in private houses."

 

Income is expected to rise along with tourism. Private lodges, restaurants and other businesses today employ more Cubans than state-owned establishments and pay them better. About a third of Cuban workers are self-employed or private business owners.

 

"In the next five years it's going to be a very different country," Mr. Morales said.

 

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