(The following article appeared in CubaNews, written by Doreen Hemlock)
Havana’s decision to suspend landing rights for two Miami-based charter operators in late November raises questions about the long-term future of the charter flights and the companies that offer them.Cuba halted landing rights Nov. 27 for two of the largest and oldest companies offering such flights: C&T Charters, founded in 1991 by John Henry Cabañas, and Airline Brokers Co., established in 1982 by Vivian Mannerud.
The reasons were not clear, but news reports cite delays in payments.
The charter business has become unprofitable, insiders say, for a growing list of reasons: Too many seats authorized on U.S.-Cuba routes. Rising costs in Cuba. A drop in the volume of luggage carried on flights because of higher taxes in Cuba on those imports. Washington’s slow approvals of U.S. “people-to-people” tours to Cuba. Plus, a fierce price war among the charter companies themselves.
“The market has become very troublesome because of price-cutting,” said Bill Hauf of Island Travel & Tours, one of three charter firms offering Cuba service from Tampa. “There’s no profitability. Each of the companies in Tampa now are losing substantial money on flights.” Hauf said a fair price for Tampa-Cuba roundtrip service would be roughly $500 for operators to break even. Instead, companies have been offering trips at $449 and as low as $429 to keep cash flowing.
“We’re trying to start the new year with prices that at least will cover our costs,” Hauf told CubaNews. “We have to be in the Tampa market. We don’t have landing rights to fly to Cuba from anywhere else.”
Mannerud has been concerned for months about too many seats offered into Cuba. When she won approval to start up Fort Lauderdale-Cuba flights in September 2011, for example, she switched to smaller planes on her existing Miami-Cuba service to help compensate. “The amount of seats in the market that creates a price war is unsustainable for any charter company,” Mannerud said.
Charter operators could make up for some seats not being sold, because they got so much cash from payments on extra luggage sent to the island. But that income fell this year, when Havana started charging import taxes on food and later, switched payment on most imports from the lower-valued Cuban-peso to the dollar-like CUC currency. That move reportedly aims to slash imports and encourage Cubans abroad to send money to family on the island to buy in state-owned stores. “The decrease in the amount of travelers who couldn’t bring in all that freight also contributed” to the squeeze on charter companies, said Mannerud. Charter operators had hoped to fill more seats by carrying lots of U.S. travel groups, after the Obama administration eased rules in 2011 for so-called “people-to-people” exchanges. But approvals of those groups have been slow to date — well below operators’ expectations.
Meanwhile, costs for charters have kept rising, including the price of fuel. Insiders estimate it now costs about $20,000 to “wetlease” a plane for a charter flight, including the cost of the plane, crew and servicing. The lease price can run higher for select commercial carriers, such as American Airlines. The operator also must pay $58 per passenger in airport and related fees to U.S. authorities It pays Cuba $46 for every non-resident passenger for medical insurance required on the island, plus $148 per passenger for Cuban airport-related fees.
Tack on commission payments of $50 to $60 for every passenger that used to go to travel agents to arrange their trips and there’s little left for profit, they say.
WHY C&T AND ABC?
Questions remain, however, why C&T and Airline Brokers had their landing rights suspended but not others. Mannerud said she was operating seven flights a week to Cuba: two from Fort Lauderdale to Havana, three from Miami to Havana and two from
Miami to the southern port city of Cienfuegos. That meant paying Cuba hundreds of thousands of dollars a month in landing fees.
With landing rights suspended, Mannerud has laid off at least a dozen full- and part-time workers. Even before the November suspensions, many charter companies had been shutting routes or delaying their startup because of limited demand. Miami-based Marazul unveiled plans in September 2011 for Cuba flights from New York and Atlanta using Delta planes. But the company now flies only from Miami, a representative confirmed. And California-based Cuba Travel Services started Cuba flights from Puerto Rico in November 2011 that have since stopped, a representative confirmed.
Hauf too has delayed his planned launch of Cuba service from the Baltimore-Washington area, partly because of Washington’s slow authorizations of U.S. “people-to-people” tours to Cuba.
The upshot is that nearly two years after President Obama eased people-to-people travel and authorized at least nine more airports to offer Cuba service, charters offer routes only from the three places that already offered flights: Miami, New York and Los Angeles, and from one new gateway city: Tampa. And the future of the flights and companies that offer them remains uncertain, with limited demand for seats.
One long-shot option that could change the dynamic: The Obama administration could decide to open travel to Cuba to all Americans without the need for prior government approvals, Hauf said.
Open travel would encourage more U.S. companies to push Congress to end the 50-year-old U.S. trade embargo on Cuba. The embargo was imposed in 1962 to choke the flow of dollars to Cuba’s communist-led government and hasten regime change — so far, to no avail. No other country has similar trade restrictions in place with Cuba today. “The embargo,” said Hauf, “is an embarrassment to our country.”