In From The Cold

That’s all about to change. For the past few months officials from both sides have been deep in discussion, mostly in Havana, to forge an air services agreement (ASA) between the two nations that will re-establish scheduled air links for the first time in more than half a century. At the time of writing (in December) negotiators were hinting privately a deal was imminent.

When it comes, the dismantling of what has become known as ‘the Coconut Curtain’ will put the Caribbean aviation landscape on the cusp of major transformation. For Cubana it will bring massive opportunity to develop and expand its fleet with modern western aircraft, along with freedom to finally enter what is currently the world’s biggest aviation market, the US. For Cuba it will bring badly needed foreign investment and a wave of new tourists and business travellers.

Trouble is, it will also bring huge challenges. Can Cubana compete with the might of America’s airlines? Can its airports – there are 10 international and 15 other purely domestic facilities – cope with rapid growth? Is the tourism infrastructure ready to handle a surge in the number of visitors? Today, and for some time to come, the answer is a definite “No”, even though Cubana chief executive Fidel Sanchez Calero is full of optimism.

“We believe that Cubana is ready, with the support of IATA, to meet the future growth in demand for air transport in Cuba. The conditions are right for Cubana de Aviación to continue expanding. Cuba is an island that is proud of what it is capable of achieving”, he says.

The reality, however, is that the airline has a mountain to climb. It was founded way back in 1929, originally as a flying school. Ironically, given later events, it became a subsidiary of US giant Pan American World Airways in 1932 and was later owned by Cuban investors before being nationalised in 1959 following the Cuban revolution. Looking back today, its fleet over the years looks like a museum of aviation history. It has operated everything from the Bristol Britannia, Douglas DC 3, DC-4 and DC-7, to Vickers Viscount and Lockheed Constellations.

When you talk to people in Havana everything is couched in terms of “before the revolution” and “after the revolution” and for Cubana, it was the US breaking relations in 1961 and the imposition of the embargo in 1962 that saw it forced to turn to Russia for new heavy metal. The first, delivered in the early 1960s, were Ilyushin Il-14 and Il-18, followed by Antonov An-12, then Tupolev Tu-114 jet-props and the Ilyushin Il-62 long-range jets. The break-up of the old Soviet Union created difficulties. Parts became scarce and the airline was forced to keep flying a fleet that became increasingly unreliable and aged.

Today, it does have new Russian jets. The fleet comprises six Antonov An-158s, five Ilyushin Il-96-300s, two Tupolev Tu-204s, one Tupolev Tu-204-100EC freighter and the five Airbuses – one A319 and four A320s – leased from Lithuanian lessor Avion Express. There is also one ATR 42-500, leased from another Cuban airline, Aerogaviota, which operates domestic passenger charters for the Cuban tourism authority. Cubana’s only orders still awaiting delivery are for three Ilyushin Il-96-400s.

Apart from domestic flying, Cubana operates internationally mainly to South America, including Mexico, Costa Rica, Argentina, Chile, Venezuala, Santo Domingo and Venezuala. It also flies to Canada and in Europe to Madrid and Paris. It codeshares to Moscow with Aeroflot, to Rome with Italian carrier Blue Panorama Airlines and in Spain with Air Europa.

Cubana is also in the process of merging with another local airline, Aero Caribbean, which operates a small fleet of three ATR 42-300s and four ATR 72-212s domestically and overseas to nearby Caribbean and South American countries. The new entity will retain the name Cubana de Aviación.

Trouble is, it will also bring huge challenges. Can Cubana compete?

None of this hardly provides the sort of ammunition needed to combat the likes of United, American, Delta, JetBlue and Southwest with their massive fleets of new, fuel-efficient Boeing and Airbus jets, and all of which are eager to enter the Cuban market.

Not that their arrival in the skies above Cuba will be anything new. In what really amounts to a case of smoke and mirrors, it may surprise many to learn that, embargo or not, every week some 90 flights operated by American carriers fly into Cuban airports. United, Delta, American and JetBlue tails are a familiar sight at Havana’s Jose Marti International Airport and elsewhere in Cuba. They are charters, planes wet leased to an array of companies such as Airline Brokers, ABC Charters, C&T Charters, Cuba Travel Services and Marazul Charters, mostly carrying thousands of expatriate Cubans from Miami and other major US cities, including New York, to visit friends and relatives in their homeland.

For example, ABC Charters uses American Airlines aircraft from Miami and Tampa to fly to Havana, Cienfuegos and Santiago de Cuba. Cuba Travel Services uses United and American. Marazul uses Delta and JetBlue to fly from Atlanta, Miami, Fort Lauderdale and New York to Havana and Camaguey. In the past year alone these charters have seen a 35 per cent increase in air traffic to Cuba.

“You can imagine what will happen once it becomes schedule,” said the director general of IATA Tony Tyler, who visited Havana mid-November as part of celebrations marking the 70th anniversary of the organisation’s founding in Havana.

At a press conference in the historic Hotel Nacional, where IATA began life in 1945, Tyler said he had held talks with Transport Ministry, Civil Aviation authorities and the Tourism Ministry about the “enormous potential” of the Cuban market.

“Even in my brief visit I have come to realise that aviation could be contributing much more to Cuba. Look at tourism. Cuba welcomed a record three million tourists in 2014 but the Dominican Republic attracted five million. They are both amazing countries, but even just looking at Cuba’s size against the Dominican Republic indicates it should be able to accommodate a much larger tourism industry than it does today. ” It was the same for the outbound market, Tyler said. Cuba lifted restrictions on outbound travel for its citizens some years ago but IATA estimates there were still only 300,000 departures from Cuba in 2014. Most Cubans are poorly paid and can’t afford to fly.

“For a country of over 11 million people that is relatively small and for sure it will grow as average incomes rise. We did a projection to 2034 and conservatively we see the potential for one in four Cubans to be travelling by air at that time. Even if the population is steady, which is an unrealistic expectation, it would see a market of ten times the size of today in less than two decades,” Tyler added.

And there lies the problem. Cuba’s airport infrastructure, particularly Havana, is outdated and already straining to handle current capacity. Outside Havana, the facilities are nothing better than third world in nature, lacking airbridges or any sort of modern IT. There is, for instance, no self-checkin. And processes are inefficient.

One senior IATA official who flew into Jose Marti International from Madrid with Spain’s Iberia had to wait for three hours before his luggage appeared on the arrival carousel, apparently because screening (in the hands of the military) involved individual inspection of each piece of baggage. Tyler himself was rather miffed to discover, when he finally got his check-in bag, the lock had been broken and the contents of the case rifled through. Runways are no problem. They are extremely long, having been built to handle long-range flights from Russia. But terminal buildings are totally inadequate. On the bright side, air traffic management is regarded as “pretty good”. Cuba actually handles some 700 overflights every day, mainly airlines flying to and fro between destinations in North and South America. Even so, ATC technology upgrades are urgently required. IATA has offered to help Cuba in any way it can.

“IATA isn’t in the business of building or upgrading airports but we do help airports and governments plan infrastructure developments,” said Tyler. “By bringing our deep knowledge of airline and passenger needs we can ensure that the infrastructure investments deliver the maximum benefit. ” There’s another hurdle Cuba needs to overcome. At present, its hotel infrastructure can’t cope with demand. Maimir Mario Mesa Peres, a director at Mintur, Cuba’s Ministry of Tourism, told this writer Havana has only 12,000 hotel beds. They are already bursting at the seams, operating at almost 100 per cent occupancy every night, overflowing with group tours from places like Germany and the Netherlands, Eastern Europe, Japan and Canada (Air Canada operates to Havana from Montreal, Toronto and Halifax). Lifting of the US embargo will undoubtedly bring a wave of new visitors from the US as well as major hotel investment, but it will be several years before sufficient new accommodation is built.

There is no doubt Cuba will attract increasing numbers of tourists. It has unique offerings. This is a country that in many ways has been frozen in the 1930s, 1940s and 1950s. The streets still abound with antique American cars from that era, a fact that will no doubt act like a magnet for collectors of old classic vehicles. Old Havana with its grand Spanish architecture and the city’s historic forts and ramparts are magnificent relics of a bygone age. The legacy of author Ernest Hemingway, still revered in Cuba, remains alive and well, including the bar he used to drink at and the hotel he stayed in, both popular stopping off points for visitors. There are magnificent Caribbean beaches, lush tropical countryside and even winter snow on the country’s high ranges. The restaurants and the food are excellent, inexpensive and nearly always accompanied by a band playing Cuban music.

At least six US airlines have voiced their eagerness to begin scheduled services, and if an air rights deal is forged in the near future they will begin sometime in 2016. However, officials from both sides close to the talks make it clear an initial ASA will be nowhere near an open skies deal. Cubana’s small fleet will have to be taken into account to ensure it is not swamped. Even with a modest amount of capacity for each side the Cuban carrier will find it difficult to compete in a US-Cuba market, especially when American operators will now have the right to sell tickets to outbound Cuban travelers.

At the moment, Cubana is at another disadvantage. It does not have access to IATA’s Billing and Settlement Plan (BSP), the group’s global financial system which last year handled about $388 billion. It is critical to airlines because it aids distribution of their product through travel agents across the globe, helping to facilitate transactions between airlines and agents through a standardised agreement and settlement mechanism. About 60 per cent of ticket sales are through agents and the figure is higher in developing markets such as Cuba.

Indeed, access to global distribution systems (GDS) has also long been an issue for Cubana. Essentially, Cuba has a cash economy. If Cubans want to buy an air ticket they have to go to an airline office and pay for it in cold, hard cash. People living outside Havana mostly have to travel into the city to book a flight. That is changing. Spain-based GDS Amadeus now has an office in Havana (it took two years to get clearance to open up) but others, such as Sabre with its American links, won’t be arriving until the embargo is lifted. To flourish, Cubana needs to have access to the BSP and the global markets served by the GDSs.

One piece of good news is that while he was in Havana, Tyler announced IATA has been studying the market and now plans to start BSP operations in Cuba sometime this year (2016). It already has four accredited agents with well over 100 branches across the country but doesn’t yet offer a BSP.

“We have been studying the market closely for an opportunity to start a BSP here and I am pleased to announce we believe the potential and timing is right and we hope to start BSP operations within 2016… establishing an IATA BSP in Cuba will be an important facilitator for growth in outbound ticket sales,” he said.

“Setting it up will no doubt be challenging. The banking system being one of them. But, we will be working with our stakeholders – including Cubana and the Cuban government – to overcome these in relatively short order. IATA has to get all the necessary government approvals to operate a financial service in Cuba. It needs to negotiate with the banks to provide a service and to open various accounts. It needs to set up an appropriate risk management structure, whether it is through bank deposits or insurance or something like that. There’s a lot to do but we are quite experienced in doing it. It’s a matter of months to do something like this, not weeks. ” Whatever the initial difficulties and challenges, everyone agrees that in the longer term Cuban aviation has massive potential. Some believe that, given time and with its position – as someone described it, like an aircraft carrier sitting in the middle of the Caribbean – it could rival Miami as the major hub for flights into South America.

“I think in the long run that is perfectly possible,” said Tyler. “But what you need to be a successful hub is a single hub airport that operates very efficiently with a lot of capacity because by their very nature hub operations have peaks and troughs during the day. You need a lot of capacity at certain times of the day. So that’s important and you obviously need an airline that is in a financial position to invest and grow and develop. So I think it will be a while before we see a serious challenge to the existing hub but the potential is certainly there if the infrastructure is provided and if the local airline here can play its part. ” Whether it can or not remains to be seen. No-one really knows whether Cubana is making money or not. Probably not. It will need significant investment to allow it to modernise and expand its fleet. Airline officials are tight-lipped about future planning. No-one, including Cubana chief Calero, is confirming they are ready to open the door to these Boeing and Airbus salesmen.

But if they are to play their part and properly compete with the looming opposition, they will almost certainly have to.

This is a country that in many ways has been frozen in the 1930s, 1940s and 1950s.