A Fresh Start for U.S. Hotel Brands in Cuba?

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. August 01, 2016

HAVANA, CU. August 1, 2016 - Behind the colonial facades of Havana's historic hotels, times are changing as Cuba and the United States start to rebuild their fractured relationship.

The recent opening of the Four Points Havana marks a significant milestone in the easing of economic restrictions between the two countries. Managed by Starwood Hotels & Resorts, it is the first American-operated hotel in Cuba since the 1959 revolution effectively ceased diplomatic relations between the two countries.

It's far from being the last - Starwood will assume management of a second hotel, the Gran Caribe Inglaterra, at the end of August, and Marriott International has also received clearance from the U.S. government to carry out business transactions on the island.

Significant tourism growth to come

Although it's still illegal for U.S. citizens to travel to Cuba for general tourism, the Obama administration is allowing “purposeful travel” for things like medical and religious missions or “people-to-people” visits - and these changes are expected to have immense effect on Cuba's lodging industry.

The Wall Street Journal reported more than 450,000 U.S. citizens or residents were among the 3.5 million tourists to visit Cuba in 2015, a year in which the total number of visitors rose 17 percent from 2014.

American visitors in the first half of 2016 grew 26 percent from the same time in 2015, contributing to the estimated 2.1 million total visitors who arrived in the first half of the year. That pace is likely to continue, which would far outpace Cuban officials' estimate of 3.8 million tourists by year-end.

Second-half growth will be boosted by an increasing number of direct flight connections between the two countries. Eight U.S. airlines were recently awarded a total of 20 daily nonstop commercial routes between U.S. cities and Havana.

What does it mean for hotel brands?

“U.S. tourists are travelling to Cuba in an increasingly high number, but the country does not currently have enough hotel rooms to accommodate the influx of visitors,” says Fernando Garcia-Chacon, Executive Vice President, JLL. “This gives hotel developers an opportunity to expand into Cuba and leverage the lack of supply.”

Though the opportunity is ripe, U.S. hotel brands will face several challenges as they enter the Cuban lodging market. Foreign investors aren't allowed to own private property in the country, and any employee they hire must be acquired through the Cuban government. Additionally, all purchases for the hotel must be made through a state agency.

“Hotel owners and developers who are prepared to adapt to the unique complexities of operating a U.S. hotel in Cuba will benefit from the increased number of tourists,” adds Garcia-Chacon. “As additional economic restrictions are lifted, more hotel companies will realize the opportunities Cuba has to offer.”

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