The recent announcement by U.S. President Obama and Cuba’s leadership regarding the lifting of the U.S. embargo into Cuba should be good news for the American hotel sector in the medium term. However, once the deal is approved by the U.S. Congress, there still will be challenges along the way for American hotel companies that wish to enter that market.
Out of the roughly 59,000 hotel rooms of the island, 20% are operated by Melia Hotels International alone. In terms of number of properties, Spain is the country that manages the most properties there. The historical common roots of the two countries have been a clear advantage.
Although while Cuban hotel owning companies will embrace American brands, coping with product and service standards will be issue number one on the agenda for American hotel groups. The alternative will only be throwing key money into these deals (non-refundable investments that will be added to the value of the property and kept by the property owners, and eventually for the benefit also of the next brand that comes along).
The majority of the hotels are owned by the main two hotel property owners/managers in this island: Gaviota, which falls under the Ministry of Defense and is better funded (they are opening the Kempinski property in 2016), and Gran Caribe, which falls under the Ministry of Tourism. Negotiating terms and building a long-standing relationship with these companies requires time and perseverance in ways that are even unheard in other world markets.
I had the opportunity to work in properties in Havana, Varadero and Cayo Coco and I have to admit one has to really want to enter those markets. Of course, the financial returns are very significant.
Finally, from a more general perspective, the lack of American consumer brands in Cuba is just a myth. Hotel bars cater Coke (distributed via Mexico) and PCs run on Microsoft Windows (hacked versions). Since all major consumer brands are already there, the likely short-term beneficiaries of opening the U.S. gates into Cuba will clearly be those Canadian airlines that already have the slots to land in Cuba, American travel agencies and tour operators, American equipment brands and, of course, Spanish hotel groups, which will welcome all of the above.
Today, out of the roughly 2.8 million tourist that land in Cuba, more than 1 million come from Canada and the rest comes from Spain, France, UK, Germany and Italy. Spain and Canada are both in third position in terms of commercial trading relations with Cuba, after Venezuela and China.
It will be interesting to see how this market develops. Perhaps the much discussed real estate privatization process will finally materialize.
Contributed by Ivar Yuste, PHG Hotels & Resorts, Madrid