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Tuesday, March 14, 2017

Two U.S. Airlines Are Already Done With Cuba

Two U.S. Airlines Are Already Done With Cuba
Too many flights and too little demand send Silver and Frontier packing.
by Justin Bachman
March 14, 2017, 9:45 AM GMT+1

U.S. airlines that rushed into Cuba last year knew the going would be
tough. But it's turned out to be such an unexpected financial slog that
two carriers are now quitting the island.

On Monday, Frontier Airlines Holdings Inc. and Silver Airways Corp.
announced plans to drop service entirely. Citing a 300 percent surge in
airline capacity, Silver said it will end flights on April 22 to its
nine Cuban destinations, which didn't include Havana. The Fort
Lauderdale, Fla.-based company failed to win regulatory approvals last
year to fly to the Cuban capital, the biggest prize for U.S. carriers.

"It is not in the best interest of Silver and its team members to behave
in the same irrational manner as other airlines," spokeswoman Misty
Pinson said in an email. "However, Silver will continue to monitor Cuba
routes and will consider resuming service in the future if the
commercial environment changes."

Silver had already reduced weekly flights to six Cuban cities, given
what it called "too many flights and oversized aircraft" from the U.S.,
and begun to shift its 34-seat Saab aircraft to focus on service to the
Bahamas. The inability to sell Cuba flights via the major online travel
agencies such as Expedia Inc. and Priceline Group Inc. had also hurt
route performance, Pinson wrote.

Denver-based Frontier, meanwhile, said it will end its daily
Miami-Havana flight on June 4 due to overcapacity and operating costs
that were "significantly" higher than expected.

The cancellations aren't surprising, given the relative imbalance of
U.S. airline supply and traveler demand on the Cuba routes. Frontier is
regularly quick to drop underperforming service, and Silver had publicly
decried the capacity rivals were pouring into the island, even before
the new flights began.

Earlier this year, the largest carrier flying to Cuba, American Airlines
Group Inc., cut daily service by 25 percent and switched to smaller jets
on some routes. Meanwhile, JetBlue Airways Corp. has announced it will
use smaller planes on several routes to match lower-than-expected demand.

"Patience is the word for now," Gary Kelly, chief executive of Southwest
Airlines Co., told employees late last month. He said the airline didn't
set "any high expectations" for its six daily Cuba flights to Havana and
two other cities. "We went into Cuba with the idea we would stick with
them for quite some time—at least a year—and then reevaluate, give them
time to develop. We've got minimal investments with these flights, and
in the airline business, if you don't like that market you can easily
redeploy the aircraft."

Airlines flew into Cuba last autumn with only educated guesses about the
demand picture, and were overly ambitious when they jostled for the
limited routes available. With a mandate for only 110 daily U.S.
flights—20 into Havana, the most popular destination—the
carriers tumbled over each other to get a piece of the pie.

The air rush into Cuba came with "no data to give you any idea as to
what the level of demand was going to be," American Airlines CEO Doug
Parker said March 2 at an aviation conference. "We erred on the side of
putting in more seats than less, and now we've adjusted."

Still, the opportunity to serve Cuba was a risk worth taking, given the
scarcity of slots Cuban authorities allowed for Havana. And if the U.S.
embargo were to be weakened or dismantled, airlines could easily see
U.S. traveler demand—and fares—surge.

Last week, U.S. Senator Jerry Moran, a Republican from Kansas,
introduced a bill that would lift the trade embargo for U.S.
agricultural products, allowing farmers, ranchers, and other businesses
to sell to the Cuban market. Similar measures have been introduced in
the House of Representatives, as well as bills to end the restrictions
on U.S. travelers.

President Obama announced an opening of relations with Cuba in December
2014, calling previous U.S. policy seeking to isolate the communist
government a failure. Despite Obama's efforts, including a state visit
in March 2016, the 54-year-old U.S. embargo remains in place. The law
prohibits tourism to the island by Americans and makes financial
transactions burdensome. Today, most people traveling to Cuba
individually classify themselves as participants in "people-to-people"
exchanges, one of a dozen categories authorizing travel under U.S.
Treasury regulations.

—With assistance from Mary Schlangenstein in Dallas and Alan Levin in
Washington.

Source: Two U.S. Airlines Are Already Done With Cuba - Bloomberg -
https://www.bloomberg.com/news/articles/2017-03-14/two-u-s-airlines-are-already-done-with-cuba
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