A Tale of the Long Game: How Havana Air took off to become the largest provider of passenger traffic to Cuba

Transcription

1 FLYING H

2 G HIGH A Tale of the Long Game: How Havana Air took off to become the largest provider of passenger traffic to Cuba Text by Michael Deilbert Photos by Jon Braeley

3 The Boeing 737 glides over the powdery beaches and condos of Miami Beach before heading south above the necklace-like string of islands that are the Florida Keys, glittering in the turquoise waters like jewels. The plane, packed with Cuban-Americans and tour groups heading to Havana, quickly traverses the Straits of Florida before descending over rolling farmland petering out at the tumbling Caribbean surf. Beneath the fiery afternoon sunset, Havana, the Caribbean s largest city and Cuba s pulsating capital, appears below. These are heady times for air carriers heading to Cuba from the United States. Since the U.S. normalized diplomatic relations with Cuba in December 2014, more and more U.S. citizens have been traveling to the country, eager to sample the charms of the long-forbidden Communist island. During 2015, Cuba s government said the number of U.S. visitors increased by 77 percent, totaling 161,233 for the year; estimates for 2016 more than double that figure. And with scant seafaring options, these tourists are arriving by air. For decades, there was no regularly scheduled commercial air travel between the United States and Cuba, with charter companies stepping into the breech to provide service. That is now changing, with numerous American commercial airlines being granted routes to Cuban cities. But the dominant player in air travel between the U.S. and Cuba, with regular daily flights, remains charter airline Havana Air. We are a scheduled service airline trapped in a charter company s body, says President and COO Mark Elias. We operate three or four flights a day. Elias, partnering with his friend of 30 years CEO David Nesslein, started the company in early The pair were inspired while watching President Barack Obama s inaugural address in January of that year, during which the president spoke of a new opening to the world and working alongside old friends and former foes. The new administration was also more open to doing business with Cuba than the previous Bush presidency. Under Bush, no one was getting any new licenses from OFAC (the Office of Foreign Assets Control), says Elias, a U.S. travel industry veteran with experience in the corporate and leisure markets. "We thought it might be possible under the new administration." Even so, it would take him and Nesslein years to get the proper permits, a testimony to the long-game approach that U.S. companies need to take when doing business with Cuba. In the end it took nearly two years to obtain a coveted license from OFAC, and that was followed by years of persistent efforts in Cuba. The OFAC license was difficult to obtain and took more than a year and a half, says CEO David Nesslein, who ran a successful healthcare company for 33 years before selling it in And it took almost 4 years to hammer out agreement on the Cuban side. Throughout those negotiations the duo flew to Havana repeatedly, working out the intricacies of the deal with Celimar, a division of Havanatur, the state company that oversees tourism in Cuba. When we went to Cuba and were proposing to begin flights, we told them we wanted to open our services to the U.S. non-cuban audience as well as Cuban-Americans, Elias says. We were constantly telling them we were going to bring them the U.S. audience. Which they did, leveraging Elias s travel industry background. During the long process of acquiring licenses, they also honed their market intelligence by acting as sales agents for other charters. Once the company received permission to operate, another set of hurdles arose: The decades-old U.S. financial restrictions that make it difficult to transfer funds to Cuba, in this case for aircraft landing fees and ground operations. In the end, like other U.S. companies doing business with Cuba, Havana Air solved this by using third-country banks for transactions with the island nation. Finally, on Thanksgiving Day 2013, Havana Air carried its first load of passengers from Miami to Cuba s capital. It was trial by fire, says Elias. But we were fully booked on that day and passenger loads have continued to increase since then as the number of flights have grown. Today, Havana Air averages more than two dozen flights a week heading to Cuba and carries more than 12,000 passengers a month. The company now encompasses a fully-automated online booking site, ticket purchasing, and applications for visas, all directly on line. In addition to Havana, they fly to the regional cities of Santiago, Santa Clara, Holguín and Camagüey utilizing , 160-seat aircraft operated by Eastern Airlines. Departures include Miami and Tampa, and they operate the only flights departing from Key West to Havana. They also have a ground operation, Cuba Explorations, that provides cultural tours around the island. While Havana Air is now the largest carrier of passengers between the U.S. and Cuba, however, the aviation landscape they pioneered is about to dramatically change. As of early November, ten commercial airlines had received U.S. approval to fly to Cuba, routes that are slowly being approved by the Cuban government beginning with Jet Blue s inaugural Santa Clara flight last August. Other airlines approved include American, Delta, United, and Alaska Airlines, with routes to Havana, Holguín, Cienfuegos, Santiago, Varadero, Camagüey and the aforementioned Santa Clara, flying from U.S. cities that include Los Angeles, New York, Miami, Tampa, and Newark. By and large, most analysts see the expansion of air service to Cuba as a positive development, including for the Cuban people and their economy. We re very encouraged by what s happening because it s an opportunity for the market and the economy to grow in a country that s been closed off from the United States, says Peter Cerda, regional vice president at the International Air Transport Association. By being able to put into effect scheduled service, this is a game changer. 44 CUBATRADE DEC 2016

4 It was trial by fire, but we were fully booked and we ve been full ever since. Mark Elias, president and COO, Havana Air Photo by Jon Braeley Havana Air passengers arriving at José Martí International Airport

5 S Havana Air has carved out a uniquely competitive niche in the U.S.-Cuba travel market, based on their understanding of the passengers they serve. While few observers predict that U.S. air service to the island will be rescinded, the industry vis-à-vis Cuba is not without challenges. In September, Sens. Marco Rubio (R-Florida) and Robert Menendez (D-New Jersey) co-sponsored legislation designed to halt commercial flights from the United States to Cuba, at least until the U.S. Transportation Security Administration (TSA) can complete an analysis of airport security in Cuba and ink a deal that allows the TSA to regularly inspect them. There are also concerns that Cuba s aviation infrastructure, especially José Martí airport in Havana, will be hard pressed to handle an influx of new passengers. This may be alleviated in the long term by contracts signed by the Cuban government with French firms Bouygues S.A. (to upgrade the facility) and Aéroports de Paris (to operate the airport). In the short term, however, facilities will be strained as Americans fly with increasing ease to Cuba. Though tourism to Cuba per se is still prohibited, OFAC grants visas for 12 categories of travel, including family visits, educational activities, religious activities, and the open-ended people-to-people trip. Unlike in previous years, travelers can now self-certify, rather than go through a formal approval process. For both the short and the long term, the founders of Havana Air are not particularly worried about the new competition. They are the ones who are going to have to compete with us, says CEO Nesslein. Pricing, for example, won t be an issue. Historically, charter companies have been forced to pay substantially higher landing fees than commercial carriers, but recently, Havana Air succeeded in reaching a deal with Cuba s government that brought these rates to parity. Indeed, Havana Air has in some ways carved out a uniquely competitive niche in the U.S.-Cuba travel market, based on their understanding of the passengers they serve. We were both frequent flyers and airline customers for years, so we knew exactly what we wanted to do and what we didn t want to do, says Elias. Among those initiatives is Havana Air s policy of accommo46 CUBATRADE DEC 2016 dating over-sized items that Cuban-Americans want to bring to relatives, such as large boxes, televisions, and bicycles (especially popular on the Camagüey route), things that commercial airlines are reluctant to take aboard. For any given flight, a long line snaking from Havana Air s check-in counter at Miami International Airport with travelers pushing overloaded carts is a common site. Simply put, we often take luggage types on board that other companies won t, says Elias. Another competitive advantage, he says, is scheduling. We offer early morning flights. The scheduled airlines opt for later flights waiting for connections from other cities. But our passengers want to get down there early in the day. Havana Air is also planning to compete with the influx of competition by catering to a more upscale market. With terminal facilities in Havana soon to be stretched to capacity, Nesslein and Elias are betting that corporate and affluent passengers will want to avoid the mess and travel by private plane. Nesslein has made substantial gains in acquiring private aircraft landing rights, and Havana Air currently facilitates about 15 private jets a month, from Hawker 850s to Gulfstream G4s, including regularly scheduled flights from Key West three times a week. The company also believes that its extensive connections on the ground in Cuba, and the personal service of Havana Air, will help them compete in the increasingly diversified Cuban aviation landscape. The company s expertise in Cuba has been utilized by, among others, the Rolling Stones, who employed the company to move their support staff for their heralded concert in Havana s Ciudad Deportiva this past May. A few days earlier, Havana Air had flown in the Tampa Bay Rays when they played their historic game against Cuba s national team in front of Barack Obama and Raúl Castro. The company also sponsors Cuban reggaeton group Los Quatros for their U.S. tours and participates in several pro bono efforts to bring Cuban artists to the U.S. I think the difference between us and a scheduled carrier is that we fly every day, 7 days a week, to Cuba, says Elias. We