Two US airlines to quit flying to Cuba

Bloomberg

US 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 US 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.