CUBA STANDARD — Following up on a warning in April, the Trump administration is choking much of U.S. travel to Cuba, including cruises, adding more challenges to an already troubled Cuban economy.
In a press release, the Treasury Department announced it amended Cuban Assets Control Regulations (CACR), banning cruises and killing application-free people-to-people travel, the easiest and most popular category of travel used by tour operators such as National Geographic and Road Scholar, in order to punish Cuba for its support of the Venezuelan government.
“The Administration has advanced the President’s Cuba policy by ending ‘veiled tourism’ to Cuba and imposing restrictions on vessels,” tweeted National Security Advisor John Bolton. “We will continue to take actions to restrict the Cuban regime’s access to U.S. dollars.”
Land-based travel: The end of people-to-people
“What a kick in the butt!” said Peggy Goldman, president of Friendly Planet Travel, a Philadelphia-area based tour operator that has brought thousands of Americans to the island in small groups, many of them staying at privately owned casas particulares. She added that she was hopeful. “I feel positive about moving forward with other license categories for our travelers. We are busy reviewing all of our programs to make sure, but I feel confident that we’ll be able to continue, and honestly, we feel personally invested in continuing.”
Marcel Hatch, founder of Cuba Explorer, a Canadian travel provider with a focus on U.S. customers, reflects the same thinking, but adds more concerns.
“At first glance, we’ll be able to survive by rejigging our programs to fit other available OFAC categories,” Hatch said in an email message.
“This being said, the monster problem is the perception among U.S. travelers that Cuba visits are now canceled, banned, or illegal,” he added. “And this is precisely the effect Trump and company were hoping to accomplish.”
Some tour operators are going to great lengths to reassure potential customers. Miami-based Cuba Candela, for that matter, offers a “100% Guaranteed Departure Policy” that includes a full refund in the event future U.S. travel restrictions prohibit legal travel.
Hatch also expressed concern over a possible ripple effect of the added sanctions on banking.
“My biggest concern is how the U.S. banks will interpret the changes,” he said. “Naturally, they are cautious and have a lot to lose. So if money doesn’t flow, it is game over for all in the U.S. industry.”
However, easing travel provider anxieties, a U.S. banker said the new regulations won’t make a difference for payments.
“I really don’t think this changes the regulatory field for us,” said David Seleski, the head of Cuba operations at Centennial Bank, the Arkansas bank whose Florida-based Stonegate subsidiary pioneered banking with the island during the Obama years. “It will certainly lower our volume of transactions, but as long as we can legally rely on the travel provider’s attestation that the travel is permitted, we will be fine.”
Cruises: That’s it
New Department of Commerce rules also ban U.S. cruise ships from docking in Cuba, reversing an Obama administration policy that made it easy to take cruise ships, yachts, sailboats and private planes to Cuba. Under amended Export Administration Regulations (EAR), vessel and aircraft owners will now have to apply for specific licenses. But new Treasury directives establish “a general policy of denial for license applications”.
Even though Cuba makes up only 4% of sailings for Norwegian, 3% for Royal Caribbean, and about 1% for Carnival, according to Wolfe Research, the day of the announcement of the ban, Norwegian Cruise Line Holdings Ltd. stock dropped 5.1% on the New York Stock Exchange, Royal Caribbean Cruises Ltd. was down almost 3%, and Carnival Corp. lost all gains made early that day, according to Bloomberg.
According to the Cruise Lines International Association (CLIA), the ban directly affects nearly 800,000 passenger bookings currently booked or already underway.
Carnival lowered its full-year earnings outlook, citing the Cuba cruise ban. The Miami-based company said it now expects adjusted earnings of between $4.25 to $4.35 a share, compared with its March guidance of between $4.35 to $4.55 a share.
Meanwhile, Norwegian said adjusted earnings for fiscal 2019 will take a hit of 35 cents to 45 cents a share due to the Cuba ban. Analysts at Buckingham Research downgraded the stock to “neutral” from “buy”, on concerns about the Cuba ban.
Competitor Royal Caribbean offered passengers booked on cruises with a stop at Havana the option of remaining on their sailing without a Cuba stop for a 50% refund, or they may cancel their cruise and receive a full refund.
With only 24 hours notice about the new rules, at least one cruise ship — the Norwegian Sun — was forced to be rerouted mid-way.
“Cruise lines were operating in Cuba under a general license issued by the U.S. Government,” Carlos Gutierrez, a former secretary of commerce under George W. Bush and former head of the U.S. Chamber of Commerce’s Cuba Initiative, said in a Tweet. “No advance warning, no time to meet commitments made to their customers, $millions lost. Trump admin is not pro business. Another fallacy.”
The de facto cruise prohibition will in all likelihood make it impossible for Cuba to maintain the visitor growth aspired for this year. Fast-growing numbers of cruise passengers last year made up for a drop in land-based U.S. travelers.
Taking a big hit: Cuba’s private businesses
Beyond U.S. cruise companies, U.S. airlines that will likely have to reduce connections as demand drops, and dozens of U.S. travel agents and tour operators that will lose a thriving business, the most affected businesses are Cuban cuentapropistas.
“The obvious impact is to suppress demand for services of lots of Cuban entrepreneurs, and it will drive some out of business,” said Phil Peters, a Washington-based Cuba consultant, in a Tweet.
Cuba Educational Travel, a Miami-based travel provider, recently released a survey that shows how dependent Cuba’s private sector is on U.S. travel, and the negative impact new restrictions will have on their economic success.
What remains unchanged?
The new restrictions leave the “Support for the Cuban People” travel category intact, Peters points out. This means individuals can still travel application-free, under a general license. However, it will likely reduce the number of travelers.
“That category will never match the volume of people-to-people travel, but it’s an avenue for supporting entrepreneurs,” Peters said.
Other categories that are unaffected are family visits, religious travel, business-related travel, and academic travel, which all remain application free, under a general license.
The rationale
The Trump administration’s rationale for punishing Cuba is its alleged “propping up” of the governments of Venezuela and Nicaragua.
“Cuba continues to play a destabilizing role in the Western Hemisphere, providing a communist foothold in the region and propping up U.S. adversaries in places like Venezuela and Nicaragua by fomenting instability, undermining the rule of law, and suppressing democratic processes,” said Treasury Secretary Steven Mnuchin. “This Administration has made a strategic decision to reverse the loosening of sanctions and other restrictions on the Cuban regime. These actions will help to keep U.S. dollars out of the hands of Cuban military, intelligence, and security services.”
However, one of the affected travel providers suggests it’s all for domestic consumption.
“This political grandstanding aimed at Florida in the run-up to the 2020 elections is so unfortunate for the millions of Cubans that will feel the crunch from less U.S. visitors,” said Collin Laverty, President of Miami-based Cuba Educational Travel. “It’s also terrible for U.S. companies that are providing employment and paying taxes in the U.S. and creating an economic footprint on the island.”
Meanwhile, the U.S. Chamber of Commerce expressed its displeasure with the Trump restrictions.
“The new restrictions will disrupt business operations in the travel sector, which is out of step with the administration’s stated efforts to hold harmless U.S. companies legally doing business in Cuba. Cuba’s fledgling entrepreneurs and the Cuban people, the very groups the U.S. government strives to support through the Presidential Memorandum on Cuba, will be further harmed by these changes.”
Adds Friendly Planet Travel President Goldman: “The biggest mistake ever is to deny Americans the opportunity to support Cubans who are finally finding opportunities to develop small businesses and benefit from their own efforts. That’s the magic sauce American tourists bring to the Island.”
The new Treasury regulations can be found here. For the Commerce regulations, click here.
