Why Does Cuba Keep Building Hotels?

By Jessica Dominguez Delgado  (El Toque)

HAVANA TIMES – The latest Tourism Selected Indicators January – June 2023 report published by Cuba’s Office of Statistics and Information (ONEI), confirms what has been a trend in recent years, even before the pandemic: the number of foreign visitors is well below the island’s hotel availability. In other words, there are many more hotel rooms than there are tourists to fill them. However, this hasn’t stopped the Cuban Government betting on hotels and building new ones.

In the past six months, hotel occupancy was at 27.9%, which means that for every ten rooms, seven weren’t occupied by foreign tourists. While this figure has increased compared to the same timeframe in 2022, it’s far from being a good indicator. The country hasn’t managed to beat an average of 60% occupancy in the best of years. Yet, the number of hotel rooms is growing.

During the recent International Tourism Fair in Havana, in May 2023, Prime Minister and former Minister of Tourism, Manuel Marrero Cruz, said that the country currently has over 81,000 hotel rooms. A figure that is growing with recently-opened hotels. Eight hotels have been opened since 2022, and it’s expected that another five will complete the list of new openings, by the end of 2023.

The most worrying thing here, though, is that the money being used to develop the hotel sector is essentially Cuban, at the expense of other sectors. Even though we don’t know just how much each of these new projects exactly costs, or how they are financed, it’s clear that they are a top priority when it comes to national investment.

Is it viable, from an economic standpoint, to carry on investing public money into the hotel sector when the supply that exists is significantly higher than demand? Who is still building new hotels and why?

The DeFacto team doesn’t have all the answers, but statistics have been analyzed to try and understand the sense in standing by these decisions.

Tourism hasn’t recovered as expected

The Minister of Tourism, Juan Carlos Garcia Granda, admitted that “recovery has been difficult.” The country didn’t meet its target of 1.7 million visitors in 2022, a figure that had been cut from the initial aspiration of 2.5 million. According to different experts, the Government’s target of 3.5 million tourists in 2023 probably won’t be met. During the first semester, 1,298,539 foreign visitors had visited Cuba, but this recovery only accounts for 50% of the total number of visitors over the same period in 2019.

The expansion of tourism and Cuba’s position within the international market don’t only depend on the island’s hotel capacity. Other factors come into play, including the availability of flight connections, the quality and price of service, as well as competition with other markets in the same field.

During the Ministry of Tourism’s (MINTUR) annual balance, Marrero admitted that problems within the sector in 2022 included “a series of problems in quality, mainly as a result of shortages of food, drinks and supplies, poor service, insufficient recreational activities and entertainment at tourist resorts, the lack of maintenance of facilities and an unstable Internet service.”

Cubans living abroad: the second most “tourists” who come

There was a “boom” in non-Cuban U.S. tourism in 2017 and 2018. With the exception of these two years, ONEI statistics reveal that the community of Cubans living abroad are the second “source market” of tourism to Cuba.

They are considered tourists because they are “people who visit a country other than the one they have their residence in, for less than a year, for leisure, recreational, business and other personal motives, and they aren’t engaging in paid activities in the country they visit.”

While this is technically true, talking about an increase in international tourism is questionable if this community represents 13.5% of the total number of visitors to Cuba so far in 2023, and it’s not just this year.

Canada is the main source of tourists for Cuba, a fact that has been promoted and capitalized on fully by the Canadian company Blue Diamond, one of the foreign managements that runs the most hotels in the country.

It’s interesting that the Canadian Government recently issued a warning to travelers, explaining the situation in the country and, especially, to exercise caution due to shortages of basic essentials, incuding food, medicines and fuel. This might not have any repercussions on tourism, but it’s the first time that this has ever happened and it’s a precedent that could discourage Canadians from choosing Cuba as their holiday destination.

Canada is followed by the United States despite US Government restrictions. However, it’ll be very hard to aspire to the numbers of 2017 and 2018 as long as the current policy between both countries remains intact. Something that could mean a real change in Cuban tourism and a sector that many people on the Caribbean Island were eagerly looking towards.

Airline Jetblue recently  announced that it would cancel its flights to Cuba after September 17th and another two US airlines have made the same decision: United Airlines and Delta Airlines, at least temporarily. They saw a drop in demand, which forced them to reduce the number of their flights. The Spanish airline Iberia will also reduce the number of flights between Madrid and Havana after September.

Then, it’s Russia, which was top of the list in 2021, during the pandemic; but its presence on the island has dropped during its war with Ukraine. Furthermore, a recent report from the Association of Russian Tour Operators labeled Cuba one of the most expensive markets for Russian tourists. The organization had predicted that in fall/winter (the peak tourism season in Cuba), Russian tourists who want to relax by the sea will, for the most part, choose Thailand, Egypt and the United Arab Emirates.

Other markets, such as Europe, are quite demanding and a great deal of effort is needed to attract them to Cuba, that go beyond hotel capacity.

Private rentals and rooms out-of-service

In addition to hotels on the island, there are other options available for tourist accommodation, in the private sector. According to statisticss from 2017, there were approximately 21,000 rental homes across every province in the country, that were generally cheaper than hotel rooms.

While the number may have fallen post-pandemic and the national economic crisis, private rentals are competition for hotels. Many tourists prefer them not only because they can be much cheaper, but because they offer more friendly service and the opportunity to have an experience more in keeping with everyday life on the island.

On the other hand, the number of out-of-order rooms in hotels is alarming. These are rooms that aren’t being used at tourism facilities because they have a flaw or problem with the services on offer. This could be the air conditioning not working properly, taps that don’t work properly or anything else that doesn’t ensure guests’ comfort.

In May 2019, there were 7,000 “out-of-order” rooms, Jose Daniel Alonso, the general director of Development, Business and Investments at MINTUR, told the press at the time. Four years later, the problem remains.

“Despite an investment plan being executed in hotel facilities during the COVID-19 pandemic, 13.2% of physical rooms are out of order,” the minister explained to lawmakers in July 2022.

This means that while new facilities continue to be built, a significant part of available capacity isn’t being used every year.

Hotels working today

There are at least 400 hotels in Cuba. It’s very hard to give an exact number because facilities change their name, join together or separate depending on who is promoting them, if it is an exclusive area, whether they close for maintenance works or there’s a change in management, etc.

Within this vast array, there are emblematic and new hotels, with different star ratings, sizes and targeting different market segments. Having a variety to cover different tastes is great: city, beach, nature.

However, the Cuban hotel chains Gran Caribe, Cubanacan, Islazul and Gaviota don’t have the same opportunities. Gaviota is the only one of these building new hotels, and it belongs to the military emporium GAESA. Plus, it owns 76% of 5* hotels on the island.

According to the Cuban prime minister, inviting foreign hotel companies to come and run our hotels is one strategy to develop the sector. They are the ones who give them a name and international prestige. They also promote Cuba as a destination, drawing them into their own market, offer better experiences to their customers because they know them. Foreign companies are not only important because they safeguard quality service, which is something Cuba is unable to do on its own; but also, because they take on a commitment to meet occupancy rates and it’s up to them to atttract guests, especially foreign ones.

During the 2023 edition of the International Tourism Fair in Havana, Marrero updated on the number of   foreign chain working today. He said: “there are already 18 foreign managements with 113 hotel management and sales contracts, running 65% of our hotels. Furthermore, there are 24 mixed companies, that are overseeing approximately 5,000 rooms. The co-dependent relationship between both parties is quite high and implies shared profits for a strategic sector that represents 7.6% of the Gross Domestic Product.

The oldest hotel chains in the country are Melia and Iberostar from Spain, with over 30 years experience working in Cuba and with 35 and 18 facilities respectively, in different areas across the country and in partnership with other Cuban chains.

The Canadian hotel chain Blue Diamond Resorts is the second most important in the country, and it was granted exclusive management in the tourist destination Cayo Largo del Sur, as well as an exclusive import license to bring in its own resources. Up until May 2023, Blue Diamond Resorts had 28 hotels in Cuba, of all kinds.

Other chains such as Barcelo, Blau, Be Live (Globalia) or ROC remain in Cuba, as well as others with less experience such as Singaporean company Banyan Tree Hotel Resorts, the MGM Muthu Hotels group from India or the Singaporean chain Archipelago International that is rapidly expanding, with a hand from the GAVIOTA group.

However, other chains have passed through the country and abandoned their operations for different reasons, including slim profit margins or differences with the Cuban party such as Riu Hotels & Resorts, Accor, the Posada group, Labranda, and Marriott.

Despite blips in tourists arriving or the country’s domestic problems, Cuba is selling itself as a tempting offer for foreign chains who are looking to expand their market, especially with new facilities and in practically untouched places. This is why new chains appear and are willing to enter the country, such as the Portuguese hotel Vila Gale, which is expected to open its first facility in October 2023.

If something goes wrong, or doesn’t work properly, then, they’ll try with another one.

Not every hotel is the same, we have to talk about GAVIOTA

Tourist resorts are split up and there are areas where one of the four Cuban chains operates, exclusively. This comes from an ancient way of dividing up the cake. With the exception of Havana and Varadero, the rest of the country has an owner.

Total numbers aren’t always enough to get a real idea of tourism’s contribution to the economy. Visitors arriving always means money is being spent in the country, but not every visitor leaves the same amount of revenue.

Frank Oltuski, the vice-president of GAVIOTA’s Marketing, said during the Tourism Fair in 2023, that this company is the most important tour operator on the island and it has monopolized over 50% of tourist activity. He also said: “from the 400 rooms we had in 1995, we now have over 30,000. Back then, developments were focused in Havana, Varadero and Holguin. New destinations have opened up – such as the Cays in Villa Clara, operations in Jardines del Rey and the latest openings in the cays Cruz y Paredon Cays, in the north of Camaguey and Ciego del Avila.”

Talking about Cuba’s hotel industry means we need to talk about GAVIOTA), because it seems that the company has a budget and independence to decide on their building projects and to attact top-quality foreign managements. In an old El Toque investigation, the company didn’t accept foreign investment for its projects.

In the case of other Cuban chains, they need to turn to foreign investment to modernize their hotels and are being marketed as a part of Cuba’s investment portfolio. With foreign management teams taking the lead in most cases.

High-quality tourism is GAVIOTA’s main bet, but the country lacks sufficient infatructure, and there are only five 5* plus hotels in the entire country. If millionaires want to come and spend their money, they demand exlusive, modern and luxurious services.

This is why their projects don’t only include hotels, but also yacht marinas, golf courses and other non-hotel infrastructures. Plus, they aren’t conceived for the Cuban people, as recent scandals about the chain prove.

Do we need more hotels?

In July 2022, the minister of Tourism, Juan Carlos Garcia, justified the surge in tourist facilities when compared to tourism growth over the same period. He then explained that the number of tourists has always grown more than the number of rooms, since the 1990s. From 1990 – 2019, the number of visitors grew by 9.1%, while the number of hotel rooms at 4.9% However, this doesn’t mean that growth is justified, especially if its in keeping with real demand for rooms in the country.

According to economist Pedro Monreal, who closely follows the subject, “a new hotel investment when there is food insecurity is never justified. The reasonable thing to do would be to change the current investment pattern to reaasign funds to the agricultural sector (and other activities too), which is being used to build hotels today that are going to run with a low occupancy rate,” he noted.

Explanations about why this decision remains in force at the expense of other needs and other sectors of the population, might be linked to a long-term view of tourism. Expanding the real estate sector might also have added value to the region or could be a strategy for us to build facilities with public money, which would just pass into private hands if there were a change in Government.

Monreal also presents another interesting hypothesis. He explains that, “multinational companies under-declare profits in countries with high tax rates (for example in Europe) and transfer these to countries with low or zero taxes (for example, the Caribbean), using an internal transfer scheme. They need hotels to do this.”   

In any case, this decision isn’t made thinking about how it can directly benefit the Cuban people, and the State hasn’t clearly explained the reasons needed to justify sustainable growth of hotel facilities. In the meantime, GAVIOTA is moving on with its own projects.

Read more from Cuba here on Havana Times.