Will New Cuba Travel Policy Hurt U.S. Airlines?

Will New Cuba Travel Policy Hurt U.S. Airlines?
Zacks Equity Research

On Jun 16, President Trump announced some changes to current U.S. policy
on Cuba, which were put into action by his predecessor Barack Obama. The
new policy is in line with Trump's promise during the campaigning phase.
In fact, Trump had reportedly tweeted in November last year that he
might terminate the deal, inked by Obama, in the event of Cuba not doing
enough for its people.

Even though, he did not scrap the entire deal, the President announced
certain changes in inline with his "America First" principle. Moving
ahead, the new administration aims to restrict the flow of US money
flowing into the oppressive Cuban military regime. Also, the new policy
is dedicated to betterment of the Cuban people by pressurizing the
island's government to broaden the private sector and reduce the
military's interference in every profitable unit of the country.

In fact, to keep the Cuban military at bay, the President's policy aims
to do away with travel directed toward benefitting the military,
intelligence or security services of the island nation. Under the new
restrictions, travel to Cuba on an individual basis would not be
allowed. Even though individual travel has been banned, group travel is
allowed.

A Brief Flashback

In 2014, President Obama had called for the restoration of diplomatic
ties with Cuba after more than 50 years. As part of that process, travel
restrictions were eased. Subsequently, many U.S. airlines started
operating commercial scheduled flights to Cuba.

In Jun 2016, the U.S. Department of Transportation authorized six
U.S.-based carriers to operate scheduled flights to nine second-tier
Cuban cities. The first scheduled commercial flight to Cuba from the
U.S. was operated by JetBlue Airways JBLU.

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Notably, the approval to fly to Havana came two months later in August.
The Havana routes were highly in demand among the US carriers as they
collectively applied for the approval to operate nearly 60 flights to
Havana on a daily basis. The erstwhile agreement with Obama allowed for
only 20 daily roundtrip flights between the nations.

Would Individual Travel Ban Hurt Airlines?

Currently, the likes of American Airlines Group AAL, United Continental
Holdings UAL, Delta Air Lines DAL, JetBlue Airways, Southwest Airlines
LUV and Alaska Air Group ALK operate scheduled commercial flights to
Cuba. But following the revised order on Cuba, the carriers have adopted
a wait and watch policy regarding their operations to the nation.

Airline heavyweights like Delta Air Lines and American Airlines have
reportedly said that while their existing operations to the nation would
continue, they would abide by any changes that might take place
following the announcement of the new policy.

We note that the travel demand to Cuba had fallen short of expectations.
Consequently, the likes of American Airlines trimmed their services to
the nation. Lower-than-expected demand also caused the likes of Spirit
Airlines SAVE and Frontier Airlines to terminate flights to the nation.
Despite this factor, the new policy to ban individual travel is likely
to hurt the top line of the US carriers operating in the country to some
extent.

In fact, a recent Reuters report had suggested that cruise operators and
airlines in the US could lose approximately $712 million in revenues on
an annual basis, if Obama's policy was entirely reversed. While the
entire policy has not been consigned to flames by the new US government,
the prohibition on individual travel to the country might still shrink
the revenues of carriers (through lower travel demand) operating in
Cuba, a popular tourist destination.

However, only time will tell the extent to which revenues are actually
hurt. Consequently, we expect investor focus to remain on the issue,
going forward

Source: Will New Cuba Travel Policy Hurt U.S. Airlines? -
http://www.msn.com/en-us/money/topstocks/will-new-cuba-travel-policy-hurt-us-airlines/ar-BBCU9p2