Tourism in the Caribbean Before and After Castro


Art Padilla

Department of Business Management

College of Management

Box 7229, 1334 Nelson Hall

NC State University

Raleigh, NC 27695-7229





Jerome L. McElroy

Department of Business Administration and Economics

Center for Women’s Intercultural Leadership

Saint Mary's College

Notre Dame, IN 46556












Tourism in the Caribbean Before and After Castro

Tourism in the Caribbean Before and After Castro




Cuba has again become a major force in Caribbean tourism. If and when U.S. trade and travel restrictions are lifted, either as a result of a Cuban regime change or a change in U.S. policy, Cuba could become the dominant player siphoning off a sizeable number of tourists from neighboring competitors.  This paper first presents an historical overview of tourism in Cuba and the Caribbean before, during, and after Castro.  The second section discusses the likely factors that might condition the transition after the Castro regime and reviews the products that Cuba will “introduce.”  The third projects both the growth of tourism in Cuba after a five-year transition and the quantitative diversion of U.S. tourists from specific competing destinations. Concern among Caribbean neighbors about negative impacts to their own tourism activities appears justified.  Keywords: Caribbean, Cuba, Castro, tourism.





The Caribbean Sea is home to the world’s largest assemblage of small and large islands with a wide fusion of languages, religions, ethnic groups, and customs (Thomas 1988). This pattern of development reflects the influences of colonization and settlement: four major European empires, as well as the United States and the former Soviet Union, historically have operated in the region. Within this sociological and political context, tourism has grown rapidly but unevenly over the last three decades. The Caribbean has become the most tourist-penetrated region in the world and according to Tourism Satellite Account estimates, tourism across the Caribbean accounts for roughly 20 percent of all exports and capital formation, and 15 percent of regional employment and GDP, respectively (WTTC 2004). Between 1970 and 2000, fueled in the main by North American and European travelers, Caribbean stayover tourist arrivals increased nearly five times, from 4 to 19 million annually, and the region’s share of the world total rose from 2.2 to 2.5 percent (CTO 1991, 2001; U.S. Department of Commerce 1993). Tourism is now the major engine of growth for most of the 30 or so countries and destinations in the region.



At the same time, the Caribbean region is one of the world’s most peculiar tourist areas because its largest nation and fastest growing tourist destination, Cuba, remains an international enigma, a sort of Jurassic Park of communism at the doorstep of the United States. The trade and travel embargo imposed by the United States, along with Castro’s isolated socialist regime and the lack of modern infrastructure in Cuba, effectively prevent or seriously discourage the travel of U.S. residents and others (US International Trade Commission 2001).



For the first two decades of Castro’s rule (during the 1960s and 1970s), tourism was essentially non-existent, viewed by the Cuban regime as a western vice inconsistent with socialist goals (Thomas 1998; Schwartz 1997; Espino 1991 and 1995). During this period other destinations in the region initiated tourism expansion, taking advantage not only of the void left by Cuba but also of rising North American and European affluence, the advent of cheap jet travel, the influx of foreign hotel investment encouraged by tax concessions, and the large-scale expansion of aid-financed transport infrastructure (McElroy and de Albuquerque 1998). However, the collapse of the Soviet Union and the loss of over $6 billion in annual Russian support forced Cuba to turn to tourism as a replacement industry (Espino 2001; Gordon 1997). The allure of its natural charms (Linden 2003) and its status as a curiosity turned Cuba into one of the fastest growing tourist destinations in the world, expanding from an estimated 300,000 tourists in 1989, the year of the Soviet collapse, to over 2 million visitors today arriving annually from Europe, Canada, and other regions. But with Castro in his late 70s, and with notable—if inconsistent—sentiment in the U.S. Congress to eliminate the trade and travel embargo, many destinations as far away from Cuba as Bermuda, and as close as Key West, Florida, are expressing increasing concern about the impact of the opening of Cuba to tourism and travel in a new, fundamentally different social and economic context (Ausenda 2002; “Tarnished” 2000).



The purpose of this paper is to explore the likely impact given the opening up of Cuba to full-blown tourism. It approaches the problem by: (1) analyzing the historical record of tourism in Cuba and the Caribbean before and during Castro; (2) discussing the character of the transition and the variety of tourism products Cuba offers; and (3) projecting the post-embargo impact both on Cuba’s tourism growth and the related quantitative diversion of U.S. visitors away from neighboring destinations. The impact estimates are based on evidence from historical trends, suggestions from recent research, and qualitative evidence from detailed interviews with CEOs and managers of

the largest hotel and resort chains doing business in Cuba and in the Caribbean.






Historical data for world or Caribbean tourism are difficult to obtain, anecdotal, and usually not particularly accurate. Notable exceptions to the last two characteristics are two books by Armando Maribona (1943, 1959), a prolific and widely traveled Cuban author. While Maribona’s books are indeed difficult to obtain, both contain rich historical information about the travel industry and provide contemporaneous insights about the early days of tourism in Cuba, the Caribbean, and other parts of the world.



As the largest island in the region containing nearly 50 percent of the total land area and 30 percent of total population (CIA 2003), Maribona illustrates how Cuba has always been a tourism leader in the region.  Its tourism industry has undergone three cycles: one in1920s; a second in the 1950s; and the current one that began in 1989. This last period has already lasted longer that either of the two previous ones, reflecting the current importance of tourism to the Cuban economy. During the “Roaring 20s,” Cuba’s image as a destination underwent major transformation. Articles of that time in travel magazines described Havana in lyrical terms, referring to its climate and its Afro-Cuban music in provocatively sensual ways (Schwartz 1997; Williams 1925; Frank 1926). In a crescendo of spectacle and promotion, all in close association with U.S. promoters and investors, each event outdid the previous one:  the visit of the U.S. President Calvin Coolidge (January 1928) to open the 6th Pan American Conference; Charles Lindbergh’s arrival (February 1928) in the “Spirit of St. Louis” (the same airplane he used to fly from Long Island, New York to Paris eight months earlier) to promote flights between Florida and Cuba; Amelia Earhart’s opening (1929) the new Havana Airport terminal; and the conversion of Varadero Beach into an exclusive resort by the CEO of DuPont.  The first cycle ended, however, with the Great Depression.  Between 1928 and 1933, tourism revenues fell 80 percent (Swartz 1997); yet tourism in Cuba continued to be touted, even receiving the endorsement of U.S. President Franklin Roosevelt in 1935 (Maribona 1943).



In the second tourism cycle that began shortly after World War II, Cuba initially lost market share to neighboring destinations because of limited hotel capacity.  However, by the 1950s, according to Maribona’s (1959) figures, Cuba was the dominant island destination in the Caribbean region (and second in tourist arrivals in all of South and Central America only to Mexico).  Between 1950-56, arrivals grew 12.5 percent annually, and in 1957 estimated visitor expenditure was roughly double that of its rivals:  Bermuda, Bahamas, Jamaica, and Puerto Rico.  This performance was particularly notable considering the escalating revolutionary turmoil in and around Havana and the negative publicity associated with the killing of two American tourists in 1957 (caught between police-guerilla crossfire), and the infamous 1958 kidnapping of Juan Manuel Fangio, a world champion Argentinean race car driver (Swartz 1997).



(Table 1 about here)



Around the region in the mid-1950s, Pan American Airways was the primary air carrier (Van Doren 1993).  Already hotels in St. George, Bermuda, were experimenting with “all inclusive” concepts, offering rooms and food for $6 per person per room, and Cuba was offering packages that included airfare, ground transportation, food, drinks, and overnight hotel stay. Nassau had 4,000 rooms and its government pledged that it would not permit high-rise buildings above a 45-foot height limit. Most of Jamaica’s 3,500 hotel and guest house rooms were located in Montego Bay. Puerto Rico’s tourist arrivals came mostly from New York and New England, and in 1958 there were some 2,800 hotel rooms there, mostly in the San Juan area. Unlike the tourists going to Cuba (who were mainly U.S. citizens who stayed in hotels), many of the visitors to Puerto Rico were returning Puerto Rican-Americans staying in private residences with relatives or friends (Maribona 1959).  Curiously, after adjusting for inflation, visitor spending in the late 1950s was comparable to present levels, ranging between $110 (Trinidad/Tobago) and $225 (Bermuda) and averaging $130-150 per capita (see Table 1).  In 2000 dollars, this overall per capita average would amount to approximately $975 and the range would be between $400 and $2,200, numbers quite similar to the actual values for the year 2000.



Nearly all hotel rooms in Cuba during the 1950s were concentrated in Havana and very few were found at beaches like Varadero to the east of Havana. Tourists thus tended to stay in the capital and showed little interest in “sand and surf.” To expand capacity in Havana, President Batista backed legislation that passed in 1955 allowing casinos in any hotel with a minimum $1 million investment (Swartz 1997).  Within a few short months, four new hotel/casinos were built—the Sevilla-Biltmore, Riviera, Capri, and Havana Hilton. Casinos were also added to four older properties:  the Tropicana, Sans Souci, Montmartre, and Hilton Nacional (Crespo 1999).  These new casinos, in spite of attracting international stars like Nat “King” Cole, Maurice Chevalier, Edith Piaf, and Jimmy Durante, were rather small gambling operations in comparison with contemporary  Las Vegas casinos and certainly miniscule by today’s standards in Las Vegas, Atlantic City, and Monte Carlo (Mallin 1956). For example, the casino at the Hotel Nacional had just seven roulette wheels, one crap (dice) game, and 21 slot machines (“one armed bandits”). And as an industry, tourism remained a small segment of the Cuban economy far behind sugar and tobacco (Thomas 1998). Thus, the reputation of Havana as a gambling “mecca” seems to have been greatly exaggerated and based on experiences of a surprisingly short, three-year period.



The Revolution’s Impact



Tourism was already in decline by 1958, and declined even further in 1959 with the arrival of Castro.  In the eyes of the new regime, tourism was viewed as a dispensable capitalistic “vice” that brought dependency and cultural pollution (Askari and others 2003; Espino 2000; Schwartz 1997).  The continuing turmoil in Cuba —including the Bahía de Cochinos (Bay of Pigs) invasion and the international missile crises during 1961 and 1962—was also damaging the rest of the region (Interview with former Minister of Tourism, Dominican Republic, June 2001). Nonetheless, nearby destinations slowly began to take advantage of the void left by Cuba and to build the business alliances and infrastructure that would fuel future growth. Investments and tourist arrivals grew first in Puerto Rico and also in the “Mayan Riviera” of Cancún and Cozumel, Mexico, the Virgin Islands (USVI), and Jamaica. The Dominican Republic, on the other hand, was also experiencing turmoil after the assassination of its long-time dictator Rafael L. Trujillo in May of 1961. As a result, Dominican development was severely delayed.  In 1970, around 4 million tourists traveled to the Caribbean. By 1975, this total had grown to 5.5 million and then to just under 7 million by 1980. Puerto Rico (1.6 million), the Bahamas (1.2 million), USVI (692,000) and Bermuda (492,000) were the leading destinations at the beginning of the 1980s. Current leader Dominican Republic was behind the rest of the group with 301,000 annual arrivals, a tenth of its present levels.



During the early 1960s, the Cuban casinos were closed and hotels were generally used as vacation retreats for loyal workers. Many of the visitors were either journalists or Eastern Bloc communists on government-paid Cuban vacations who were invited to visit “model” communities, schools, hospitals, or other places where socialist achievements could be displayed. Between the mid-1960s and mid-1970s, only about 3,000 foreign visitors traveled to Cuba each year (Crespo 1999).  But the disintegration of the Soviet Union during the late 1980s and early 1990s was a monumental shock to the Cuban economy.  It was, in Castro’s words, like “the sun not rising.”  Similar to the collapse induced by the Great Depression, the already fragile Cuban economy contracted by one third in a few months (Gonzalez 2002; Perez-Lopez 2001).  In a search for a replacement industry, Castro turned reluctantly to the foreign exchange promise of tourism (Aeberhard 2002).  This transition had actually begun earlier, if very modestly, with the creation of INTUR (National Institute of Tourism) in 1976, run by the Cuban military, and with the 1982 Law Decree No. 50 authorizing foreign investments through joint ventures. In May of 1990, the first joint-venture hotel opened in Varadero Beach: the Cubanacán/Sol Melía, with an initial investment of US$87 million by Spain’s Melía chain. This was followed shortly thereafter by German, Jamaican, and Canadian joint ventures.



Trends Since the Mid-1980s



            Truly dramatic changes in Caribbean tourism market shares have occurred over the last two decades. As shown in Table 2, while Cuban and Dominican shares of the total Caribbean market have tripled in importance from three to 10 percent and six to 17 percent, respectively, the Bahamian and Mexican shares have declined and Jamaica and Puerto Rico have retained or modestly improved their positions.  To simplify the exposition, the Rest of the Caribbean (ROC) destinations were grouped into three categories defined by a five-year (1996-2000) average level of per tourist spending: Upscale (over $1,300), Middle ($900-$1,250), and Low ($350-$850).  According to Table 2, there has been a drop in the ROC-Upscale share since 1985 while the other two groups maintained position. The ROC-Upscale destinations in fact are relatively small and they had either some decline (Bermuda, for example) or actual increases (e.g., USVI, Turks and Caicos) in total annual visitors, but their percentage market share declined as the rest of the Caribbean grew more rapidly in absolute terms.



(Table 2 about here)



The unevenness in growth in Caribbean tourism since 1985 is underscored  by the regression results of the natural logarithm of arrivals (the dependent variable) as a function of time (year was the independent variable) shown in Table 3. For the region as a whole, arrivals increased 5.4 percent per year over the 1985-2002 period but 7.1 percent per year for the1985-1993 period and only 2.9 percent for the 1994-2002 period.  This growth deceleration partly reflects the influence of the September 11, 2001, terrorist attacks (Crespo and Suddaby 2002), but also stems from changes in the global tourism industry, which include the rising tourism resurgence in East Asia, Pacific, and African markets and in the transitional economies of Eastern Europe.  Even accounting for these factors, notable differences among the various destinations remain.

·        The three fastest growing destinations have been Cuba, Dominican Republic, and Puerto Rico.  All but Cuba and the ROC-Upscale destinations (which include Antigua, Barbados, Bermuda, Turks and Caicos, and the USVI, and which have maintained comparable, though relatively low, growth rates) have experienced markedly lower annual growth rates during the second half of this period.

·        The Dominican Republic’s unsustainable annual growth rate of 21.2 percent between 1985-1993 drops to 7.5 percent between 1994-2002; Aruba’s from 16.8  to 1.7 percent; Puerto Rico’s from 12.7  to 5.1 percent; Mexico’s (Cozumel and Cancún) from 5.3 percent to roughly zero; Jamaica’s from 7.9  to 2.0 percent.

·        Overall, excluding Cuba and Dominican Republic the annual growth rate has gone from 5.7 to 1.0 percent. Only Cuba’s rate has visibly accelerated:  from 11.8 to 14.1 percent per year.

·        ROC Upscale destinations have grown at about the same annual rate over the entire period (although their growth rates as a group are relatively modest).  Losses in tourist arrivals in Bermuda and Aruba have been partially offset by gains in the Turks and Caicos and the USVI.  It may be that some of these up-market resort islands, because of more discriminating clientele and distinctive quality of their differentiated products, are better insulated against the recent attractiveness of some destinations in the Caribbean as well as in Asia and Eastern Europe.  Finally, the rapid recent growth for the Dominican Republic in 2003 and 2004 is primarily attributed to the success of the Punta Cana region, which includes some new and higher quality resorts promoted by international personalities like designer Oscar de la Renta and entertainer Julio Iglesias.



(Table 3 about here)



Although the new tourist industry in Cuba has grown impressively, reaching roughly two million arrivals annually, it has not been a panacea. The rigid and bureaucratic controls of the socialistic regime are inefficient and make hotel managers into hotel “operators” (Interview with managers of three Spanish hotel chains operating in Cuba, June 2003). Tourism has also created ideological problems for the regime because its so-called “apartheid” tourism prohibits Cubans from going to the tourist resorts without foreign currency.  Prostitution subsequently exploded, some of it highly organized, leading the regime allegedly to put on controls to try to prevent it (Bruni 2001; Clancy 2002; Davidson 1996).  After some police crackdowns, prostitutes reportedly were driven off the streets and “Cuba is no longer one of the world’s top destinations for sex tourism” (Eaton 2003), although a more recent report notes that prostitution continues to be “widespread in Havana” (McKinley 2004).



Finally, tourism’s economic impact in Cuba has been greatly diminished by the high leakage rate for imported inputs (such as air transportation, food, raw materials, hotel furnishings, and managerial salaries) that may exceed the 40-50 percent Caribbean norm.  In addition, net tourism revenues, generously estimated for 2003 at US $800-900 million, plus the estimated $850 million from Cuban-American remittances to island relatives and friends (Suro et al. 2003) amount to less than a third of the peak Soviet assistance to Cuba of US $6 billion in 2003 dollars (Perez-Lopez 2001).  This “net” tourism revenue does not of course account for infrastructure and resort renovations that have occurred, further reducing the net economic gains.  As a result of these circumstances, Cuban tourism continues to be plagued by a very low visitor return ratio, 10 percent, in contrast to between 50-80 percent for other Caribbean destinations (Simon 1995; Martin de Holan and Phillips 1997).



The Character of the Transition



            An exploration of the post-Castro Caribbean tourism industry requires consideration of possible transition events in the government and political economy of Cuba (Gonzalez 2002). Given the interest in, and even the fascination with, Cuba, a great deal has been written about this topic. In terms of possible scenarios, however, only limited lessons may be drawn from transitions in Eastern Europe and Asian nations (Åslund and Hewko 2002; Radu 2002) because of Cuba’s unique geography and history (Stein and Kane-Hanan 1996). The most obvious difference between Cuba and the former eastern-block or Asian nations is distance from the United States; only 90 miles (145 kilometers) separate the two. The histories of Cuba and the United States are also closely interlaced.  Their economies were really one prior to Castro: in 1959, the value of U.S. investment in Cuba was greater than it was for any other Latin American nation except for Venezuela, but on a per capita basis, the value of U.S. enterprises in Cuba was over three times larger than anywhere else in Latin America (Thomas 1998).  More Cadillacs were bought in Havana in 1954 than in any other city in the world (Ruiz 1968).  Dollars and pesos were entirely interchangeable.  Even after nearly a half-century of communism, these connections continue.  For instance, Cuban music and artists continue to be highly popular in the U.S. and the main road to the Varadero Beach resorts is dubbed by locals in the Matanzas province as “Calle Ocho,” in reference to the main street of the Cuban American community in Miami, Florida (Zuniga 1998).  These factors might suggest a relatively rapid re-unification after a regime change.



On the other hand, any form of regime change will likely involve distortions and upheavals in the short term, as the histories of, for example, the Dominican Republic and Iraq confirm, both of which also had long-running dictatorships that ended abruptly.  How long this transition period lasts depends in part on how power is transferred and on the likelihood and manner of foreign interventions.  Whatever the transition, two broad scenarios are feasible.  The form of government in Cuba could remain the same as it is now or it could move toward democracy and openness and free markets. If the current communist system remains in place, whether or not Castro is in power, then this outcome is likely to have the least impact on Cuba’s tourism and on the rest of the Caribbean (Simon 1995). Several factors account for this conclusion.



First, Cuba’s current tourism strategy of price (low-cost) leadership requires that both its prices and its costs be lower than those of its competitors. The absence of economic rivalry in the communist model, the lack of supporting industries, and, more generally, the economic inefficiencies inherent in a communist regime, suggest that it could not compete very effectively in the long term against places like the Dominican Republic for U.S. tourists (Martin de Holan and Phillips 1997). Even if Cuba did not have to import most of the inputs used for tourism, they would still be producing these inputs with a socialist cost structure and then pricing them at competitive world prices. Second, foreign investment would continue to be made difficult by myriad regulations and bureaucratic policies that exist within a deteriorated economy; majority foreign ownership would continue to be prohibited; capitalism and private enterprise would be hindered; and tourists would be kept physically and artificially apart from most Cubans. Third, relations with the U.S., the potential source of the largest and wealthiest market for tourism, would remain uncertain, particularly if Castro or his designees were to remain in power, even absent the embargo. This in turn would have a further dampening effect on foreign investment.



Many experts, however, do not believe the present system will remain intact after Castro (Martin de Holan and Phillips 1997; Gonzalez 2002; Stein and Kane-Hanan 1996; Weintraub 2000).  They project a new political economy quickly favoring freer trade, and much greater freedom of expression and travel.  Perhaps more optimistically, they also envision a shift toward democracy and a new constitution encouraging private enterprise and recognizing private property.  This latter democratic scenario seems to us most likely after Castro, but probably after an inevitable period of transition.  Given the close pre-Castro U.S.-Cuban commercial history and recent progress (closing in on the Dominican Republic as the top Caribbean destination), the democratic scenario will provide needed assurances for a renewed influx of U.S. travelers and investments and some resumption of pent-up American visitor demand.  It is expected that investors will mount new product differentiation, market segmentation, and communication efforts that currently they are unwilling to supply under present constraints and uncertainty.  At the same time, the growth of Cuban tourism from market opening will also tend to affect surrounding destinations.



Competitive Analysis



Assuming a significantly more democratic scenario prevails, what are the likely consequences on tourism in Cuba and their impact on other destinations? This will depend in significant measure on the tourism products Cuba offers.  According to traditional marketing theory, Cuba could bring three categories of products to the Caribbean tourism market (Lilien, Kotler and Moorthy 1992). 



·        The first would entail new product innovation: products and services radically new both to the Caribbean market and to Cuba, i.e., activities and services that would be truly new and that would compete against other classes of existing or traditional tourism products and services.  Examples would be short ferry services from Key West or Miami to Havana where tourists and visiting relatives/friends (VFRs) could bring their cars and vans to drive in Cuba; fast-speed ferry boats (hovercrafts, similar to the ones in Capri, Italy) from Key West and Miami to Havana; city tourism, capitalizing on the city of Havana and its vast resources and architectural styles. The unique proximity of Cuba to the United States would be a real advantage, along with the curiosity factor for the island and its history: Hemingway, mojitos, I Love Lucy.  Such new offerings would be expected to increase overall visitors to the Caribbean, attract a new type or class of visitor, and compete with other destinations in varying degrees.


·        Second, Cuba will likely develop new brands, i.e., by entering an established product line already in existence in the industry. Cuba already has experience with all-inclusive resorts that cater to Europeans who typically arrange their travel through large tour operators. With appropriate investments, Cuba could easily move into the more upscale and specialized market segments, catering to more elite U.S. and other customers with higher service and performance expectations and compete more directly with islands like Bermuda and Turks and Caicos. Ecotourism opportunities in one of the largest and most bio-diverse islands in the world will also compete with those of other similar destinations even in places in Central America like Costa Rica (Linden 2003). In addition, with the right investments, Cuba could become a competitive winter golf destination (Friedman 2000), affecting the Dominican Republic in particular.  Cruise ship visitors would be another new brand that could compete successfully with several other island destinations (particularly Puerto Rico) and Cuba’s proximity to Miami and its size and plentiful deep harbors could make it a major destination for cruise ships. The existence of several major airports and a national airline (Cubana) with an extensive fleet give Cuba additional advantages and flexibility over other Caribbean nations.


·        The third category would involve a simple extension of existing product lines: the introduction of products only marginally new to Cuba and to the Caribbean region that are immediately recognized and understood by consumers as simple extensions of existing product lines. As the largest nation in the Caribbean, Cuba has tremendous opportunities to expand and to offer “new models” or “styles” of the same basic product in its various keys and smaller islands, some of which, of course, are the size of several other Caribbean countries.  These products that simply extend Cuba’s product inventory will tend to compete with comparable, middle-and-down destinations and should depress prices in this price-sensitive and vulnerable segment due to an increase in supply.



Products in these three categories will compete differently with different nations and destinations but Cuba in theory and in practice might compete with every destination in the Caribbean. The converse is not true. The curiosity factor for Cuba and its proximity to the United States will likely be significant variables and “early sales” are likely to have a major impact on its tourism arrivals and on those of competitors. This curiosity factor could last for a significant time, but might also be mitigated by a lack of adequate infrastructure and by the extent of turmoil associated with a change in government in Cuba. In any event, after a transition is complete, one would expect a “sales” profile that rises sharply in the early stages of product introduction, then peaks, and falls off to some equilibrium level. A crucial element in where this equilibrium level settles will be the ability of other Caribbean destinations to lure back repeat visitors as well as the competitive reactions and countermoves of their key rivals.



Impact Analysis



Three recent studies are useful in exploring the quantitative impact of Cuba’s opening up.  The first study was a comprehensive analysis (though poorly documented and difficult to replicate because its quantitative results were modified by unspecified qualitative or subjective factors) conducted by the U.S. International Trade Commission staff in response to a request from the House Committee on Ways and Means of the U.S. Congress to examine the economic impact of U.S. sanctions on Cuba (U.S. International Trade Commission 2001). The ITC report used a gravity regression model, supplemented by “expert” modifications and adjustments, to estimate the effects of sanctions on bilateral trade and on tourism. The other two were prepared by the Brattle Group (Robyn et al. 2002) and by analysts at the University of Colorado-Boulder (Sanders and Long 2002) in response to requests by the Center for International Policy and by the Cuban Policy Foundation, respectively, organizations that have in the past expressed serious concerns about the continuation of the U.S. travel and trade embargo against Cuba.



In each report, an effort is made to forecast the various effects on trade and tourism from the elimination of the U.S. embargo on U.S. trade and travel. The ITC’s report shows the smallest effect on tourism because their study considers this impact assuming an uninterrupted continuation of the present Castro regime and its economic and social policies. The ITC’s range of 100,000 to 350,000 additional U.S. tourists each year over the number that now travel there nevertheless appears too conservative.  It represents less than four percent of the nine million U.S. visitors to the Caribbean (see Table 4), far below Cuba’s earlier share in the 1950s, and seems low given Cuba’s proximity to the U.S. and pent-up demand conditions. The report mentions no diversion impacts from other destinations in the Caribbean except for a brief mention of Puerto Rico.


The other two reports estimate much larger numbers, but are less clear on the specific assumptions they make about the economic and political conditions that may prevail.  For example, Sanders and Long (2002) do not state whether private ownership would be allowed in any of their scenarios or whether “joint ventures” between the Cuban regime and the investors would be mandatory. Such restrictions by the Cuban government have in the past inhibited foreign ventures and drawn concern from the European Union (“Foreign Investment” 2002).  Under their most favorable forecast, these authors project, by the end of a five-year transition, some 3 million U.S. citizens would travel to Cuba annually. This estimate is based on two conjectures: (1) that Cuba would regain the 20 percent share of total Caribbean tourists the authors assert it enjoyed in the 1950s (Maribona’s actual 1959 estimate is closer to 30 percent—see Table 1); and (2) that Americans would comprise roughly 70 percent of the Cuban total as they do at similar destinations (the authors cite Cancún, Mexico, as an example) today.  Additionally, based on a questionnaire sent to travel agent “experts,” they estimate that half of the new U.S. tourists going to Cuba would actually be diverted from other Caribbean destinations.  Their study thus implies that almost one out of every five U.S. tourists now going to the other islands would be lured away by Cuba (roughly 1.5 million out of 8 million in 2002), which would cause major short-term dislocations even if the changes took place over several years.



The third report (Robyn et al. 2002) estimates that 3.2 million U.S. tourists would visit Cuba post-embargo.  Their estimates are based on the patterns of travel back to the Dominican Republic by Dominican-Americans, whom they believe are the “most comparable group” among the Caribbean “emigrants” to Cuban Americans (most Cuban-Americans are in fact political exiles rather than traditional economic emigrants like Dominican-Americans) and on the travel patterns of Canadians to Cuba as a percentage of the Canadian population. Specifically, they assumed that Cuban-Americans living in the U.S. would, on average, return to visit at 80 percent of the rate of Dominicans. Moreover, since one percent of all Canadians, or 308,000, traveled to Cuba in 2000, they applied the same rate to the U.S. population of 280 million, i.e., 2.8 million U.S. tourists to Cuba. The study also assumed that 80 percent of the U.S. tourists or 2.2 million would be diverted from other islands.  This amounts to more than one of every four U.S. citizens who visited the Caribbean in 2002, implying an even larger potential impact on neighboring tourism.



The total numerical growth implied by these two latter forecasts seems possible within the framework of recent tourism trends in the Hispanic Caribbean. During the decade of the 1990s, the number of hotel rooms in the Dominican Republic increased by 36,000, or 126 %, and the number of stayover arrivals by 2 million; tourists to Cancún and Cozumel in Mexico have also increased dramatically since 1990 (Padilla and McElroy 2005). Cuba, which is over three-fourths the size of England and three times larger than the Dominican Republic (the second largest country in the Caribbean after Cuba), has already experienced some remarkable increases.  In the absence of any U.S. investment, the number of Cuban hotel rooms rose 250 percent between 1990 and 2004, from 13,000 to almost 45,000, an increase of over 30,000 rooms.  Between 1995 and 2004, the number of tourists increased 170 percent, from 775,000 to over 2.1 million.  While this issue is addressed more explicitly below, it is likely that Cuba’s hotel capacity could increase rapidly over a 5- to 10-year period, particularly under a favorable (U.S.) investment climate.



However, much of Cuba’s recent growth in tourist arrivals has been due to increasing numbers of Canadians and Europeans, and neither of these two last projections takes into account the expected continued growth of non-U.S. tourists in Cuba. Thus, in the context of recent trends in the growth on non-U.S. tourists to Cuba, 3 million new U.S. tourists within a five-year transition period is considered to be too optimistic. At the same time, it is considered that the ITC’s estimates (100,000 to 350,000) are much too low.  Therefore, a somewhat more conservative, in-between estimate of 2.0 to 2.5 million new or additional U.S. tourists to Cuba appears reasonable by the end of a five-year, post-embargo, free-market transition, period and would allow for some continued growth in non-U.S. tourists arrivals to Cuba. In addition, for purposes of simulating likely impacts, it seems sensible to assume that up to two-thirds, or 1.5 or 1.6 million, of the new U.S. visitors would be diverted from other Caribbean destinations. This diversion level falls in the middle of the projection range made by researchers and represents a consensus of several CEOs and senior managers representing most of the major European hotel chains now operating in Cuba and the rest of the Caribbean region.



Projection Approach



            The projections and simulations shown in Table 4 are based on recent historical growth trends as well as on specific information about the plans and developments at individual destinations as derived from a variety of sources such as CTO, WTO, and information about local tourism from other sources such as local publications and newspapers. This exercise was approached by assuming that the five-year, post-embargo transition would begin in 2005. Thus, 2004 was the base year used in making these forecasts and diversion estimates. It is also assumed (and fully expected) that Cuba would continue attracting Canadian, European, and Latin American tourists during the transition, but that it would increase its share of U.S. tourists during the first five years after the end of the embargo. Based on these considerations, stay-over tourists to the Caribbean are projected to increase from 18.8 million in the base year (2004) to 22.4 million by the fifth year, just under 20 percent for the period, a somewhat conservative forecast given recent trends. Some destinations would of course increase faster and some slower: the Dominican Republic, for example, would grow 22 percent over the five years while the Cayman Islands would grow by 4.5 percent. Cuba would grow from 2.1 to 3.2 million, a 49 percent increase, excluding those tourists diverted from other destinations.  (With the diversions, as discussed below, stay-over tourists to Cuba would increase by an additional 1.6 million).



To establish more rigorously if Cuba could reasonably be expected to accommodate such significant growth from the base year, the following factors were considered:  First, during the base year, 2.1 million tourists arriving in Cuba stayed an average of slightly more than 10.5 nights and demanded approximately 22 million bed nights.  Put differently, Cuba’s 90,000 total available beds (45,000 rooms) were occupied at the 1994-2002 average of 67 percent occupancy (WTO 2004) for 245 days (365 x 0.67), resulting in the 22 million bed-night demand for that year. By year five, it is projected that Cuba would have a total of 4.8 million stay-over visitors, including 2.3 million U.S. tourists and 2.5 million others.



In estimating additional visitor demand for hotel rooms, it is conservatively assumed—given existing familial bonds between Cubans in Cuba and the Cuban diaspora, as well as the short (and low-cost) travel distance from the U.S.—that one in eight (300,000) of the new U.S. tourists would not need hotel accommodations, as they would stay in private residences.  The remaining 2 million U.S. tourists staying an average of seven nights—currently the U.S. average in the Caribbean (Duval, 2004)—would require 14 million bed nights.  The 2.5 million other visitors were assumed to stay an average of 10 nights, reflecting the longer vacation stays of European and Canadian visitors, but down slightly from the historical average (10.5) to adjust for increasing crowding. As a result, the total demand for bed nights is projected to be a grand total demand of 39 million bed nights. An additional 17 million bed nights (39 minus the existing base year total of 22) would be required.



            Hotel capacity would need to increase by three-fourths over the base year levels to accommodate this influx of additional visitors, implying an addition of 6,500 to 7,000 new hotel guest rooms each year (or roughly 10 large hotels per year).  This implies a significant (but feasible) annual capital investment of between US $350 and US $500 million per year (assuming a per room cost of $50 to $70 thousand). This level of expansion would in fact parallel the annual growth Cuba experienced between 1991 and 1995 when the government mounted a major tourism investment program after the fall of the Soviet Union, an expansion that took place without U.S. investor participation (Martin de Holan and Phillips 1997: 785).  Development on this scale would provide 35,000 additional hotel rooms (70,000 beds), sufficient to accommodate the forecasted demand at expected occupancy levels.



            Next, to estimate the quantitative impacts of the projected diversion of 1.6 million U.S. tourists from surrounding Caribbean destinations to the post-embargo Cuba, the following calculations were made. First, from the base year levels, the number of U.S. tourists for each destination for year five was estimated. In the absence of a preferred distribution technique, the allocation of diverted U.S. tourists was based on each destination’s share of total U.S. visitors (minus Cuba’s) in year five.  For example, since Mexico (Cancún and Cozumel) was projected to have a 23 percent share of all U.S. tourists to the Caribbean in year five (excluding Cuba), its share of the 1.6 million U.S. tourists diverted to Cuba would be 360,000 (or 23 percent of 1.6 million).  Finally, the percentage impact of the diversion for each destination’s tourism industry was estimated by dividing the total diversion by total tourists in year five.






To provide a context for discussing the projection results, strategic group maps are presented in Figures 1-4 visually tracking changes in Caribbean tourism over the past two decades.  They highlight the emergence of the Dominican Republic and the resurgence of Cuba using averages for five-year periods or pentads.  (Data for 2004 were estimated based on preliminary data and/or time trends so there would be four full pentads of comparison).  On the vertical axis, the average economic level of the destination is shown, showing Low Scale, Middle Scale, and Upscale, depending on average tourist spending at the destination. The horizontal axis shows the language spoken at the destination.  Each circle is a destination or country and the diameter of the circle represents the total number of arrivals or the size of its market share. The maps thus highlight the particular niche within which rivals are positioned in this competitive space. Comparing the 1985-89 pentad with the five-year periods for 1990-94, 1995-1999, and 2000-04 clearly shows the rise of some destinations and the decline of others.  The striking gains for Cuba and the Dominican Republic in market share are offset by declines for Barbados, Bahamas, Bermuda, Netherland Antilles (mainly St. Maarten), the USVI, and even Mexico.  On the other hand, Puerto Rico maintained market share over the two decades.



(Figures 1-4 about here)



The opening of Cuba is anticipated to accelerate the trends shown in these strategic group maps, and results from the projection and diversion analysis confirm that this is the case.  Between the base year and the completion of the five-year, post-embargo period, all destinations in the region except the Dominican Republic would lose at least some market share to Cuba (see Table 4).  The Dominican Republic, which has been increasing in tourism levels rapidly, has also been making special efforts to increase the number of U.S. tourists among its very large tourism industry and has significantly increased marketing expenditures in the U.S. for this purpose in recent years. But significant declines are projected for the combined Mexican destinations, Cancún and Cozumel, the Bahamas, and Bermuda.  All other major destinations to the north—Bermuda, Jamaica, Cayman Islands, USVI— also lose market share.  Cuba would experience a doubling in market share, from 11 to 22 percent, by the end of the transition period.



            Most of Cuba’s growth would be fueled by the pent-up demand and by U.S. visitor diversion from competing destinations.  According to Table 4, the diversion would fall in the roughly 400,000 annual visitor level in Mexico and in the 200,000 to 300,000 level for Puerto Rico, Bahamas, Jamaica, and the Dominican Republic. However, the negative impact on overall visitation levels is projected to be substantial, averaging 10 percent for all competing destinations.  As expected, the biggest declines are forecast for the large resort areas like Mexico, the Bahamas, and Puerto Rico, as well as those highly dependent on the U.S. market like the Cayman Islands, Bermuda, and the USVI.  Diversion is less of a concern for the small ROC islands and destinations more dependent on European and other visitors like the Dominican Republic and Netherlands Antilles.



            These forecasts are speculative because they rest on three assumptions: (1) that potential infrastructure and amenity bottlenecks will not seriously curb Cuba’s post-embargo growth; (2) that in a short time Cuba’s tourism can throw off the anti-competitive shackles of its socialized past and successfully meet the international resort standards that the competitive Caribbean tourism demands; and (3) that during the transition the defensive reactions of Cuba’s rivals do not significantly alter its growth path.  The latter may include expanded marketing, attractive room and airline discount packages, and price competition.  The projections also ignore the special peculiarities of individual destinations.  For example, the high level of VFR travel for Puerto Rican Americans may reduce diversion in Puerto Rico.  If the “all-inclusive” and low-price character of Cuba’s mass tourism style is expanded over the transition, this could cause greater diversion than those estimated for similar destinations like the Dominican Republic, Jamaica, and St. Lucia, and smaller impacts for the less “all-inclusive” Cancún and Cozumel.  Likewise, Bermuda’s upscale image and geographical distance may markedly reduce its estimated exposure. Crowding or political and social turmoil during the transition period could also cause negative diversion, from Cuba to other islands. On the other hand, if Cuba initiates development of some of its superlative ecotourism and marine assets, some small, similarly endowed destinations like Belize, Bonaire, Dominica, and St. Vincent and the Grenadines may be materially affected.  Beyond these considerations, the presence of its national airline gives Cuba a self-sufficiency in transporting tourists that most other Caribbean nations and destinations do not enjoy. Overall, however, this analysis suggests the lifting of the U.S. travel and trade ban, coupled with the liberalization of Cuba’s government and of its economy, will clearly affect its competitors negatively across the region in the short run.



            These conclusions corroborate the results of structured interviews conducted by the senior author during 2002 and 2003 with a dozen CEOs and senior managers representing the major European hotel chains operating in Cuba and the region.  The majority expected that Cuba’s opening up would have “a major impact,” though invariably they linked that outcome to a fairly major, free-market overhaul of the Cuban economy.  Some also felt that rapid investment would be forthcoming given a “herd mentality” that operates in the tourism and resort industry, and that it would be crucial for the Dominican Republic, Jamaica, and other close-by competitors to focus on customer loyalty and repeat visitation to soften the impact.







            The history of Caribbean tourism offers many lessons and the first one is that Cuba has been and will continue to be a major force in the industry.  The second is that the source of Cuba’s importance lies primarily in its long-standing close economic, historical, and cultural ties with the United States.  This study argues that the full resumption of U.S. travel and investment, after an assumed five-year transition toward a free market, political economy, would propel Cuba back to its former prominence as the number one insular destination in the region, a position it held in the late 1950s before Castro.  The analysis further argues that because of its size, biodiversity, and proximity to the U.S., Cuba can offer a range of both standard and innovative new tourism products and, at varying levels, compete with all destinations in the region.



            Our results indicate Cuba’s resurgence will accelerate market trends underway for two decades favoring the larger Hispanic Caribbean countries like Cuba and the Dominican Republic. According to our estimates, in the fifth year after the transition, Cuba’s growth would be fueled by 2.3 million new U.S. tourists, of which 1.6 million would be diverted from other Caribbean destinations.  Such deflections of U.S. tourists would have a major impact on most of Cuba’s competitors.  Thus, the widespread concern about the post-embargo effects on surrounding destinations echoed in the press and repeated in the senior author’s interviews with major hoteliers across the region seems warranted.



            These projected impacts rest upon an architecture of plausible but uncertain assumptions. First, although there are recent precedents, the feasibility of another major increase in Cuba’s room capacity over a relatively short period assumes that non-competitive legal and other barriers to U.S.-Cuban trade and investment can be eliminated quickly.  Second, the diversion of two-thirds (1.6 million) of the new U.S. tourists to Cuba from other Caribbean destinations is based on an estimated consensus of recent research and expert regional opinion.  To the degree that this ratio is too high, all negative impacts on Cuba’s competitors will be lower, although econometric estimates of the elasticity of substitution among similar tourist destinations strongly indicate that Cuba and the other Caribbean destinations would be close substitutes (Witt and Witt 1995; Divisekera 2003; Durbarry and Sinclair 2003; Lim 1997).  Third, our diversion estimates are based on current U.S. shares of the respective resort areas projected into the future. If this distribution is altered by, for example, focused marketing efforts, relative price changes, exchange rate swings, or natural disasters over the transition period, particular destinations will be differentially affected (Durbarry and Sinclair 2003). Finally, our forecasts provide ceteris paribus impact estimates that do not incorporate rival countermoves to retain market share and strengthen customer loyalty during Cuba’s post-embargo ascendance. These include intensive marketing and discounting, development of new products, regional alliances, and other responses.  If such strategies are effective in curtailing diversion, as they are likely to be in some cases, they will alter the results of these forecasts and simulations.



Finally, and perhaps more importantly, growth of the magnitude implied by the foregoing analyses would place further strains on Cuba’s fragile environment and on its society writ large, particularly since these changes would be taking place while its people and its governmental and civic structures are presumably adapting to new systems. Cuba’s crushing needs for capital and for a significantly higher quality of life for its people, coupled with the absence of a tradition of strong local government or an independent scientific/scholarly community, might lead to highly undesirable outcomes that would take a long time to reverse. This suggests an important need for international assistance and for greater cooperation with its Caribbean neighbors in planning the development of tourism not only in Cuba but also across the entire Caribbean region. This type of regional cooperation and coordination, however, might be as necessary today as it has been difficult to achieve in the past. Nonetheless, despite the uncertainties inherent in this exploratory analysis, the impacts presented here represent a reasonable framework for plans that deal thoughtfully with the real challenges that the further opening of Cuba implies for the tourism industry in the Caribbean.



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Table 2

Average Shares of Tourists in the Caribbean, by Five-Year (Pentad) Intervals, 1985-2004


Country                   1985-1989          1990-1994          1995-1999          2000-2004


Bahamas                      17                          12                          10                      9

Cuba                              3                            4                            8                    10

Dominican Rep.              6                          12                          14                    17

Mexico             18                          17                          17                    15

Jamaica                          8                            8                            8                      8

Puerto Rico                    5                            6                            6                      7

ROC-Upscalea             17                          12                          10                    10

ROC-Middleb              18                          20                          17                    16

ROC-Lowc                     8                            9                          10                      8



Sources: Caribbean Tourism Organization (2004, 2002, 1991).



a. Rest of Caribbean (ROC) where on average tourists spent more than $1,300 per person for the 1996-2000 period.      

b. Rest of Caribbean where on average tourists spent between $900 and $1,250.

c. Rest of Caribbean where on average tourists spent between $350 and $850. 
















Figure 1: Strategic Group Map of Tourist Arrivals, 1985-1989














Figure 2: Strategic Group Map of Tourist Arrivals, 1990-1994














Figure 3: Strategic Group Map of Tourist Arrivals, 1995-1999















Figure 4: Strategic Group Map of Tourist Arrivals, 2000-2004