New agreement paves way for European hotel brands to grow in Cuba

Riviera Iberostar

The European Union and Cuba have, for the first time, signed an agreement to support economic development and promote both democracy and human rights. With Europe-based hotel companies increasing their Cuban pipelines, this agreement could ease the way for more development from EU member nations—just as U.S. businesses face more challenges on developing a Cuban footprint.

The Agreement

Cuban Foreign Minister Bruno Rodriguez said that the development of Cuba's economy would be a major factor of the agreement, but noted the ongoing embargo between the U.S. and Cuba as a "major obstacle to trade relations" between the EU and Cuba.

"We'll have to see how things develop. But we very much hope that relations between the European Union and Cuba will continue to grow and enrich both sides," he said, adding that ties "between the EU and Cuba do not go by Washington." Cuba puts the total cost of the 55-year-old embargo at $125.9 billion, including $4.6 billion last year.

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The EU and Cuba also declared that the upcoming presidency of Donald Trump in the U.S. would not impact their future relations. EU foreign policy chief Federica Mogherini said that Trump's inauguration in January "will not affect in any way relations between the European Union and Cuba," and emphasized that "the European Union has raised concerns about the extraterritorial effect of U.S. sanctions on Cuba. We will continue to do so because we believe that this is not only in the interest of the island and its people—all of them—but most of all in our case, it's in the interest of Europeans to tackle this issue."

According to the Associated Press, the agreement must be ratified by national and regional parliaments in all EU member states before it can enter completely into force. Still, the bloc has reportedly decided to provisionally apply parts of it immediately.

European Hotels in Cuba

While the recent debut of the Four Points in Havana marked the first time a Cuban hotel had been operated under an American flag since 1959, European companies have operated hotels in Cuba for years. Spain's Melia hotels, for example, has 27 hotels currently open across the island. France's AccorHotels has three Cuban properties, while Iberostar Hotels & Resorts—also based in Spain—has 11.

This year, Melia saw significant improvements in its Cuban hotels' business. In the first three quarters of the year, revenues reached €17.9 million, 31 percent higher than in the same period in 2015. RevPAR increased by 9.9 percent thanks to excellent growth in rates which rose by 18.1 percent in euro terms, particularly in the four city hotels operated in Santiago de Cuba and especially Havana. (The company credited the launch of regular direct flights between the U.S. and Cuba for the increase in traffic.)

For the fourth quarter, forecasts point towards the maintenance of the positive trend, with the new flights adding 40,000 extra flight seats per week, more than half of them to Havana.

Earlier this week, Iberostar announced that it would take over management of its second hotel in Havana in January. The historic Riviera hotel—once a hangout of the Rat Pack in the pre-embargo days—will become part of Iberostar's Premium Gold collection. 

“Iberostar Riviera is an historically important property with an outstanding reputation, and represents a major step forward in expanding our presence in Havana and Cuba," Enric Noguer, CEO America at Grupo Iberostar, said in a statement. Next year, Iberostar will get its 13th hotel in Cuba when it opens the Iberostar Bella Vista Varadero, an 827-room hotel in Varadero. 

The Riviera Hotel in Havana, June 2015

And while hotels in Cuba are undoubtedly appealing for international developers as the island's tourism industry booms, the country's rules and regulations present some unique challenges. As noted previously, international trade with Cuba has specific rules. Private partnerships are not allowed, forcing all foreign businesses to apply to the Cuban government for permission to develop in the country. Both the private international business and the government must provide capital and then divide the profits in a pre-determined pattern. 

Approval of foreign investment applications depends on the sector and the size of the investment. Most importantly, Fidel Ortega Perez, president of the Cuban Chamber of Commerce, told HOTEL MANAGEMENT last year, the applicant must propose something that is in the interest of Cuba and its people. “Cuba has to gain and receive income,” he said. “We have opened every industry to foreign investors—if it’s of interest to the country.” 

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