Are Cuba's Hotel Operators Balancing Supply vs. Demand Or Becoming Greedy And Risking Reputational Harm

Are Cuba’s Hotel Operators Balancing Supply Vs. Demand Pricing?  Becoming Greedy?  Precipitating Backlash?

Hotel Mecure Sevilla Habane Has Increased Prices 50% Since 2015; Expects Increase Of 56% By November 2016 For A Total One Year Increase Of 133%... With No Change In Guest Experience

Hotel Mercure Sevilla Habane (operated by Paris, France-based AccorHotels) located in the city of Havana, Republic of Cuba, was US$120.00 per night (with buffet breakfast) in 2015, is US$180.00 per night (with buffet breakfast) since the beginning of 2016, and will be US$280.00 per night (with buffet breakfast) by November 2016, representing an increase of 133% in twelve months.

Might there be a negative result in that the customer experience has not improved 50%, 56% or 133%. The concept of supply and demand is at play, but there should be a concern about reputational damage from a perception of price-gouging... and creating a negative social impact upon employees who are Republic of Cuba nationals.

The increase in room rates at hotels located throughout Havana are primarily impacting visitors subject to United States law, as restrictions implemented by the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury upon individual and group itineraries necessitate Havana-based land and sea arrivals/departures amongst other activities.

Individuals subject to United States law have the highest net profit margin of any visitor to the Republic of Cuba. 

A substantial increase in hotel room rates without a corresponding increase in the quality of hotel services is unsustainable and inadvisable. 

An opinion from a hotel industry executive: “… the incumbent hotels will take advantage of the short-term supply and demand imbalance while new hotels will obtain their fair-market share; the aging properties will be forced to upgrade (and improve guest experience) to survive or decrease their rates.”

Unsustainable because with an increase in cruise ship activity, visitors will be able to have the services that they desire, are comfortable with, and equate with value, without feeling taken advantage of by either Republic of Cuba government-operated properties or properties managed by companies located outside of the Republic of Cuba, in this instance, AccorHotels. 

Melia Cohiba and Melia Habana, hotels located in Havana that are managed by Palma de Mallorca, Spain-based Melia Hotels International, have also increased room rates substantially as have the hotels Saratoga (rack rate nearing US$500.00 per night), Parque Central, Nacional (reported at more than US$500.00 per night), Capri, Inglaterra, Telegrafo, Plaza and Presidente.  There may be a reputational impact upon AccorHotels and Melia Hotels International.  A room at the Habana Libre was reported at US$450.00 per night.

NOTE: Some owners of homes that are licensed to host guests, Casa Particulars, have increased pricing per night from 60% to 100% during the last twelve months.  Guests are generally more forgiving to owners of private residences as there is a belief that supporting private enterprise is worth the sometimes difference between price and value.

With the implementation of regularly-scheduled commercial airline service between the United States and the Republic of Cuba, there will also be opportunities for travelers to make day-trips and avoid hotels. 

Inadvisable because a substantial increase in gross revenues and lack of corresponding increase in the guest experience, or the salaries of Republic of Cuba nationals who work at the property, does nothing to encourage the government of the Republic of Cuba to make changes to the operations of its hospitality sector; rather, the hospitality sector is at risk of becoming another revenue stream to redirect to other priorities of the economy with property maintenance neglected based upon a belief that regardless of the guest experience the demand for hotel rooms is sustainable so pricing can continue to increase irrespective of corresponding quality issues.

Stamford, Connecticut-based Starwood Hotels & Resorts Worldwide (2015 revenues exceeded US$5.7 billion) will be managing three properties in the Republic of Cuba (Gran Caribe-owned Hotel Inglaterra; Habaguanex-owned Hotel Santa Isabel and Gaviota-owned Hotel Quinta Avenida, which will be re-branded as a Four Points by Sheraton).  Gaviota is controlled by the Revolutionary Armed Forces of the Republic of Cuba.  Bethesda, Maryland-based Marriott International (2015 revenues exceeded US$14 billion), which is acquiring Starwood Hotels & Resorts Worldwide, is also in discussions with Republic of Cuba government-operated companies to identify properties to manage within the Republic of Cuba.

When Starwood Hotels & Resorts Worldwide begins management of its properties, and Marriott International begins management of its properties, there will be equilibrium between the price of a room and the guest experience… as the traditional model is to have the guest experience be perceived as exceeding the price of the room. 

Thus, properties that are perceived as maintaining an imbalance between price and value will be avoided, resulting in potentially fewer visitors to the Republic of Cuba.