Last month, the U.S. and Cuba finalized an agreement that will allow scheduled flights between the U.S. and Cuba to resume. However, U.S. carriers will be limited to 20 daily round-trip flights to Havana. This set off a fierce competition for route authorities among American Airlines , JetBlue Airways , Southwest Airlines , Delta Air Lines , Spirit Airlines , and several other carriers.
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More than a dozen airlines want to fly to Havana. Image source: American Airlines.
The airlines had to apply for route authorities earlier this month. The U.S. Department of Transportation will decide which airlines get to fly which routes sometime in the next few months. How will the DOT allocate the scarce route authorities to Havana?
These airlines could get nothing
Let's start with the airlines that are likely to get shut out. First, start-up low-cost carrier Eastern Air Lines wants to operate a daily Miami-Havana flight. Yet it is only authorized for charter operations at this point, and it's not clear when the FAA might clear it to start scheduled service. Given this uncertainty, regulators are likely to pass over Eastern's application.
Dynamic International Airways -- which wants to fly several times a week to New York, Chicago, and Los Angeles -- is in a similar position. As a startup just getting off the ground, it will probably get shut out, too.
Second, FedEx wants to operate daily cargo flights between Miami and Havana. Due to the scarcity of available flight frequencies, the DOT may be reluctant to give one to a cargo carrier. After all, most passenger airlines can carry express packages in their cargo holds.
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Third, tiny regional airline Silver Airways wants to fly to Havana from several cities in Florida. The DOT is unlikely to give scarce route authorities to an airline that flies 34-seat turboprops when every other airline plans to use much larger mainline planes.
Finally, Minnesota-based low-cost carrier Sun Country Airlines wants to fly to Havana twice a week from Fort Myers, Florida. The DOT may shy away from awarding less-than-daily route authorities, as it would likely cause mid-week frequencies to go unused.
Most routes will go to South Florida
In allocating Havana routes, regulators will likely work to balance three goals that are somewhat in tension with one another. First, they will try to ensure that there is ample service from the regions that will generate the most demand for travel to Cuba. Second, they will try to maximize competition. Third, they will probably aim for some geographical diversity in the cities chosen as gateways for Havana flights.
Much of the demand for travel to Cuba will come from people visiting friends and relatives, since tourism is still prohibited. The vast majority of the Cuban-American population lives in Florida, particularly the Greater Miami area. Accordingly, American Airlines and JetBlue -- the two largest airlines in South Florida -- requested huge slot allocations.
JetBlue requested more than half of the available Havana route authorities. Image source: JetBlue Airways.
However, the DOT isn't likely to give any airline more than four or five route authorities to Havana. It doesn't want to create an oligopoly. In addition to American and JetBlue, Southwest Airlines, Spirit Airlines, Delta Air Lines, and Frontier Airlines have all proposed flying to Havana from either Miami or Fort Lauderdale.
As the largest carrier in the region, American Airlines might be given four daily roundtrips from Miami to Havana. Delta will also likely be approved for daily Miami-Havana flights. Finally, ultra-low cost carrier Frontier Airlines has proposed a routing for two daily Miami-Havana flights, one of which would continue to Atlanta. Frontier has a good shot at getting this route approved, as it would provide a check on American and Delta's pricing in Miami.
Frontier Airlines could get two of the Havana slots for flights to Miami. Image source: The Motley Fool.
Meanwhile, in Fort Lauderdale, JetBlue wants four daily flights to Havana; Southwest wants six; and Spirit Airlines wants two. In the interest of maximizing competition, the DOT will probably give each of the three discounters two daily Fort Lauderdale-Havana flights.
Dividing up the remaining routes
This hypothetical route allocation would use up 13 of the 20 daily frequencies available. That seems like a reasonable proportion given that South Florida is home to about half of the Cuban-American population and it's also ideally located for connections to other U.S. cities.
As for the other frequencies, the DOT will probably set aside one flight each for Orlando and Tampa. JetBlue has a good shot at beating out Southwest and Delta for the Orlando flight, while Southwest is likely to win the Tampa flight over JetBlue.
Southwest will probably be offered several Havana route authorities. Image source: The Motley Fool.
Looking beyond Florida, Alaska Air requested two daily flights to Los Angeles. It will probably have to settle for one. The only daily route United Continental proposed is to its Newark Airport hub. There is a significant Cuban-American community in that area, which bolsters United's case.
JetBlue and Delta both want to fly to New York's JFK Airport. They will probably be offered one daily flight each on that route. (JetBlue had requested two.)
That leaves one slot remaining. Delta has proposed a daily flight to Havana from Atlanta, where it operates the largest airline hub in the world. There may not be much local demand in that market, but the DOT might select it for the final slot as it would enable one-stop service from a vast number of U.S. cities.
Wait and see
The route allocation proposed above has the advantage of fostering vigorous competition in the key South Florida-Havana travel market with 13 daily flights on six carriers. It also allows for daily flights to five other large cities and key Cuban-American population centers: New York, Los Angeles, Atlanta, Tampa, and Orlando.
That said, airlines requested nearly three times as many Havana routes as the U.S. government is allowed to distribute. This gives regulators many plausible ways to divide the available frequencies. We'll just have to wait and see how they choose to tackle this problem.
The article Which Airlines Will Get to Fly to Havana? originally appeared on Fool.com.
Adam Levine-Weinberg owns shares of JetBlue Airways, Spirit Airlines, and United Continental Holdings, and is long January 2017 $40 calls on Delta Air Lines, long January 2017 $17 calls on JetBlue Airways, long January 2017 $30 calls on American Airlines Group, and long June 2016 $30 calls on Spirit Airlines. The Motley Fool is long January 2017 $35 calls on American Airlines Group. The Motley Fool recommends FedEx and Spirit Airlines. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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