The U.S. Awards Airlines Routes to Cuba: The Big Prize Is Still Up for Grabs

By Markets Fool.com

More than half a century after the U.S. banned commercial airline flights to Cuba, scheduled service between the two countries is on the verge of resuming. Last Friday, the U.S. government awarded the first set of U.S.-Cuba route authorities.

Continue Reading Below

American Airlines , Southwest Airlines , JetBlue Airways , Frontier Airlines, Sun Country Airlines, and Silver Airways were all awarded routes to Cuba. However, all of these routes serve secondary cities in Cuba. Routes to Havana -- which are the real prize -- won't be allocated until later this year.

JetBlue was one of six airlines to be awarded routes to Cuba last week. Image source: JetBlue Airways.

Everyone gets what they want -- for now

The new U.S.-Cuba aviation treaty allows U.S.-based airlines to operate up to 110 daily flights to Cuba: 20 to Havana and 10 each to nine other international airports in the island nation.

Havana is Cuba's political, cultural, and economic hub -- and its largest city by far -- so airlines are extremely eager to fly there. When the U.S. government began the application process for allocating routes to Cuba, airlines requested nearly three times as many flights to Havana as the 20 daily frequencies that are available.

Continue Reading Below

By contrast, airlines are a lot less interested in operating routes to Cuba's secondary cities. Some major airlines didn't even bother bidding for any flights other than to Havana. As a result, the Department of Transportation didn't really have to decide anything in awarding the non-Havana routes. Every airline got what it wanted. (The only exception was Eastern Airlines, a start-up carrier that isn't yet certified to operate scheduled commercial flights.)

How the flights shake out

American Airlines, which operates a large hub in Miami -- less than 200 miles from the northern shore of Cuba -- requested the most non-Havana flights of any airline. American plans to operate eight daily flights to secondary cities in Cuba. It will fly twice a day to Holguin, Matanzas, and Santa Clara; and once a day to Camaguey and Cienfuegos.

American Airlines will launch eight daily flights to Cuba this fall. Image source: American Airlines.

Tiny regional airline Silver Airways will operate 39 weekly flights from Fort Lauderdale to Cuba -- an average of five or six per day -- spread across all nine of Cuba's secondary international airports. That will give it the second largest number of frequencies. However, it will use 34-seat turboprops for its flights, giving it a smaller market share than its rivals.

JetBlue Airways and Southwest Airlines both plan to fly three times a day from Fort Lauderdale to secondary airports in Cuba. JetBlue will operate one flight each to Camaguey, Holguin, and Santa Clara. Southwest plans to fly twice a day to Matanzas and once a day to Santa Clara.

Ultra-low cost carrier Frontier Airlines will operate a total of 16 weekly flights from Chicago and Philadelphia to a handful of cities in Cuba. Finally, Sun Country Airlines will fly once a week from its base in Minneapolis to Matanzas and Santa Clara.

Now comes the hard part

Most airlines are likely to launch their recently awarded routes to Cuba's secondary airports sometime this fall. The beginning of scheduled service to Cuba should stimulate strong growth in passenger traffic, as the flights will be cheaper and more convenient than charter flights.

On the other hand, the U.S.-Cuba air travel market is still undeveloped. Havana is arguably the only "slam dunk" destination. Furthermore, travelers still need to provide proof that they fall within one of a dozen categories of approved travel. Pure tourism is still banned by the U.S. government.

Thus, some of the flights launching this fall may fail. That's just the nature of opening a new market. However, other routes could be unexpectedly successful, prompting capacity increases. Airlines will have to learn a lot about the U.S.-Cuba travel market in the coming years in order to fully capitalize on this enticing opportunity.

The article The U.S. Awards Airlines Routes to Cuba: The Big Prize Is Still Up for Grabs originally appeared on Fool.com.

Adam Levine-Weinberg owns shares of JetBlue Airways and is long January 2017 $17 calls on JetBlue Airways and long January 2017 $30 calls on American Airlines Group. The Motley Fool is long January 2017 $35 calls on American Airlines Group. 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.