Texas faces business obstacles with Cuba, but airline access isn't one of them

Texas faces business obstacles with Cuba, but airline access isn't one
of them
By Conor Shine Follow @Conor_Shine cshine@dallasnews.com
Aviation Writer
Published: 03 September 2016 12:39 AM
Updated: 03 September 2016 12:39 AM

Starting this week, it is now possible to purchase a ticket online, go
to a U.S. airport, board a plane and in as little as 45 minutes find
yourself in Cuba.

The historic launch of commercial service to the socialist nation --
JetBlue flew its inaugural flight Aug. 31 and American Airlines is set
to begin flights Wednesday -- means that accessing Cuba is easier than
it's been in more than 50 years.

Already, Texas business owners and political leaders, including Gov.
Greg Abbott, have journeyed to Cuba in anticipation of the country
opening up further with an eye toward what it could mean for the state's
economy to gain a new trading partner less than 1,000 miles from Houston.

The opportunities for Texas businesses to make their mark are seemingly
endless and potentially lucrative, in industries ranging from
agriculture to aviation to energy to telecommunications. But that
potential is tempered by the hard reality that just because Cuba is open
for travel doesn't mean it's open for business.

"As a trading partner, I think the jury's still out. There are
absolutely opportunities," said Dave Shaw, president of Texas Lyceum, a
non-partisan policy and leadership group that recently led a trip to
Cuba. "Just because (Cuba) is opening up to America doesn't mean there's
going to be a Starbucks on every corner."

A number of challenges both practical and existential stand in the way
of increased trade between the U.S. and Cuba. Many of the country's
roads and airports are outdated. Its internet connectivity is spotty to
nonexistent. Most of the economy is still controlled by state-owned
enterprises and it remains to be seen how U.S. businesses would fit into
the market.

Most importantly, the long standing trade embargo born of the Cold War
severely curtails what business U.S. companies can conduct in Cuba.

Despite the hurdles, many U.S. policy experts and business leaders are
optimistic. More progress has been made opening up relations between the
two countries since 2014 than in the previous several decades.

With time and continued momentum, they say, Cuba can grow into a
sizeable market --one study pegged it at $6 billion per year -- for the
export of U.S. goods and services.

If it does, Texas will be well positioned, with many of its major
industries aligning with Cuba's most immediate needs. Combined with
Cuba's close proximity and a relatively blank economic slate that's ripe
for investment, it all adds up to an opportunity unlike any other.

A long-term play

The first Texas companies likely to see gains are the ones that will be
operating there this year -- specifically American Airlines and
Southwest Airlines, who together plan 19 daily flights to six Cuban
cities, although none will be from Texas.

Tourism is not one of the 12 categories under which travel to Cuba is
permitted, but visitorship is expected to continue to increase. If the
tourism ban is eventually lifted, traffic could take off.

"You have to view Cuba as a long term play as a huge market that's going
to drive an incredible amount of traffic and visitorship," said Art
Torno, a senior vice president at American. "If you take the historical
perspective, in the 1940s and 1950s, visiting Cuba was very chic and
very upscale, that was a place people went for vacation. ... It has the
potential to become one of the most desirable locations to visit in the
Caribbean."

While travel and hospitality are leading the way -- AirBnB has spread
rapidly since launching in Cuba a year ago and hotel chains like
Starwood Hotels and Resorts and Marriott International have also staked
out Cuban ambitions -- an even broader market exists for agricultural
products like poultry meat, corn, wheat, rice and soybeans, which the
U.S. already exports to Cuba under a provision in the embargo to the
tune of $299 million in 2014.

The volume of U.S. exports has fallen in recent years due to credit
constraints -- the embargo requires cash-in-advance for goods -- and
competition from other countries. Texas exported $96.2 million worth of
goods in 2008, but just $131,327 in 2014, according to data from Engage
Cuba, a national group supporting trade reform.

By comparison, Texas's total international exports totaled $251.1
billion last year.

Texas could realize $42 million in economic benefit just by regaining
market share lost for agricultural exports since 2012, according to a
November study by Texas A&M University.

"There's a lot of market share we think that we're losing by having the
trade embargo," said Texas Association of Business President Chris
Wallace, who's working with Texas elected officials to generate support
for reform. "It's not a huge market, but as far as the types of goods
that they import, we produce most of those in Texas."

From there, the embargo looms like a brick wall. But on the other side
lies promise for Texas's oil and gas industry.

Cuba relies heavily on Venezuelan oil imports to power its electrical
grid, but given Venezuela's economic troubles, that supply might be
impeded, said Jorge Pinon, director of the Latin America and Caribbean
Energy Programat the University of Texas at Austin

Pinon, who emigrated from Cuba as a teenager in 1960, is studying how
Cuba might incorporate liquefied natural gas into its energy mix.

"One of the energy challenges Cuba will face as they open up their
economy is their dependency on oil as a fuel for their electric power
sector. (Natural gas) could play a role as a cleaner fossil fuel that's
more readily available," Pinon said. "I think (Texas) could certainly
benefit from that."

On the consumer side of things, a population of 11 million people makes
Cuba a sizable market for everything from agricultural equipment to
paint to electronics.

Regardless of where those goods are produced, Texas could still see an
increased flow of goods through its ports, with Cuba serving as an ideal
logistics hub for the rest of the Caribbean.

But for now, the buying power of the average Cuban citizen will limit
consumption.

"That key question is what economic model are you going to have that is
going to create that middle class with the income they'd need to
purchase product and services," Pinon said. "Why would I open a
McDonalds if (the average) Cubans are making $25 a month?"

Work to be done on both sides

During a March trip to Cuba, President Barack Obama called the embargo
an "outdated burden" on the Cuban people and on Americans who want to do
business or invest there.

"But even if we lifted the embargo tomorrow, Cubans would not realize
their potential without continued change here in Cuba," he said.

While Obama has supported lifting the embargo and made opening relations
with Cuba a key foreign policy push during his second term, his
successor in the White House might have different priorities. Even then,
the embargo would have to be lifted through legislation, which would
have to clear a gridlocked Congress and is far from certain.

U.S. Senator Ted Cruz, whose father fled Cuba as a teenager, has
criticized Obama for legitimizing "the corrupt and oppressive Castro
regime."

"There are human rights stumbling points and a respect for universal
human rights. Many say it's not in our national interest," Wallace said.

The Cuban people and government will also have a major say in how
relations between the two countries develop.

Pinon, the University of Texas-Austin researcher, described Cuba's
current economy as a bottleneck, with future growth constrained by its
economic model.

"There still has to be a major strategic change. ... Otherwise it's not
going to move forward," he said.

The country has taken small steps in recent years, including allowing
small, independently-owned service businesses like barber shops and
establishing a free trade zone at the port in Mariel, 30 miles west of
Havana.

But the Castro-led regime remains in place, with a mindset that Pinon
said is "still in the Cold War."

The push from U.S.-based trade groups and policy organizations will
continue and while none expect immediate change, they think there's a
strong case for further opening up.

"Other countries are getting the (trade) opportunities. We in the U.S.
should have them as well particularly because of the close proximity,"
said Wallace. "There's work to be done on both sides. At the end of the
day, it's a great opportunity for Texas. As the No. 1 exporting state,
we stand to benefit the most."

Source: Texas faces business obstacles with Cuba, but airline access
isn't one of them | Dallas Morning News -
http://www.dallasnews.com/business/airline-industry/20160903-texas-faces-business-obstacles-with-cuba-but-airline-access-isn-t-one-of-them.ece