Walled off from American capitalism for over half a century, the process of normalizing relations with the tiny island nation of Cuba has begun. U.S. businesses are chomping at the bit for the chance to tap this potentially huge market , and one of the first that's been granted approval to do so is cruise ship operator Carnival (NYSE: CCL), which will begin sailing to Havana next May on its new socially conscious cruise line, fathom.
Travel with a purpose
Under current travel guidelines, you can't just be a tourist and go to Cuba: You have to have a purpose other than taking in the sights. Only licensed travel companies can transport travelers to Cuba who go there to provide cultural, artistic, faith-based, or humanitarian exchanges between American and Cuban citizens -- or you're a journalist, have business there, or fall into one of the proscribed 12 categories.
Last week JetBlu (NASDAQ: JBLU) announced it was starting direct flights between New York and Havana, and now operates five weekly round-trip flights to Cuba through several charter partners.
Apple Vacations also announced plans to start people-to-people tours to Cuba; at least four ferry licenses have been issued to U.S. companies that will be operating between Fort Lauderdale, Key West, Miami, and Tampa; and even house-sharing service AirBnB has jumped to the island.
The possibilities are unfathomable
Fathom is Carnival's 10th global brand and was launched last month "as a purpose-driven brand to enrich the lives of its travelers." It was originally scheduled to start bringing tourists to the Dominican Republic beginning in April 2016, but they'd have to want to volunteer or engage in educational and cultural exchanges in local communities to go aboard. Now with travel to Cuba opening up, it gives the world's biggest cruise line operator a chance to expand its horizons further in the Caribbean.
Of course, it's still not a done deal. While Carnival got U.S. approval to set sail, it still needs Cuba's OK, which is probably little more than a formality. When granted, seven-day cruises to the island will start at just under $3,000 per person. Also still to be ironed out are what the tourists will do when they get there; Cuba isn't exactly likely to want to advertise it's in need of humanitarian assistance.
The island already attracts about 2.5 million tourists a year from around the globe bringing in billions of dollars to prop up the local economy. Cuba estimates as many as 1.5 million Americans would jump at the chance to visit if all travel restrictions were removed. That could very well supplant Canada as the top destination for travel.
Cuba was a popular tourist spot for Americans during the 1950s, and for many it looks as if time stood still there. That has some fearing the island's "Americanization," though the opportunity to lift the people out of poverty and oppression offsets the false charm and nostalgia for authentic tyranny some people apparently hold.
And it could still be big business. Carnival is anticipating so-called social-impact travel to be $1.6 billion annual global market. It believes fathom will be able to attract 37,000 travelers a year who collectively spend more than 100,000 days a year either volunteering or immersing themselves in educational and cultural exchanges in local communities.
Rough seas ahead
There are some challenges, too. First might be the optics of travelers taking a luxury cruise ship to an impoverished island, even if it is to do good works. It's a bit incongruous, and there is doubt about how many people will willingly give up self-indulgent cruising to instead give back when they go.
Also, Carnival is recommissioning its 2001-built P&O Cruises ship Adonia to serve as the flagship vessel for this venture. It was the cruise line's smallest ship with just 710 passengers, and though that means it ought to be easier for Carnival to fully book the ship, at $1,500 a person to go to the Dominican Republic, it's twice as expensive as a traditional cruise to the island's Amber Cove, and you're only getting one port of call rather than several.
The cruise line operator rightly points out this is a completely new type of travel that's never been tried before, but there may be a reason for that. Sure, there's always someone that needs to be first in breaking open a venture, and with Cuba possibly being added to the itinerary, Carnival could be setting sail to a big lead over its rivals.
Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.