Starwood signed a deal on Saturday to renovate and run three Cuban hotels, returning U.S. chains to the island more than 50 years after American hotels were taken over by Fidel Castro's socialist revolution.
All Cuban hotels are state-owned so the deal puts a major U.S. corporation directly in business with the communist government under a special U.S. licence that pushes Washington's legal dismantling of the Cuban trade embargo further than ever before. In a once-unimaginable arrangement, a hotel owned by the tourism arm of the Cuban military will become a Sheraton Four Points.
The deal comes on the eve of President Barack Obama's historic visit to Cuba, which will open a new era between the former Cold War foes that has American travellers and businesses eagerly eyeing opportunities on the island nation 145 kilometres south of Florida.
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Starwood's chief of Latin America operations, Jorge Giannattasio, said the company will invest millions to renovate and rebrand the Quinta Avenida, Santa Isabel and Inglaterra hotels, train and hire new staff and reopen the hotels by the end of the year.
The Quinta Avenida is owned by Gaviota, a military-run tourism conglomerate. The Santa Isabel and Inglaterra, which are run by other state agencies, will be operated as part of Starwood's Luxury Collection brand.
It's unclear, however, how long Starwood can be called an American company. On Friday, Starwood called off a $12.2 billion buyout agreement with Marriott in favour of an offer from a group of investors led by the Chinese insurance company Anbang.
Cuban hotels are notorious for their ramshackle furnishings and poor service. Giannattasio said the Cuban Starwood hotels would be refitted with everything from new mattresses to improved kitchen equipment and safety measures and managed by teams of expatriate Starwood employees.
Cuban law prevents widespread direct hiring of Cuban workers by foreign firms. International companies complain that their inability to directly hire Cuban employees, and if necessary demote or fire underperforming staff, hinders their ability to provide satisfactory customer service.
Giannattasio said he was confident that Starwood would have enough flexibility and control to maintain the company's standards in Cuba, although he declined to comment on details of the firm's arrangement with the Cuban government. Starwood will receive a fee for its branding and management services.
The number of visitors to Cuba surged nearly 20 per cent last year, with nearly 80 per cent more Americans flying to the island. The surge has overwhelmed Cuba's decrepit tourism infrastructure and left hotels above capacity.
Numbers are expected to rise even more sharply this year with the start of as many as 110 commercial flights a day from the United States, one of dozens of moves the U.S. administration has made to punch holes in the trade embargo as part of a broader normalization of relations with Cuba announced by Obama and Raul Castro on Dec. 17, 2014.
On Tuesday, the Obama administration removed the last meaningful restrictions on travel to Cuba, announcing that it would allow individuals to visit the island for "people to people" educational trips. While the ban on U.S. tourism technically remains in place, it becomes an honour system that is essentially unenforceable.
Americans will have to keep records for five years about what they did in Cuba, but won't have to submit them unless asked. The Obama administration previously loosened requirements by allowing organized trips without advance U.S. permission and independent travel for specific purposes like religious activities or sports events.