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U.S. Air Carriers Bound for Cuba Amid Uncertainty

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A 50-year wait comes to an end, with U.S. carriers American Airlines Group Inc. (AAL - Free Report) and JetBlue Airways Corp. (JBLU - Free Report) commencing flights to Havana, Cuba. American Airlines was the first U.S. carrier to operate a commercial flight to the Cuban capital in over five decades, followed by JetBlue. The American Airlines flight was from Miami, while the JetBlue flight took off from New York’s John F. Kennedy International Airport. Both flights have already landed in Havana.

Launch Coincides with Cuba Mourning Fidel Castro

The commencement of direct flights to Havana comes at a time when Cuba is mourning the death of its former leader, Fidel Castro. We remind investors that diplomatic ties between the nations were severed by the U.S. in 1961 after Fidel Castro overthrew the Cuban government to set up a socialist state and in the process started to establish strong relations with the erstwhile Soviet Union. In late 2014, President Obama called for the restoration of diplomatic ties with the nation after consulting his Cuban counterpart Raul Castro (Fidel Castro’s brother).

U.S. flights to other Cuban cities are already in operation, following the decision of the U.S. Department of Transportation (DOT) to authorize six U.S.-based carriers to operate scheduled flights to nine second-tier Cuban cities. After the announcement in June this year, the first commercial flight to Cuba from the U.S. was operated by JetBlue.

Havana Approval

However, the approval to fly to Havana came two months later – in August. The Havana routes were highly in demand among U.S. carriers as they collectively applied for the approval to operate nearly 60 flights to Havana on a daily basis. The agreement allowed for only 20 daily roundtrip flights between the nations.

On Aug 31, the U.S. DOT granted approval to eight carriers – Delta Air Lines (DAL - Free Report) , American Airlines, United Continental Holdings (UAL - Free Report) , JetBlue Airways, Spirit Airlines (SAVE - Free Report) , Southwest Airlines Co. (LUV - Free Report) , Alaska Air Group (ALK - Free Report) and Frontier Airlines – to operate direct flights to Havana. American Airlines was the biggest winner as the carrier gained approval to operate 35 weekly flights. All the above-mentioned publicly traded carriers carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

With American Airlines and JetBlue having already commenced flights to Cuba, the other carriers are expected to follow suit. The top line of carriers should benefit significantly from operations to the new destination as Havana is a favorite tourist spot.

Transportation - Airline Industry Price Index

Transportation - Airline Industry Price Index

The Trump Impact

Despite the optimism surrounding the move, it remains to be seen what stance President-elect Donald Trump takes for Cuba, when he assumes office in January.

In fact, a report appearing on the Reuters mentioned that the President-elect recently tweeted that he may terminate the deal in the event of Cuba not doing enough for its people. Hence, the U.S. carriers are expected to chalk out schemes to ensure that the deal remains intact.

We expect investor focus to remain on this burning issue going forward.

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