Size matters. And that’s why Sami Tettinen, the CEO of Silver Airways, says the aircraft flown by his carrier are the perfect size to take advantage of the recent decision by the United States to liberalize its rules governing flights to Cuba.
In a recent telephone interview, Tettinen, a native of Finland, said he believes Silver’s fleet of 23 34-seat Saab 340B turboprops are just the right size to provide service between Ft. Lauderdale, Florida, and the nine Cuban cities the carrier was authorized to provide service to earlier this year.
Not too big. Not too small. Just right.
In fact, the little known airline, with its headquarters in Ft. Lauderdale and hubs in that southern Florida city as well as Tampa and Orlando, won permission to serve more destinations in Cuba than any of its larger and better known U.S. competitors.
Silver began life as Gulfstream International Airlines before it emerged from bankruptcy in May 2011 when Chicago-based Victory Park Capital purchased its assets and rebranded it later that year.
Under new ownership, Silver began providing intra-Florida service among cities in the Sunshine State. The currently provides service among 10 Florida cities.
It also currently provides service from six Florida cities to eight destinations in the Bahamas.
Silver also operated flights under the Essential Air Services, a federal program that contracted with airlines to provide service to rural cities, from hubs in Atlanta and Dulles International airport to communities in Virginia, West Virginia, Pennsylvania, Alabama and Mississippi. (Silver has since closed its hub in Atlanta and stopped servicing the southern states. Tettinen said the airline plans to stop providing services to communities out of Dulles later this year in order to more strategically deploy its aircraft.)
In September, Versa Capital Management LLC, a private equity firm based in Philadelphia, announced that it had acquired a majority stake of Silver, replacing Victory Park Capital.
But its most dramatic move came earlier this year when it applied to the U.S. Department of Transportation to fly from five Florida cities to 10 destinations in Cuba. It won the rights to fly to nine, all from Ft. Lauderdale, but failed to win the right to fly to Havana.
Tettinen said the airline’s decision to go all in on Cuba was based on his believe that Silver has the right aircraft to provide such service.
“When you look at demand in Cuba in the short- to medium-term, our view was that the capacity that anybody else will be putting into these markets will be excessive. So if you’re flying with the [Boeing] 737s and [Airbus] 320s or 321s, we think those aircrafts are not suitable for those markets,” he said.
“We operate in markets where other carriers don’t want to go because there’s not sufficient demand to fill up a 320 or 737,” he said.
He acknowledged that he was disappointed Silver failed to win rights to fly to Havana. “Our whole strategy was to provide service to all the destinations in Cuba, the same type of strategy we have in the Bahamas, “ he said.
With their 34-seat equipment, Tettinen said he believes the airline “can get adequate load factors” to make the service profitable.
So far, Tettinen said sales have been “challenging.” But he blamed current slow sales on the fact that ticket “distribution channels are very limited right now,” meaning that many online ticketing services, such as Expedia, do not yet allow travelers to purchase tickets to Cuba.
And despite having code-share agreement with several major airlines, including JetBlue and United, to other destinations, those agreements do not yet extend to any of the cities Silver flies to in Cuba.
So, for example, that means that while a United passenger could purchase a single ticket to travel from Chicago to the Bahamas, they would need to purchase separate tickets to fly on United to Ft. Lauderdale and on Silver from Ft. Lauderdale to any of the nine Cuban cities it serves.
Given the additional regulations and documentation involved in travel to Cuba, Tettinen says he understand why his current code-share partners are reluctant to extend their agreement. He believe those concerns will be resolved as travel becomes more routine.
Currently, roughly 50 percent of Silver’s ticket sales come through code share partners, Tettinen said.
Ticket sales on Silver to Cuba have also been limited because only a few online travel services, such as Kayak, currently display Silver’s flights to Cuba. So for now, at least, the only way most would-be travelers to Cuba find and purchase a ticket on Silver is to go directly to the airline’s website, silverairways.com.
Cubans planning to fly to the United States face additional obstacles. While some U.S. banks have announced plans to provide credit-card services to Cuba, most Cubans must rely on Americans to purchase their tickets. In addition, there is a $250 non-refundable fee to apply for a visa to enter the United States.
But, Tettinen said, he’s convinced that once travel to Cuba becomes more established, ticket sales will become more accessible and code share agreements will be expanded. “We’re convinced our strategy will be the right strategy,” he said.
Currently, Silver offers flights to five of the nine cities where it was awarded slots: Camaguey, Cienfuegos, Holguin, Santa Clara and Varadero. Tettinen says service should be extended to an additional four cities – Cayo Coco, Cayo Largo Del Sur, Manzanillo De Cuba and Santiago De Cuba – by early next year.
Tettinen said that so far, “American backpackers” and adventure tourists appear to outnumber the number of Cuban-Americans traveling to the island nation.
Tettinen said that he expects major carriers such as American, JetBlue and Southwest who have rushed to offer service to Havana will soon discover that supply has outstripped demand.
“There’s going to be two million plus seats going into Havana and there are only 60,000 hotel rooms, so you do the math,” he said. “I don’t see the majors filling their seats with the high yields.”
He also noted that the short flying time between southern Florida cities and Havana is too brief to hit the “sweet spot” for utilization of either Boeing or Airbus aircraft.
Tettenin had high praise for airport personnel and officials on the ground in Cuba.
“It’s very encouraging,” he said. “It’s a very professional group of workers. European and Canadian carriers have been operating there for years and years, so it’s nothing new for them,” he said. “They’re an easy group to work with; they want to do a good job. I think that personnel in some of the small cities we service are actually performing better than those in Havana.”
Even dealing with Cuban bureaucracy ensuring that flights and passengers have the correct documentation “has been nothing out of the ordinary,” he said.
Of course, there’s always the chance that there could be a shift in U.S. foreign policy that would restore previous restrictions on air travel to Cuba.
Tettinen said, however, his airline could survive such a change. He said the carrier would shift resources to other markets it currently serves where demand currently exceeds supply.
And the airline could always look to expand to other Caribbean markets or to small, underserved markets in the United States.
But without taking a political position, Tettinen said that for now, “I find it hard to believe that the direction after [the U.S. presidential election] November 8th will change drastically. Once the rabbit is out of the hat, how are you going to put it back in?”
We thank Silver Airways and Mr. Sami Tettinen for their help in facilitating this interview.