Cuba How the military came to dominate Cuba’s tourism — and bankrupted the country

 Cuba How the military came to dominate Cuba’s tourism — and bankrupted the country 

By Nora Gámez Torres December 23, 2025 5:30 AM

After Americans flocked to Havana following President Barack Obama’s historic restoration of diplomatic relations with Cuba in 2015, the island’s most powerful entity, the military, made a big bet: Its economic arm would use most of the country’s foreign revenue to build luxury hotels that would cater to Americans and others that surely would continue visiting Cuba.

It was massive overbet that ended up choking the economy, dragged the country into a humanitarian crisis and, in an ironic twist, turned it into a place few tourists want to visit.

In the past decade, Gaviota S.A., the armed forces’ tourism flagship company, expanded spectacularly to become Cuba’s largest hotel and tourism group, with 121 hotels, 20 marinas, the transportation company Transgaviota, the travel agency Gaviota Tours S.A. and the logistics and supply company AT Comercial.

In the last 10 years, Gaviota, a subsidiary of the military’s powerful conglomerate, GAESA, more than doubled the number of its hotels.

Soon after the construction effort began, it was clear the timing was not right: Obama’s rapprochement was short-lived, followed by a new wave of sanctions by the first Trump administration that restricted travel to Cuba. Then a global pandemic paralyzed air travel for almost two years.

But having become the most important center of power in Cuba and with no one that could force it to correct course, the military continued using the dollars entering the island to construct new hotels – even if everything else in the country was collapsing.

After all, it was, at first, a highly profitable business.

Even when revenue from international tourism was on the decline, Gaviota was still making profits that would have been the envy of the industry’s global leaders.

Detailed confidential financial statements of GAESA obtained by the Miami Herald reveal that between January and March of 2024 the hotel and tourism company achieved a 42% profit margin — nearly four times the overall global tourism industry average.

In those three months, Gaviota made 13.3 billion Cuban pesos in earnings on 31.6 billion in sales. Cuban government enterprises use the official exchange rate of 24 pesos to the dollar for their accounts, meaning Gaviota earned $554 million on sales of $1.3 billion.

Gaviota accounted for 72% of GAESA’s 44.2 billion pesos in revenue in the first quarter of 2024 — indicating that tourism was still one of the military’s most significant sources of cash. (The figures do not reflect revenue from Cimex, the conglomerate’s largest holding company, whose financial details were not included in the statements obtained by the Herald.)

Gaviota’s high profit margins mirrored those of the entire military-controlled conglomerate.

Data from March and August 2023 included in some of the financial statements show GAESA’s net profit margins hovered around 42%. By March of 2024 profit margins were lower but still strong, at 37%, according to GAESA’s consolidated income statement for 2024’s first quarter.

A screenshot of a spreadsheet obtained by The Miami Herald titled Estado de Resultados (income statement) that shows sales and profits for GAESA and Gaviota as of March 2024. Several columns corresponding to other GAESA companies were deleted to be able to show the side by side data. Because of Cuba’s dual monetary system, GAESA keeps a dual accounting system, tracking pesos and dollars separately. In this consolidated income statement, transactions in dollars are under the CUC label. The CUC or Cuban Convertible Peso, was eliminated as a currency in 2021, but GAESA’s internal accounting forms have not been updated to reflect that change. Rather, dollar accounting continues under that heading, a source with knowledge of GAESA operations told the Herald. GAESA uses the dollar exchange rate approved for other state companies: 24 Cuban pesos for a dollar. Miami Herald.

That Gaviota’s earnings were so high in the middle of an economic crisis and a waning tourism market runs counter to the long-held belief that Cuba’s tourism industry was barely profitable due to the high costs of providing services in a country where food production has collapsed and most products must be imported.

But it helps explain why the Cuban military has been so singularly focused on building new hotels in recent years.

The dollars spent by the tourists visiting Cuba have likely gone to the military’s coffers — but the big bet went terribly wrong for the Cuban population.

Gaviota’s non-relenting expansion amid a severe economic crisis significantly contributed to the country’s current humanitarian emergency. Because of GAESA’s stronghold on the dollars entering the country, the money that the government and ministries used to spend in the past on things like food production, health care, the aging electrical grid and other basic infrastructure went instead into building hotels.

Years of overinvesting in hotel construction to the detriment of the rest of the economy and the country’s infrastructure inflicted not just insurmountable pain on the population but also made Cuba much less attractive as a tourism destination.

Blackouts, food shortages, diseases due to deteriorating sanitary conditions and accumulated trash all over the cities have scared away many tourists. For those who go, the bad service and lack of food choices at the hotels also make them question whether to return.

By August 2024, Gaviota’s finances had taken a hit and its profit margins were down by 38% from earlier highs. In December last year, Tourism Minister Juan Carlos García Granda said 2024 was a “tough year for tourism” due to the lack of financing and supplies, the high prices of fuel, fluctuations in the workforce in part due to Cubans leaving the country, the cancellation of flights, power outages, the collapse of the country’s electrical grid and the impact of hurricanes.

Missing in his assessment was the military’s own role in the collapse of Cuba’s tourism industry.

This year was even worse, as the country’s economic crisis deepened. Economy Minister Joaquín Alonso said last week that only 1.9 million people visited Cuba in 2025, tourism’s worst performance since 2003 with the exception of the COVID pandemic years.

The military’s expansionist model that persisted in building new luxury accommodations rather than improving the already existing ones and the quality of service eventually backfired.

“This reminds me of the USSR model: they would build a hotel, it would be very nice, and then, they would run it to the ground,” said John Kavulich, the president of the U.S.-Cuba Trade and Economic Council. “They would skip maintenance, the food would be the same, the service would be terrible, and they would let it deteriorate until it collapsed.”

Gaviota’s rise

The 22 financial statements from GAESA’s secret accounting system obtained by the Herald were the subject of a previous story that showed that the conglomerate reported holding assets of $18 billion in dollars and another 99 billion in pesos – equivalent to another $4.1 billion – in March 2024. That’s not even counting Cimex’s assets, which were not included in the statements.

The documents show the military controls at least 40% of Cuba’s economy through GAESA, which operates with little transparency and no oversight and which pays no taxes on its dollar earnings. GAESA’s finances are treated as such crucial military secrets that not even the government’s comptroller is allowed to audit the books.

Gaviota’s meteoric rise, from a modest firm managing 164 rooms when it was founded in 1988 to becoming Cuba’s largest tourism company, with 44,049 hotel rooms, is tied to GAESA’s dramatic expansion in recent years.

After Raúl Castro, who has been the head of the armed forces for decades, was appointed Cuba’s president in 2009, he gave his former son-in-law, Gen. Alberto Rodríguez López-Calleja, carte blanche to consolidate the army‘s economic power.

The financial statements obtained by the Herald identified 25 companies that are part of GAESA, including Gaviota, store chain TRD Caribe and several others tied to the Port of Mariel. GAESA also controls Cimex, the country’s largest commercial corporation that also handles remittances from abroad, and the Banco Financiero International, where most foreign companies with business on the island keep their dollar accounts, according to Emilio Morales, a former Cimex marketing manager who has been tracking GAESA’s evolution.

López-Calleja “was an ambitious guy; anything that smelled of dollars, he controlled it,” Morales said.

When Americans filled Havana hotels after Obama eased travel restrictions and normalized relations, López-Calleja transferred Habaguanex, a company that managed hotels, stores and restaurants in colonial Old Havana, from the city historian’s office to Gaviota.

In November 2015, Gaviota listed 56 hotels on its official website, according to a snapshot captured by the Wayback Machine. By June 2018, it had 68. The company currently lists 121 hotels, meaning that in 10 years it has more than doubled the number of its properties.

Gaviota’s dramatic growth was met with little pushback from other state hotel companies under the Tourism Ministry.

In the meantime, some of GAESA’s top officials have moved into key political posts. In 2004, Manuel Marrero, Gaviota’s former president and López-Calleja’s longtime ally, was promoted to minister of tourism. He is currently the country’s prime minister, a position he has held since 2019. The current tourism minister, Juan Carlos García Granda, is a former GAESA vice-president.

Poverty wages boosted profits

GAESA’s many companies tap into the country’s foreign hard-currency revenues, and its business model keeps labor costs and taxes at a minimum, which may help explain the exorbitant hoard of dollars the military amassed even as ordinary Cubans became poorer and poorer.

“GAESA operates with a near-monopoly control in lucrative sectors, allowing it to set prices and conditions without real competition,” said Pavel Vidal Alejandro, a Cuban economist and professor at the Pontificia Javeriana University in Colombia who reviewed GAESA’s financial data at the Herald’s request. “Its ability to manipulate regulatory frameworks to its advantage, introducing revenue-extraction mechanisms without external auditing or oversight, transparency and accountability, contributes to maximizing its profits.”

Crucially, Cuba’s dual-currency system helps GAESA and Gaviota keep their operating costs down significantly. The companies pay their workers poverty wages in devalued Cuban pesos, while selling them — and the rest of the public — goods and services in dollars.

One example: A Gaviota hotel employee earning the tourism industry’s monthly average wage (5,019 pesos) must exchange those pesos in the black market for dollars (at approximately 450 pesos to the dollar) to purchase goods that GAESA sells in hard currency in its stores. That employee’s salary then amounts to just $11.

Gaviota also passes the bulk of the cost of running its hotels to the international companies that manage most of its properties. Gaviota saves money by cutting corners on maintenance and other services it is expected to provide as the hotels’ owner.

Such management contracts are not public record, but in 2016 three professors from the University of Havana said that in the contracts they had reviewed, the Cuban side paid around 5% of the gross income from operations to the foreign hotel chains in fees and incentives. That would mean Gaviota keeps the lion’s share of the revenue.

According to its website, Gaviota currently has contracts with at least 11 international hotel chains — among them Spain’s Meliá and Iberostar, two of the Cuban military’s closest European partners — to manage 75 of its 121 hotels.

Another way Gaviota rakes in the cash: Cuban labor laws don’t allow foreign companies to hire Cuban workers directly. Instead, the foreign firms pay the salaries in hard currency to government employment agencies— which pocket the money and pay the Cuban workers in pesos. Gaviota has its own hiring agency that pockets the salaries paid by Meliá and others.

Billions of dollars in hotels In 2010

Gaviota had 15,979 hotel rooms. By 2015, Gaviota controlled 25,688 hotel rooms. The plan was to have another 26,000 by 2025, Raniel Leyva Medina, then business vice president of Gaviota, told Hotels magazine in an interview in February 2016.

Leyva Medina said Gaviota was taking into consideration the standards of the U.S. market and associating with international hotel chains to create a “a luxury atmosphere in Havana.” He was not, however, making a pitch to private investors to buy shares in Cuba’s hotels. Gaviota was only seeking contracts for foreign hotel operators to manage its properties.

“Granting shares in our properties” is not Gaviota’s business’ model, Leyva Medina said. It wasn’t necessary: The military-owned company had the country’s financial resources at its disposal.

Since 1990, “almost all the capital for financing Cuban tourism development has come from state resources,” Miguel Alejandro Figueras, an economist and former government official who is an advisor to the Tourism Ministry, wrote in 2019. He estimated that foreign capital accounted for only about 2% of the funds dedicated to the Cuban tourism industry.

GAESA’s accounting books indicate that this has remained the practice. Its dollar-denominated long-term debt, likely from credit from foreign investors or governments, was $73 million as of March 2024, a small figure compared to the capital required to build so many hotels.

As of 2018, the cost of building or renovating 118 hotels managed by 20 foreign hotel chains in 2018 was $5 billion, Medina wrote. Morales, however, provides a much higher estimate of the cost of hotels built in the last 15 years – $24 billion.

The exact figure is likely a state secret. Cuban government officials even avoid providing the exact number of hotels currently operating on the island. In 2019, Cuban news outlet El Toque had identified at least 381 hotels.

In 2018, GAESA’s real estate company Almest, which handles the development side of the business, announced it would start building Havana’s tallest hotel “with 100% Cuban capital,” the Cuban News Agency reported.

The 43-story building with 565 rooms – a Gaviota hotel managed by Iberostar and popularly known as Torre K – sits just in front of the iconic open-air ice cream parlor Coppelia in the Vedado neighborhood. Its construction generated so much controversy –its massive scale contrasting with the poverty elsewhere – that it was discreetly opened in March this year with no official fanfare. Cost: $200 million.

And yet, even at its peak, between 2017 and 2019, when Cuba received more than 4 million tourists annually, the rate of investment in hotels was not justified by tourist arrival figures, as occupancy rates remained below 50%, according to Cuban official data compiled by Cuban economist Pedro Monreal. The hotel occupancy rate has remained around or below 30% ever since.

In 2021, when the number of excess deaths due to the Covid pandemic and the suspension of non-emergency surgeries was the highest in Latin America (55,204), the military spent 37,6% of all state investments in hotel construction. That year, with Cuba’s airports closed, occupancy plummeted to 11,4 percent.

The huge investments have continued despite a worsening economy. Last year, 37.4% of all government investments went to hotel construction, 11 times more than what the government spent on healthcare and education combined. Other sectors of the economy were also starved: Only 2.7% of state investments went to agriculture and raising cattle, official data shows.

A mafia state?

Unlike other destinations in the Caribbean, Cuba’s tourism industry has not recovered from the COVID-19 pandemic. In 2023, Cuba received only 2.4 million international visitors, almost half of the 4.7 million in 2018. And that figure includes Cuban Americans visiting relatives on the island.

Compounding the problem were restrictions on travel to Cuba reintroduced by the first Trump administration. Stemming from the designation of Cuba as a state sponsor of terrorism, the Biden administration later began requiring European nationals who visited Cuba to obtain a visa to enter the U.S.

Because of its military ownership, Gaviota is under U.S. financial sanctions and many of its hotels are included on a restricted list kept by the U.S. State Department. Americans are forbidden to stay on those properties, and traveling to Cuba for tourism continues to be prohibited by the U.S. embargo.

The fact that the Cuban military did not correct course after Trump reversed Obama’s policies and strengthened sanctions, and a global pandemic shut down international travel for almost two years, has puzzled analysts.

Monreal argues that the Cuban military primarily views the hotels as real estate investments and is less interested in the management and production aspects of the tourism industry.

For Morales, GAESA’s consolidation of power and continuous investments in hotels with little regard to the population’s needs signals a significant shift in how Cuba is governed — morphing from a socialist state to an oligarchy.

“The social pact of the former socialist state no longer exists; this is a mutation of the governance system into a mafia system,” Morales told the Herald. “Even with the money to avert catastrophe, they have shirked the social responsibilities the government has toward the people, and that is why there is no medicine, no public transportation, no food; there is a shortage of everything, and inflation has skyrocketed.”

The military’s dominance of the economy all but insures the armed forces remain the key political player in the future, said Sebastian Arcos, the interim director of the Cuban Research Institute at Florida International University.

Unlike other post-totalitarian transitions in Eastern Europe, whatever comes next in Cuba is unlikely to result from negotiations between opposition forces and Communist Party reformers alone, he argued at a recent conference of the Association for the Study of the Cuban Economy at FIU.

“It would be a negotiation with a general or a colonel,” he said.

The collapse of tourism

At the beginning of 2024, during the island’s tourism high season, one of Gaviota’s partners, the Spanish hotel chain Meliá, believed Cuba’s tourism industry was bouncing back.

Between January and March last year, Meliá, which manages 15 Gaviota hotels, reported a 7.3% increase in revenue per available room — a hotel industry measure that tracks profitability — compared to the same period in 2023, thanks mainly to the rise in average room rates.

Meliá hotels in Cuba were filled at 47% and making 47 euros ($51) per available room, nearly half of what Meliá’s hotels in Europe were earning, but the company remained optimistic.

“As for Cuba, we are expecting growth in both occupancy and rates. Important markets such as Argentina, France, Italy and Russia show growth in the number of clients,” Meliá said in its first quarter results report for 2024.

In the year’s third quarter, however, Meliá reported an 11% drop in revenue per available room compared with the same period results in 2023. By the end of the year, only 2.2 million people had visited Cuba.

Gaviota’s finances took a big hit.

By August 2024, as the country sank deeper into a severe economic slump, Gaviota’s profit margins declined to 26%, while operating and administrative expenses skyrocketed.

Gaviota’s operating expenses increased from 6.85 billion pesos in March 2024 to 15.93 billion pesos in August, indicating that expenses more than doubled. Similarly, the cost of administering the hotel business increased by a whooping 347% — from 73.9 million pesos to 330.7 million pesos. The income statements also show that the company’s financial expenses increased by 152.8% in the same period.

In March last year, Gaviota had reported holding $8.5 billion as “assets on hand”, deposited in banks and in an obscure GAESA’s financial institution, RAFIN S.A. By July, only $4.3 billion remained, the Herald previously reported.

The fact that Gaviota pays such low salaries and that foreign managers are barred from paying higher compensation directly to employees has resulted in a shortage of skilled workers, few incentives to improve service, and workers resorting to the common practice of stealing at work to compensate for poverty wages. A mass migration wave and the relative expansion of the private sector, which pays more attractive salaries, have made staffing more difficult.

Daily blackouts, widespread shortages, increasing levels of street violence and poor sanitary conditions have led many tour operators and airlines to drop the country and eliminate flights. They have also triggered travel alerts by countries that historically sent large numbers of tourists to the island, such as Canada, or that are Cuba’s political allies, such as Russia. Stories of vacations going awry have frequently appeared in both Canadian and Russian media.

A recent sanitary emergency due to thousands of people getting sick and at least 55 dying from a severe mosquito-borne virus outbreak of chikungunya and dengue fever, and the frequent collapse of the electrical grid, has worsened the outlook for a tourism recovery.

This year is on pace to end as one of the worst for tourism, with less than two million international visitors. As of the end of October, the country received 20% fewer tourists than last year, and the number of Canadians and Russians visiting declined by more than 30%.

Coming to terms with the situation, the military is testing a new model: leasing some hotels to foreign partners for a fixed payment, which the companies abroad might see as a better way to make a stable income, regardless of occupation or revenue. Gaviota and the Spanish chain Iberostar announced in October the first such agreement, which will begin in January with the Iberostar Origin Laguna Azul in Varadero. According to the Cuban state outlet Prensa Latina, the deal includes the property’s renovation.

In November, the minister of foreign trade and investments, Oscar Pérez-Oliva Fraga, a grandnephew of Fidel and Raúl Castro who was recently promoted to vice prime minister, announced new measures to attract foreign investors, including more “flexible” hiring policies: the state employment agency will continue screening the applicants, but “the final hiring decision will be made by the investor, either directly or through the employment agency.” He also mentioned the possibility of paying workers some “gratuities in hard currency.”

As with most things in Cuba, new rules may take years to be fully implemented. In the meantime, the collapse of tourism has upended the livelihood of many.

In Trinidad, a small colonial town in central Cuba that used to be a hub for tourism, people who used to rent their homes to visitors, sell them pottery souvenirs, host them in small family restaurants or take them around the cobblestone streets on taxis or pedicabs, have lost their main source of income.

“Tourism has disappeared, and that has been felt hard,” José Conrado Rodríguez, the priest of the Church of San Francisco de Paula in Trinidad, told the Herald. “Tourism benefited a group of people, but these people, in turn, needed to hire other people; it was a complete economy based on tourism. All of that has largely ceased, and the loss of purchasing power is acutely felt. Now they have no means.”

As in other parts of the island, extreme poverty is a daily reality in Trinidad. The priest said his parish is helping 50 families with money donations, and he regularly travels to Miami to buy medicines for his parishioners. The parish previously provided lunch for another 40, but it stopped doing so because of daily blackouts, which made it impossible to cook meals using the electrical appliances that the late Fidel Castro distributed across the country in the early 2000s, he said.

“In reality, the country has collapsed in every aspect. This affects medicine, hygiene, water, food and roads,” he said. Still, he said, the tourism industry has not been spared.

“Divine punishment exists,” he said. “Their hotels are empty.”

Originally published at the Miami Herald.