How is the cruise sector emerging from the worst downturn for generations? Industry insiders David Dingle, Michael Bayley, Pierfrancesco Vago and Carolyn Spencer Brown share with World Cruise Industry Review their analyses of current operations and future trends.
David Dingle, chairman, ECC, chief executive, Carnival UK
Last year was an unprecedented time in the cruise industry, one in which pricing inevitably suffered because of the economic downturn. Nevertheless, we began 2010 with a feeling that we have survived the worst and buoyed by the fact that while bookings have come in uncharacteristically late, they have not been as low as we may have feared.
For 2010 there are signs of increased demand although it is too early to say if we are returning to full health. While consumers are beginning to show more confidence, they are still delaying their decision to book. The key question is whether the cruise industry will be brave enough to extrapolate 2009’s experience into 2010 by not overreacting to the uncertainty of a later booking pattern but instead holding out in the expectation of firmer pricing from those late bookings.
The cruise sector is an important part of the European maritime industry and has made a significant contribution to the European economy: 21.7 million passengers visited European ports during 2008, with the industry contributing 311,512 jobs, a 66% increase compared with 2005. The total value of goods and services generated has increased by a staggering 69% in the last three years to more than €32bn.
We have also seen an increase in the amount passengers spend. In 2008, the total passenger on-shore spend was €2.7bn, a 69% increase over 2005. This meant €106 was spent per visit at turnaround ports and an average of €57 was spent at ports of call.
Europe has acted as a magnet, drawing cruise ships from North America, which, together with European fleets, led to a significant increase in the number of passengers – 4.7 million – joining their cruises in 2008 from a European port, a 68% increase on 2005. The European cruise industry has contributed €14.2bn in direct expenditure, with cruise lines spending €5.1bn on services, supplies and equipment.
The number of cruise ships operating in Europe in 2008 rose to 192, an increase of 35% from 2005. Europe is the world leader in building cruise vessels and during 2008, the industry spent €5.2bn on the construction, repair and maintenance of cruise ships. The cruise model is a stable one. Even in this economic downturn, capacity has grown and a full-ship business model will deliver increasing economic output in Europe.
With the introduction this year of new ships dedicated to the European market, I am confident of continued passenger growth, although not at such a frenetic pace as the past three years.
Michael Bayley, senior vice-president, international, Royal Caribbean International
The cruise industry continues to be resilient, but obviously not immune to the downturn. Last year was a painful one, with net revenues down 14%, yet the industry has experienced less revenue decline than other comparable industries.
Cruising has always represented excellent value for money and there has never been a better time to cruise. This year is off to a promising start with occupancy rates and pricing levels trending upward, suggesting 2010 may be stronger than many had predicted in 2009.
We ended last year on a positive note with the introduction of the Oasis of the Seas. Its inaugurals went well and customer satisfaction during the first cruises reached new highs. We are equally excited about the arrival of its sister ship, the Allure of the Seas, later this year.
The unprecedented level of variety and range of options for guests to choose from, coupled with Royal Caribbean’s Gold Anchor Service, have made the Oasis class of ships truly amazing. Celebrity Cruises will be growing significantly over the next three years and the success of the Solstice class is exceptional.
We are looking forward to the introduction of the Celebrity Eclipse, our first ship dedicated to the UK market, in the spring. We are also excited about advancing the Azamara Club Cruise brand, especially in our international markets.
One of Royal Caribbean’s long-term strategies continues to be centred on growing brands globally. Cruise holidays have been increasing in popularity over the past 40 years.
At first, the focus was on building the North American market, but the last decade has seen a shift towards the European market, which has been expanding by about 10% annually for the last 12 years. When it comes to choosing holidays, Europeans are recognising the value proposition, quality and variety of choices a cruise can offer.
Looking at the fundamentals, it is clear that Europe’s full potential has not been reached: it has a population of approximately 500 million compared with 300 million in the US, and most Europeans have more holiday time than their US counterparts. There are also excellent and easily accessible cruise destinations. Europe remains a key area of expansion and I would expect the European industry to grow at a similar rate to the North American market, which would take the total number of European cruisers to about ten million by 2020.
Developing markets such as Asia and Latin America offer excellent long-term growth potential and it’s impressive to witness the emerging economies and individual wealth being generated there. As investments in infrastructure are made these markets will become significant destinations in the future.
Pierfrancesco Vago, chief executive, MSC Cruises
The industry is well positioned to come through the downturn and while some companies have looked at the economies of streamlining, MSC Cruises is on a different level. We are a young company and still expanding.
In 2009, we took delivery of the MSC Fantasia and MSC Splendida, and we look forward to the arrival of the MSC Magnifica in March this year. Over the last five years, MSC has had an average annual growth rate of 36%. Last year we carried over a million passengers and this year we hope to carry more than 1.2 million.
With such anticipated growth, it’s crucial to invest in marketing in order to communicate to our customers and project our brand to the right market. Using our 42 offices, we are marketing our fleets and destinations throughout the world in line with their different seasonalities and cruising requirements.
MSC Cruises is targeting all holidaymakers, not just regular or repeat cruisers. It is clear that the investment in marketing is working as more people become familiar with cruising and the number of booked cruises increases. People of all demographics are reviewing their holiday budgets and discovering the value for money that cruises offer: passengers are offered meals five times a day, and there is a huge range of entertainment, as well as spas, gyms and other activities to enjoy on board.
What’s more, as many of MSC Cruises itineraries visit a different port every day, cruising is the ideal way to see many destinations while staying in luxury and comfort. MSC has the most modern fleet in the world with many amenities and facilities for people of all ages to enjoy. We cater for families by allowing children and young people up to the age of 18 to sail for free, with costs only for flights, transfers and port taxes.
The economic downturn has given the industry an opportunity to encourage first-time cruisers because cruising is good value for money, and it is my belief that if we deliver an excellent product, these first timers will become repeaters.
We have seen a definite change in booking trends over the past 18 months, depending on the region and the season. For example, in the US, there have been a number of cancellations due to passengers’ insecurities about money. This has created a trend to book much closer to the departure date, eliminating the mid-booking trend. Generally, people are still taking holidays.
Although the economic crisis appears to have peaked, it doesn’t necessarily mean that the market will recover at a fast pace, although it is possible that we will see an upswing by the end of 2010.
Carolyn Spencer Brown, editor-in-chief, cruisecritic.com
While everyone felt the negative effects of the downturn, it has produced some benefits for consumers. Lines have been aggressive in their deals, with great discounts for solo travellers, who would normally pay double-occupancy prices, and for people considering luxury cruises.
Unusually, the economy has impacted the top-tier earners, so they’ve not been travelling so much. While still more expensive than the ‘big ship’ voyages, luxury deals are so good that people who previously thought they could not afford them are finding that they can.
This sector has been stagnant for a long time: you could go on a luxury cruise and pay upwards of $1,000 and still not get a balcony because the ships were so old there were simply none on offer.
However, anybody who thinks that cruising is still stuffy, expensive and formal need only to experience the Oasis, which is a great signature for cruising.
The current roster of new ships come with exciting features and amenities, but some lines are charging extra fees for services that were previously included in fares. Most passengers expect to pay extra for unusual services and features such as top-notch dining, but too much of this ‘nickel and diming’ is not a good idea.
Passengers are spending less on board and lines should see this as a warning, especially with rumours that fuel surcharges are coming back. Fares are lower and people are getting a great deal, but it is a perception issue and having to pay extra could put people off cruising.
Of course, this downturn will end. There have been so many efforts to stimulate the economy and give people confidence that they can relax and take their holiday. Cruising is moving away from being a niche form of travel to one that is mainstream and there is potential for growth.
In the near term, this shows strong potential, but the long-term prospects will be a different story if lines hold back from ordering new ships. If this is the case, by around 2012 the industry will plateau.