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The Cost of Luxury Cruising


5 March 2010


With the cruise industry emerging from the global downturn, the luxury segment has sought to highlight value while maintaining exclusivity. Phin Foster talks to Crystal Cruises CEO Gregg Michel about how the cruise line is working to keep its sparkle.


As the travel industry deals with the effects of the global downturn, an area of particular interest for analysts and insiders is the luxury segment. With belts being tightened and leisure expenditure more closely monitored than ever, one could be forgiven for thinking that the concepts of luxury and exclusiveness jar somewhat with the prevailing mood of austerity and prudence currently dominant across much of the globe.

Conversely, some argue that the luxury sector by its very nature should be immune to the prevailing winds of the economy; products and brands that offer genuinely exclusive experiences and appeal to the more affluent consumer maintain a cachet and a client base unwilling to downgrade.

As is often the case in such debates, the truth lies somewhere in the middle.

While research undertaken by independent ratings and research organisation the Luxury Institute has found that 76% of Americans with a net worth of between $1m and $10m are cutting back on luxury items as a direct result of the financial climate,

an emphasis on value has seen consumers trade up as well as down. The test for luxury operators therefore becomes how to promote that concept without undermining the nature of the brand. It is a question that has been posed repeatedly to Crystal Cruises CEO Gregg Michel since the start of the downturn.

"There’s no question 2009 was a challenge for us," he says. "The fluid market has been hit hard and we’re working a little harder to obtain our business. Like all categories within the luxury sector, the climate has changed markedly."

"We were extremely focused on growing our international business long before the economic downturn and that is standing us in good stead."

As a 26-year cruise industry veteran and part of the original 1988 management team that developed the Crystal product, Michel is under no illusion as to the scale of the task.

"All our research tells us that consumers are buying down, and that includes affluent consumers," he says. "It is difficult to get people to buy up, something that in the past few years was far easier for us. We were extremely focused on growing our international business long before the economic downturn and that is standing us in good stead.

"In the past such diversification could be a help: if the US was struggling there would always likely be other parts of the globe where things weren’t so bad. Unfortunately, this time around we are facing a global crisis. We also saw the dollar gain a little value over the same period and our product suddenly became slightly more expensive in those markets. It was tough."

The dollar has since backed off a little and Crystal is investing time and money in reassuring its existing client base and convincing potential guests that the brand and product remain as strong as ever. "Our advertising and direct mail is receiving more of a financial push these days," admits Michel. "It demands increased effort to persuade a potential customer to book a cruise and we’re also committing far more spend into new markets. We’re also focusing a lot of our energies staying in touch with our existing customer base – the Crystal Society – letting them know what’s going on, what we can offer and that we look forward to welcoming them back on board."

Potential benefits of the Crystal Society programme include shipboard credits, upgrades and even free cruises. The greatest damage one can do to a brand in a difficult climate, particularly at the higher end of the market, is to undermine the product through deep discounting. As many operators have found to their cost, it takes far longer to claw back one’s status point than it does slashing one’s price point.

Adding value

Michel is more than aware of the perils associated with such an approach and focuses instead on the idea of adding value. "Price is what you pay for something, value is what you get," he says. "We try not to discount. Price integrity goes hand-in-hand with brand strength. In a difficult marketplace, however, it is important to demonstrate that the guest is getting more for their spend."

As an example of such an approach, Michel cites Crystal’s all-inclusive As You Wish promotion, a spending credit of up to $2,000 that can be used by guests in a multitude of ways.

"It allows the customer to choose what their experience will be, whether that is fine wines, spa treatments or shoreside excursions, adding value to the product while maintaining price integrity," he explains.

"Giving guests more for their dollar is very different to merely discounting." If Michel’s house appears to be in order in this regard, how great a danger does he believe deep discounting poses to the industry at large? "It’s an easy way to go," he admits.

"The initial instinct can be to cut prices in an effort to appeal to your core audience. However, because we are such a value-added industry, with so many things to offer on board and a great emphasis on choice, there is a message that we can get across which is particularly relevant at times such as these."

The sentiment is heartening and may account for why the cruise industry has come through the past 18 months less scathed than its shoreside resort competitors. It is also something that Michel and his team will continue to emphasise regardless of the financial climate.

"Do our guests recognise the value in the various offerings available? I hope so," he says. "Could we do a better job of conveying that message? We’re often talking about intangibles such as how the experience is delivered, service levels, safety and social responsibility. Communicating these ideas is extremely important."

As CEO, the importance of communication is something that plays heavily on Michel’s mind and the message being conveyed to stakeholders within the organisation is equally important to that directed towards the consumer base.

"It’s one of the greatest challenges for any organisation and that’s the case in good times as well as bad," he says. "We have these ships out there sailing the world and it is vital that our crews are kept fully up to date with any company developments.

"People have far more questions about the financial status of the company and it is only natural for staff to feel more sensitive with the financial climate the way it is. We must address these concerns head on."

Time to shine

Fundamental to achieving success in this regard is an accentuation of the positive and an ability to convey a message that looks beyond immediate concerns and further into the future. Crystal was voted best in class for large ships in operation in last year’s Travel & Tourism list for the 14th time in succession and is enjoying its 15th year as Condé Nast Traveller’s best cruise line.

"Giving guests more for their dollar is very different to merely discounting."

"These awards are a validation of our product and are the kinds of endorsements that are particularly important at a time when potential customers are putting in far more research prior to making a commitment," Michel explains.

"Guest satisfaction levels also remain extremely high and that is something we must not lose sight of." Maintaining these standards demands investment and it is difficult to envisage a greater statement of intent than the

$25m revamp of the Crystal Symphony. New interiors and deck space on the 50,000t ship include redesigned penthouses, pool areas and restaurants. "It would be easy to delay a capital expenditure of this nature and justify it as a result of the financial climate," acknowledges Michel. "However, now is the time to prove to our various constituencies that we are maintaining our product and are prepared to spend money to do so. This is when we have to shine and demonstrate a belief in our brand and core values. "If you’re not in a position to benefit as soon as the market picks up, you’re going to be in trouble."

Michel is in little doubt that it is a question of when rather than if that happens and believes Crystal’s standing as a luxury brand will enable the company to benefit quickly. "The affluent customer base still has discretionary income, only their purchasing psychology has changed," he explains. "We are well placed for when such a shift occurs in the opposite direction."

The announcement of its 2011 itinerary, visiting 163 ports in 67 countries with increased emphasis upon departures from North America, is a further statement of intent by the organisation. Michel and his team’s belief in their value proposition should reassure other prestige brands within the cruise industry and beyond.