Quick to React in Times of Crisis

For cruise line deployment divisions the watchword for 2011 will be flexibility. A cruise company’s future deployment strategy is always challenging, but it will be doubly so for 2011 because of an unusual set of circumstances.

Not only does the industry have to juggle the usual complexities of port availability, customer demand, environmental concerns, volatile fuel prices, municipal and government taxes, and what might be called ‘harbour politics’, it must also make a long-term judgement on the drawn-out effect of the financial crisis.

While some economies are recovering, others are typified by high individual indebtedness, large-scale unemployment and, perhaps most challenging of all, changing holiday patterns. Some lines have reported a marked shift, for example, to mini-break cruises because passengers are reluctant, or unable, to spend too long away from their jobs.

The popularity of shorter cruises in the Caribbean, which will offer more and varied itineraries next year, illustrates this trend. While Carnival will post a 3.4% increase in capacity in seven-day cruises over 2010, volume will jump by over 5% for mini-breaks.

Flexible trends

In this environment, as Crystal Morgan, director of market planning at Princess Cruises, points out, flexibility is everything: “We have to be able to expand or constrict. We are offering a greater variety of cruises with different starting points and days.”

Lines that can adapt quickly to issues such as customer demand and changing harbour-side infrastructure will likely prosper at the expense of more sluggish companies with fewer options. However, as deployment divisions plan strategies for next year, they can at least build on several trends noticeable during 2010.

Firstly, more lines will be chasing the available pool of customers in an increasingly competitive environment as new entrants make headway into more established areas. Royal Caribbean, which is hard-wired on foreign growth, has said it’s looking at ways of penetrating untapped markets with a view to broadening its customer base.

“The portability of our ships and our investment in infrastructure allows us to expand into new markets,” the company says. “And it allows us to reduce our dependency on any one market by creating ‘home ports’ around the world.” For portability, read flexibility.

Asia has re-emerged as a bona fide destination. South Korea has invested heavily in its ports, notably Yeosu, host city for the 2012 Expo, and has big ambitions for other destinations such as Donghae, Sokcho and Ulsan, on top of ports such as Jeju, Incheon and Busan.

Passenger volumes in south-east Asia are growing at an average annual rate of nearly 5% and should reach 820,000 passengers within a decade.

A move by US Senator John McCain should help. He has introduced legislation that could axe the restrictions imposed by the outdated Jones Act, which doesn’t permit foreign-flag carriers to sail between US ports without also calling at a foreign port. In theory, the new law will encourage more flexible itineraries.

Cruise relations with ports

Deployment strategies are only as good as the port’s availability, especially as competition for berths increases. Carnival, in common with other lines, is deepening links with port authorities by providing management and financial assistance to local, private or government authorities to develop passenger-friendly port-side infrastructure.

The long-term pay-off comes in availability. “In exchange for our involvement, we generally secure preferential berthing rights for our ships,” the company explains.

This happened in earthquake-hit Haiti. Carnival had been influential in the extensive rebuild of the facilities at Labadee pier and port before the disaster struck and, when the infrastructure survived the upheavals pretty much intact, it was able to take Royal Caribbean’s Freedom and Oasis-class ships without any need for tendering. Similarly, Carnival has worked with the authorities to develop a new pier and infrastructure at Jamaica’s Port of Falmouth.

Changing focus

But it’s what lies beyond the port that counts in customer satisfaction, particularly as on-shore tours are still the major source of revenue for many lines. This is especially the case in Europe, which the industry predicts will be even busier in 2011 than it was this year, in large part because of the attractions on terra firma.

The indirect fall-out from the financial crisis will influence deployment next year, particularly in hard-hit Alaska, which is falling from grace as a destination. Industry leaders say rising head taxes imposed by its port authorities has already been a factor in driving some ships from the state. Terry Thornton, senior vice-president of market planning at Carnival, predicts there’s worse to come. “More ships will be leaving Alaska in 2011,” he says.

For port availability, however, there is a more complex story going on. After the Port of Baltimore in the US managed to deliver world-class infrastructure, Royal Caribbean will continue to offer year-round cruising from there for a second year in a row. As governor Martin O’Malley remarked earlier this year, it’s important to keep spending even in a downturn.

“Our recent investment in expanding the parking adjacent to the terminal continues to attract passengers, even in a challenging economy,” he said.

Branding Baltimore “an ideal cruise location”, Royal Caribbean’s Diana Block, vice-president of deployment, enthuses “it’s been a great partnership with the port and the local trade”.

The same can’t be said of Liverpool in the UK. Fred Olsen Cruise Lines has announced that it will scrap its cruises out of the port after June next year because the firm believes it too dangerous to dock its flagship, the 856-berth Boudicca, there without further capital expenditure.

Citing dangers from high winds, the tidal Mersey and cramped facilities, marketing director Nigel Lingard said: “We feel too nervous about the current docking facility to keep it in our programme. Until we feel more secure about turning around in the city, we do not plan to come back.”

When flexibility only goes so far

Sometimes, satisfying the customer is beyond the power of the industry, however flexible it may be. For example, demand for the Mexican Riviera is in decline in part because of hostile media coverage of local drug wars.

As industry experts point out, this is regrettable but it’s also a function of contemporary cruising. As it becomes more global in nature, cruising becomes vulnerable to new kinds of geo-political influences that hardly bothered it even 20 years ago.