Winners and Losers in Cruising: II
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(17-11-2008)

Winners and Losers in Cruising: II

Two weeks ago we looked at the industry as it concerned the cruise lines. Now it is time to have a look at how the industry and the consumer interact as even more new ships come on line over a period that is certain to be economically trying.
However, most people forget, or don't even realize, that cruising got a big fillip during the Great Depression.
When Transatlantic travel between Europe and North America plummeted by more than half, from 1,068,117 passengers in 1929 to just 467,620 in 1933, ships went cruising instead.
So what might be in store this time?


Alternative Employments

While ocean liners were able to generate new revenue by going into cruising in the 1930s, let's face it, today's situation is very different. Cruising allowed ships that would otherwise have been laid up to continue generating some revenue for their owners. And at the time, Prohibition in the United States, which would not end until late1933, made cruising on a foreign ship with open bars a very attractive proposition.

Today, other than very occasionally letting their ships out for other uses, that fleet is fully engaged in cruising. Although some have already found small bits of extra employment, that market is limited.
Royal Caribbean has reportedly arranged a three-month charter of its Radiance of the Seas and possibly Jewel of the Seas as well for static use in the 2010 Winter Olympics at Vancouver and at Squamish, BC.

Up to five cruise ships may be required to house the security forces for these events. Barcelona and Athens also come to mind. But there are not many events like this and the London Olympics are not until 2012, by which time the recession will hopefully be well over.

Cruise ships have also been used as worker housing when projects are under way but this is not likely to occur in a recession. Occasionally, they have been used as long-term housing, as a floating university residence in Amsterdam, as workers housing at a shipyard in Copenhagen, at a steel mill in the Netherlands, at a port development in Spain and so on.
At other times, cruise ships have supplied temporary housing after particularly bad hurricanes such as Katrina, but such events cannot be planned. The Cunard Princess was even used for "R&R" purposes during the first Gulf War. But there is no real market for this sort of use at the moment.


New Executive Positions for Revenue

So apart from relying on cash reserves that will soon be eaten up financing new ship orders, what will today's ships do to generate additional revenue? That revenue will be required to make up for the lower ticket prices that the recession is bound to impose on cruise lines if they want to continue to fill their ships.

The solution is already with us.
Cruise lines have recently appointed executives to positions we have never heard of before. In the past year, NCL has appointed an executive vice president, strategic and commercial development, and Carnival a vice president, guest experience and business development.
NCL's "strategic and commercial development" is rather nebulous code for "onboard revenue," and at least Carnival went that one step further and involved the guest in the process. Make no mistake, these gentlemen will be very busy trying to develop additional revenue streams to supplement the usual cruise line revenues.

That "guest experience" will consist of spending more money on all the extra bells and whistles the cruise lines dream up for their new palaces, as cruise ships slowly become floating shopping centres and entertainment malls. The only ones left out of this will be the all-inclusive lines such as Regent, Seabourn and Silversea, who will have a very difficult time developing new revenues of their own, although they will. But this will require some ingenuity if it is not to detract from the product.

More than one line has identified another potential revenue stream in "post cruise sales," following customers home to sell them even more products and souvenirs after their cruise. Are pre-cruise sales far away?
One can already pre-book spa treatments and shore excursions. Will airline-style gift and duty free catalogues soon be sent to intending cruisers?


On Board Admission Fees

For now, it appears that passengers will be spared of having to to pay admission to get into bars, as NCL was planning for some of its bars, particularly the Uber Bar, on its F3 ships. Having succeeded with charging $15 per person here and $25 per person there extra for meals, this was perhaps the obvious next step. P&O charge up to £20 ($30) per person in the White Room on the Ventura but no cruise line has yet introduced an entry fee for its bars.

Nor will they have to pay admission to certain deck areas and other venues, as was planned for the F3s. Except on Holland America, of course, which has invented something called a cabana for its Eurodam, a little tent that can be rented for $45 a day on port days and $75 on sea days in the Retreat, and $30 and $50 per day in the Lido. And on Princess, what used to be free bridge and engine room tours now cost $150 per person for both.

This phenomenon of being "dollared to death" as one American travel agent has called it will not go away. And note that it is no longer called being "nickeled and dimed to death." On board prices and extras are bound to rise. By its nomenclature it can be seen that this is a particularly American experience but while some European lines have tried to hold out others have joined the fray by charging extra wherever they can.


Consumer Feeling

Well, that's the lines, but what about their customers themselves? Last week, Cruise Critic published the results of a survey of intending cruisers that is bound to create some anxiety among cruise line executives.

Fully 13% of those surveyed told Cruise Critic that they would skip a cruise entirely in 2009. Now if those respondents are people who cruise at least once a year that would mean a 13% drop in repeat bookings.
If once every two years then 6.5%. These are worrying figures when more than 26,000 new berths will be introduced in 2009 and only the little 439-berth Black Prince will be retired, so far that is.

North American travel agents have already been saying that bookings are down about 5% in each of July, August and September, and that was before the big financial crisis of September and October.

Travel agents in both Europe and North America are also saying that the advance booking window is narrowing, with more people booking at the last minute and fewer in advance.

And despite cruise line moves to increase onboard revenue, 22.5% of Cruise Critic poll respondents said that they plan to spend less on board. Quite how they plan to do this no one seems to have said, except that many now intend to make their own shore arrangements rather than buying pricey cruise line shore excursions on board.
And cutting out those expensive $25 photographs by bringing a camera.

Another 22% said they plan to limit their cruise budgets to $1,000 per person and 6.7% said they would take shorter cruises to save money. These reactions will of course make it even more difficult for cruise lines to increase their onboard revenues and some have already introduced more short cruise opportunities that serve to bring the perceived (and the real) price down.


Good News from UK Tour Operators

Some good news for the cruise lines in the UK is that tour operators there have already cut their capacity by 25%, at the same time as increasing prices by 6-7%. This can only be good news for cruise lines as once tour operator places fill up, consumers will almost be forced to consider a cruise.

The same of course applies to airline failures and route cutbacks that are now happening all over. This will "help" consumers both in the United States and in Europe to consider cruising from a port closer to home.

In the end, it all comes down to confidence. As jobs are being lost daily and unemployment statistics rise, it is worth revisiting an earlier column. In "All the New Ships and where will they go?" on October 6, we pointed out that cruise numbers had continued to grow during the last recession in the early 1990s.
Just the rate of growth had slowed, dropping from 9.6% to 3.5% in North America and from 10.7% to 3.5% in the UK. In both cases, however, when confidence returned demand actually appeared to have built up, as when the business returned the next year it increased by 14.2% in North America and 18.5% in Europe.

Cruising is an excellent product, consistently satisfying well over 90% (usually more than 95%) of the people who take them. It is also a consistent return product: once hooked, people return. All of this to say that there may be some bumps and there may be some storms, but the product itself will bring the customers.
But for now, despite cheaper fuel and lower interest rates, it will need not only a much bigger advertising and marketing spend from the cruise lines, but also lower fares in order to attract the business.

There is no question, though, of one thing. With prices as they are and are likely to be after so much expansion of the cruise fleet, there has probably never been a better time to go cruising. And this is where the public benefits.

(Source: By Mark Tré - Cybercruises.com)


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