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The State of the Market

Conference speech presented at the Seatrade Mediterranean Cruise and Ferry Convention (Genoa, 17-20 September 1996)

By Nicola Costa (Costa Crociere) (29/10/96

For the first time a qualified group of people involved in the cruise business join together in Europe to discuss about the state of the cruise market.
Last March at Miami Seatrade Conference the cruise industry was wondering how long the present stagnation of the US market could last and the possible consequences to the bottom line of the companies, in view of the massive program of new tonnage expected to come on stream at an hectic page.

Andrea CostaThe last carryings distributed by CLIAA for the first half of 1996 show some encouraging figures, whereby the US market is up 9% and the foreign contribution to the US based cruises down 14% with a total combined of up 6.40%
A part for the surprise of a slowdown of non US passengers in the Caribbean area, probably because of lower Mexican contribution, the fact that the basic US domestic market is showing some sign of recovery takes some of the pressure off the dramatic unbalance between space offered and passengers sold expected in current plan and in the next three years.

1996 has also seen a further expansion, in the brochures of leading US companies, of the European itineraries as a Summer employment of their Caribbean ships, therefore offering another destination to their US customers.

The North Sea seems to attract the newest US based ships because of its politically safe environment and the attractiveness of its major destinations, from the Norwegian fjords to the great capital cities.
The same renewed interest has brought several new ships to the Mediterranean shores, helped by a calmer political solution although not entirely stabilised.

West Mediterranenan ports of call, including the Adriatic and Greek ports do represent the most favoured destination for the US passengers, while most of the East Mediterranean ports are yet not perceived by the Americans as safe destinations.
All I have said till now covers only part of the European cruise game. The part that we, Costa, as a leading company in Europe, see as a promising ground for growth is the domestic cruise market with a potential that we calculate around 1/3 of the present US market.
Europe as a destination competes with other prestigious places, Caribbean/Bermuda/Alaska; Europe as a cruise market is still a niche in the wider European vacation market. The reason why Europe, with a population close to the one of US, is so far behind the US in terms of cruise passengers, can be summarised as follows:

Geopolitical factors:
- Europe is a multilanguage, multicultural area with vacation habits that differ dramatically from one country to another.
Geographic factors:
- Europe is, from a ship's employment point of view, basically a seasonal market and the ships based in Europe need to be repositioned in Winter. - The ferries and the short ferry-cruise experience play a much greater role than in US.
Logistic factors:
- The cost of air transportation on the scheduled flights is much higher than in US.
- Europe is a more developed touristic destination with shorter geographical distances between major cities or point of interest.

We at Costa have since several years targeted a precise goal: to make the European domestic market in general and, the Southern European one in particular, to grow the quickest and fastest possible, by adding newer and bigger ships, and focusing on a younger, first-timer type of passenger.
In the last four years our fleet has grown more than 60% and the extra capacity has been almost totally diverted to the European market.
Today our European passengers account for 75% of our total carryings.

To this purpose, we are directing our efforts to improve the on board product to satisfy a multilanguage, multicultural passenger base, while we have expanded our Winter programs in the Caribbean and South America to the exclusive use of our European customers, by packaging air transportation and cruise at a very competitive price.
More so we are heavily investing in the renewal of the fleet dedicating the new generation of ships to the seven day market and spending considerable sums on advertising and promotion, targeting specific groups of people based on the age, the revenue and the life style.
I don't want to continue for long time into many details.
Only few fresh figures of the current season at Costa can show how fast the European market can positively react to a carefully planned introduction of an expanded fleet.
The Costa Victoria, the biggest cruise ship presently operated in Europe, from its inaugural seven day cruise the 28th of July to the end of the Summer cycle the 18th of October will perform at an average load factor of 108 PC.

The current May November European season for the entire Costa fleet is running at full speed, with an expected final load factor of 103 PC.
80% of this traffic is in the seven day cruise segment and the Italian market accounts for 60% of it.
Both the Italian market and the French market have shown the highest rate of increase in our pax mix: in both areas, in the last four years, Costa has doubled the number of pax carried, thus consolidating its leadership with a market share of 75% in Italy and 50% in France (excluding cruises less than three day and the river cruises).

As we see the future of the European market, there are two distinctive approached that are being followed:
the first being the monolanguage concept which dominates the UK and German market, the second the multilanguage product with a strong Southern European base which we at Costa and other cruise lines favour.
In practical terms the UK market, the biggest in Europe, has closer links with US than with the rest of Europe.
Germany, a part its germanized ships, is still a very much destination oriented marked, it favours longer than seven day cruises and it is equally split between the longer North European Summer cruises and the Mediterranean short cruises.
Italy, France and Spain on the contraty represent a more homogeneous market in terms of life style and vacation habits, and it is strongly dominated by the domestic operators and by us in particular.
This "Latin" market has enabled us to apply a common marketing policy, therefore increasing the efficiency of our actions and reducing the relatives costs.
The future of Europe as a cruise market cannot be divorced from the global touristic market and the economic trend in consumption.
In a period of stagnation, travel and leisure are the last expenses to be cut by the individuals.

The US market in the last 20 years has shown a tremendous capacity of growth irrespective of the economic cycles.
We are confident that also Europe, although at a more tranquil peace, can follow the same basic trend.
We at Costa strongly believe in it and we are preparing ourselves to a further long jump ahead.

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