Good times are what the cruise industry is all about, but top cruise executives were hard pressed Tuesday to put a happy face on an industry that’s coping with a gloomy global economy and a ton of new capacity.
At the annual Seatrade cruise shipping convention at the Miami Beach Convention Center, Richard E. Sasso, president and chief executive of MSC Cruises (USA), told a packed house: “The cruise industry is poised to get through these hard times and will come out stronger in the end.”
Still, the picture in the meantime isn’t pretty. Consumers, buffeted by rising unemployment, foreclosures and a steep decline in stock portfolios and home values, have clamped down on discretionary spending. That has forced the cruise lines to resort to big discounts, cabin upgrades, vouchers for onboard spending and free shore excursions to keep ships sailing full.
For 2008, even as the economy plummeted, the cruise lines attracted a record 13 million passengers, compared with 12.6 million in 2007, according to the Cruise Lines International Association, the industry’s trade and lobbying arm. But yields, or the revenue generated per available berth per day, have slumped.
Meanwhile, CLIA member lines will introduce 14 new ships during 2009, at a total cost of $4.8 billion, adding 5 percent to overall ship capacity. Amid the hard times, a key theme the cruise lines are pushing in marketing to consumers and travel agents is value: Cruises typically are far less expensive than comparable land-based vacations, and they include most basics in the price.
SEARCH FOR VALUE
“Everybody is looking for value and we’ve got a great value message,” said Gerald E. Cahill, president and chief executive officer of Miami-based Carnival Cruise Lines. “This is a great time to get people who’ve never taken a cruise before.”
Among the new ships debuting this year is Miami-based Royal Caribbean International’s 220,000-ton Oasis of the Seas, which will be the world’s largest cruise ship when it begins sailing from Fort Lauderdale in December. The 16-deck Oasis will carry 5,400 passengers and 2,165 crew and offer seven distinct “neighborhoods,” including a Central Park, or open-air area in the ship’s center with tropical landscaping.
While the innovative vessel is creating a lot of buzz among cruise buffs, the deepening global recession is hardly a fortuitous time to be unveiling it.
Cruise lines like to boast of being nimble because they can move ships and switch itineraries to match demand, but the widespread downturn offers few safe harbors. Europe has taken a deep turn down, too. And Latin American economies are getting increasingly dicey.
On Tuesday, Adam M. Goldstein, president and chief executive officer of Royal Caribbean International, told the audience no country is “immune from the recessionary forces.”
Each of the cruise lines has its own strategy for coping. Cahill, for instance, said Carnival, which caters to younger people and families, is well positioned for the stormy seas. It retreated on plans to have two ships stationed in Europe this summer, a time when that market is expected to be under pressure. In addition, Carnival offers a lot of shorter, less expensive cruises that appeal to the budget-minded. And the line has positioned its ships in a variety of U.S. ports, making it accessible for more consumers to drive instead of paying for air travel to reach a port. Carnival’s largest ship yet, the 3,646-passenger Carnival Dream, will debut in September.
One particularly tough challenge is worried consumers are booking cruises closer to departure dates than in the past.
A NEW BALLGAME
Cruise ships make money by sailing full, or nearly so. But the change in consumer behavior makes “revenue management” harder for the lines, as they figure how much inventory to offer at what price and when and how much to discount to ensure a ship sails full.
Cruise lines differ on how and where to cut prices. Daniel J. Hanrahan, who is president and chief executive of both Celebrity Cruises and Azamara Cruises, units of Royal Caribbean Cruises, said cutting prices too sharply “to top off a ship” can erode a brand’s image.
But Carnival’s Cahill said, “We’ve found if you bring your prices down, you fill your ship.” Not cutting prices also means losing onboard revenue and tips for crew, Cahill said.
Still, once they get onboard, passengers are spending less on casinos, shopping and other extras than in the past. That has trimmed another major revenue source for the lines.
MSC’s Sasso, a veteran of the industry, reminded his colleagues that the cruise business has sailed through challenging times before.
“It’s a great business. It’s weathered all the storms,” added Celebrity’s Hanrahan. “I don’t see why it won’t weather this one.”