The cruise market experienced severe struggles between sea giants in search for worldwide domination. Carnival won this naval combat over its long lasting rival, RCCL. Concentrated among few operators, and a fairly narrow sector, the cruises suffered from the international crisis in tourism. Some of the players didn’t made it trough the crisis. But the surviving companies have not stoped their investments, confident in the market come back, which seems to be very strong.
In a few lines, Howard Frank, the vice-president of the board of directors of Carnival Corp & Plc, gives the of the land: “The major manoeuvres have already taken place. Nothing else very significant will happen after our fusion with P&O Princess, aside from one or two mergers between smaller companies that want to attain a critical size”. By swallowing up P&O Princess, the number 4 of the cruise line industry, after a ferocious battle, to become the incontestable world leader, has Carnival written the final great chapter in the history of the cruise industry? Those protagonists that are still afloat and likely to regroup look insufficient in number to even hope to surpass this group in the mid- or even long term. All the more so since some of the major predators are either still digesting their latest acquisitions such as Norwegian Cruise Line for Star Cruises, or give prefer sustained organic growth of their fleet as is the case for Royal Caribbean Cruises Ltd (RCCL). The world’s oceans will – for some time now – be dominated by the mastodon Carnival. With profits that today surpass a billion dollars per annum and revenues nearly that double those of its closest follower, RCCL, it is the first “global” cruise line. The company’s fleet may be broken down among 12 different brands, covering all market segments and with an implantation on both sides of the Atlantic. To the point of being the number two corporation worldwide in the leisure sector just behind Walt Disney Corp.Always innovative, in Spring 2005, the group Easy will launch EasyCruise, the low-cost cruise. With no activities on board, nor attractive package: the boat goes from city to city in the Mediterranean with the option to stop at just one port for 50 euros, not including housekeeping. This new offer – at the opposite of the pleasure concept that all the cruise lines developed together – leaves most of its competitors perplexed.Yet, the market is still restricted: it represents just barely 1% of sales for the whole of tourism products in Europe and 2.5% at best in North America. But it is in the hands of veritable giants, who can write their own laws. They own the best-known brands, the bestdeveloped fleets, the most impressive ships. “From a financial point of view, the size allows for economies of scale that are carried over to the prices,” explains Patrick Ryan, marketing director Europe for RCCL. Among these enormous ocean liners, some are mythical such as the new Queen Mary 2 launched this year by Cunard, a subsidiary of Carnival, and the Voyager of the Sea from Royal Caribbean: these are the largest ships in the world with more than 3,000 passengers. And we must not forget Pacific Princess, whose name, made famous by the television series “Loveboat”, cannot be abandoned by its parent company. When the original ship of 1971 proved to have too limited a capacity with just 700 passengers, Princess Cruises replaced it in 2002 by a ship three times bigger that previously belonged to the cruise line Renaissance, one of the first victims of post September 11.“In order to survive, it is necessary to have strong reins,” observes Jean- Claude Hélary, president of France Ferries Croisières, an association that regroups most of the sector’s actors on the French market. Cruises require heavy investments in order to play with the big time players who concentrate on putting new ships on the market, at a minimum of 350 million euros per ship, which are then resold after 15-20 years when their cost has been absorbed. Those who tried to rival them immoderately learned at their own expense. “Festival should have stayed on the niche of old ships rather than build several ships at once,” remarks Jean-Claude Hélary, commenting on the recent collapse of the Italian company.Defaulted for non-payment by its creditors, Crédit Agricole and the owner of the Chantiers de l’Atlantique, Alstom, also in difficulty, Festival was dismantled. This happened to the benefit of a company that is rising: MSC. In parallel to the order of three new ships and the launch of the MSC Lirica and Opéra this month, the Italian cruise line bought European Vision, a Premium ship, from its compatriot and rebaptised it Armonia. The dispersal of the fleet dissuaded RCCL from buying Festival’s entire fleet. This fall led to another collateral victim: Hilton Group, which had created the first partnership between a hotelier and a cruise line with its product “Hilton Floating Resorts on Festival Cruises” for the sale of Festival cabins under the hotel brand. According to the hotel group, which is in a stand by position, the first results of this agreement were very satisfactory with 1,500 reservations.The race for size is not the only reason for the difficulties encountered by certain cruise lines. Speed could be the cause. With the Olympia Voyager and Explorer, Royal Olympic Cruises (ROC) had the fastest ship that could reach 28 knots. These enabled shorter maritime transfers and consequently longer stays at port in more distant locations. Problem: the faster they go, the more the ships consume. These two ships belonging to subsidiaries of ROC were placed under the protection of the American “chapter 11” following the refusal of German banks to restructure the debt incurred to finance the acquisition of these two ships. Royal Olympic hopes to quickly bring this bad period to a close with signed, but unpaid, contracts for the rental of five ships to the organisers of the Olympic Games at Athens.In this enchanted universe, everything has not been golden lately. In the aftermath of September 11, the cruise lines were weakened by cancellations, changed itineraries or increased insurance premiums. RCCL recorded a loss of 4,000 passengers – at an average of 1,700 euros the ticket – for the Athens-Singapore line. Deep sea cruises have stopped drawing its traditional clientele of American regulars. Actors positioned on the luxury niche market were the first to be hurt. Experts have also counted 3.5 billion euros in total losses from the cruise industry in the three months following the terrorist attacks in New York. According to a report from Seatrade, the entire sector posted an 8% drop for 2002. “Recent years, particularly 2003, have been difficult. Prices have dropped as a result of the economic slump in the United States and geopolitical events,” confirms Howard Frank. Strict control of their operating costs made it possible for many actors to soften the drop in their profitability.While profits were affected by all these elements, there is nonetheless hope in the small world of cruise lines. Firstly in terms of good news: the demand for this means of travel is literally exploding. As proof of a recovery, the latest figures published surpass all hopes: revenue is up by 20.6% for RCCL in the first quarter; +13% for Carnival in the second. 2004 should be a good year and 2005 should confirm the return to results close to those posted before 2001. “Consumers seem to be immune to outside events. They are realising that the situation won’t change and that there will always be occasional problems somewhere,” remarks Howard Frank contentedly.The future for the mid-term looks mostly radiant. 17 million passengers are expected on the horizon of 2010, for a 70% increase in 10 years. Even a difficult year like 2002 posts a 1% increase in the number of passengers for the Americas and +0.2% for Europe. Figures for 2003 are more in line with a growth generally estimated at 10% per year: 8.2 million passengers in the United States, up by 12.1%, while the United Kingdom, N°2 market worldwide, approaches one million according to the Passenger Ship Association. Coming out of its economic torpor, Germany, the N°3 supply market, posts an increase by 25% with 537,000 travellers. Italy and France (240,000 passengers), complete this ranking, followed by Spain with over 200,000 cruise passengers, the country with the highest growth, boosted by the presence of national companies such as Pullmantour and Spanish Cruise Lines.The world of cruises seems to be entering a virtuous spiral. The accommodation capacity grows by 42% between 2000 and 2005. This intense increase in number of cabins – 11 new ships launched this year alone – seems easily absorbed by the demand. Although orders for ships have slowed in the past two years, the capacity should nonetheless grow another 25% between 2005 and 2010.In direct competition with resorts on land and packages proposed by tour-operators, cruise ships are veritable “floating beach resorts” offering their clients a growing number of activities (wellness centres, many restaurants, shows, sports equipment). “ I think we offer a better product and we try to be competitive with regards to prices in comparison to vacations on land,” explains Howard Frank. One thing is clear, cruises present an advantage that no hotel-club can rival: they make it possible to visit several places without having to pack up a suitcase every day.For relaxation, the Caribbean remains the star cruise destination, and is offered by European operators Costa or P&O as well as by Carnival and Royal Caribbean. US leaders offer their domestic clientele short cruises (3 to 4 days) and more often one week, the classic length of a cruise with 52% of sales worldwide. These products are adapted to “this time poor cash rich clientele,” explains Patrick Ryan. American coastal cruises saw their appeal grow following September 11. When travellers deserted airline transport, cruise lines multiplied their ports of embarkation (Los Angeles, Miami, Galveston, New Orleans, Port Canaveral, and Tampa) to develop a “drive & sail” policy to the place of embarkation. This phenomenon of “Homeland Sailing” explains in part the unrefutable liveliness of cruises, even when tourism was at its lowest.The other major destination for cruises remains the Mediterranean, which attracts clientele from both sides of the Atlantic. The effects of the terrorist attacks are fading, American cruise lines such as RCCL are repositioning more and more ships in the European ports for the summer months. Like Germans, the British are very sensitive to this destination that makes it possible to combine visits to historic sites with farniente in the sun with over 400,000 passengers versus 200,000 to the Caribbean. But, unlike the West Indies, short-stay products do not work very well with European clientele. On the English market, a lengthening of the duration of cruises has even been observed: 9.6 days on average in 2003 versus 8.6 in 2002.For some time now, the Mediterranean has not been Europe’s only destination. Cruises in the Baltic Sea, a region of the world that is considered safer by North American clientele, confirm their popularity (+ 41.4% in 2003). New niche destinations are now being offered that provide the possibility of discovering places that are accessible only by sea: Norwegian fjords in Europe or a tour of South America with several high points: Manaus in the heart of the Amazon, the beach of Copacabana, Cap Horn and Chile’s fjords (+128% on the English market). Alaska and the North and South poles are also gaining popularity with wealthy clientele.In general, cruises are still associated with luxury in most mindsets. But the vigour of the cruise market lies in the progressive change of this image. The same phenomenon observed in the United States 20 years ago is being seen in Europe today. During the boom of cruises in Miami in the 1970s, Carnival and others conquered a new clientele and democratised maritime holidays by offering products to the general public. Passengers traded blacktie- and-caviar for T-shirts and hamburgers. “Through efficient marketing and communications, we succeeded in convincing consumers that the cruise was not a product designed exclusively for the rich. This is what we do today with our brands Costa and Aïda,” explains Howard Frank.These enormous floating resorts are veritable machines for drawing in new cruise passengers, the “first timers”. These fresh followers often constitute half of the clientele on a ship for the general public. Also aimed at these first timers are appealing packages: honeymoon packages (25% of Costa’s clientele in Italy), family products with free passage for children under 15 in the summer, athletic holidays. With the democratisation of the cruise, clientele is slowly getting younger. The age of most cruise passengers has already dropped to 45 ans. According to the Passenger Ship Association, the average age was 54.6 year in 2003. No matter what, cruises are finding arguments for catching new clientele: the under 35 age group (13.8% versus 9% ten years ago), couples and families, but singles as well. Before it was taken over by Carnival, P&O launched a product clearly targeting the 25-40 age group in Britain. The ship Ocean Village offers packages with evocative names: Piazzas & pastas in the Mediterranean and Sugar & Spice in the Caribbean. This brand, which relies on the same win-win policy as Aïda, in Germany, is responsible for one third of the 12% growth in number of passengers in the United Kingdom in 2003.
Already signed up? Already signed up? Already signed up? Already registered? Login!