Increased Industry Capacity Spurs Group Sales

Group sales now account for 30 to 50 percent of total sales at most cruise lines, according to several executives interviewed.

Promotional group sales, which have an attrition rate as high as 80 or 90 percent, comprise most of this market.

While most of those interviewed admitted that group sales divert from the more profitable FIT business, they said that the increased berth capacity has led the industry to rely heavily on group sales to fill their ships.

“I don’t think you will find a cruise line that would tell you that group business is not a major focus. There are a lot of beds to fill, and groups can do it,” said David Morris, vice president of group sales at Cunard.

According to Morris, Cunard began focusing on incentive groups two years ago, and last year, achieved $25 million in incentive sales. The line expects to greatly exceed that figure in 1987, mostly because of the acquisition of Sea Goddess, Morris said.

“Sea Goddess is having a dramatic effect on our group charter business.”

The line’s number one ship for incentives, however, is the Cunard Countess, because of its seven-day schedule from San Juan, Morris noted. “We charter this six to eight times a year. The Princess is not as conducive to the incentive market demand because of its 10- & 11-day programs, although we will have charters during its seven-day program in Alaska.” Longer cruise itineraries also inhibit incentive business on the Sagafjord and Vistafjord, although Cunard will be splitting one of its Northern European cruises into two seven-day segments for a group of 60 to 70 people.

Despite the emphasis on incentive and affinity groups, promotional groups still account for the majority of the group market, Morris said, noting that the conversion rate for these cruises is “very low.”

“Speculative Sales No Longer Way to Go”

Because of the high attrition rate associated with speculative groups, Carnival has shifted its focus to incentive and special groups, and as a result, has seen a significant drop in promotional group sales, according to Cherie Miller, vice president of sales.

“Speculative sales are not a good path to follow anymore. They have an 80 percent washdown rate, and then you have to dig to find people to take their place,” she said.

Noting that group sales comprise about 30 percent of Carnival’s total revenues, Miller said the majority are almost evenly divided between incentive and special interest groups. The incentive market is bringing in more and larger groups, mostly because of the three new superliners, which were built “expressly with this market in mind.

Holland America Line also prefers to avoid promotional groups, “because of the low conversion factor,” said Steve Kang, vice president of sales. He noted that affinity groups account for 80 percent of group business, and have a conversion factor of about 20 to 25 percent. Incentives account for about 15 percent of group business, and promotional make up the balance.

According to Kang, group sales account for 30 to 60 percent of total revenue, with the highest percentage occurring during the winter months in the Caribbean. The line does not offer group discounts during the Alaska season, he said.

At Premier, group sales comprise about 30 percent of total business, with discounts ranging from 10 to 40 percent, according to Mike Waldron, director of the line’s newly formed group, charter and incentive sales department.

Speculative and incentive groups account for about 5 percent of total sales each, and affinity groups make up about 20 percent. However, the line recently stepped up efforts to go after the “more qualified” incentive market,” Waldron said.

At Sitmar, group sales have grown from 20 percent of total sales in 1977 to 50 percent in 1986, according to Dan Pedelaborde, vice president of marketing. Promotional groups account for about 60 percent of this business, while affinity and incentive comprise 25 percent and 15 percent, respectively, he reported.

Group discounts vary with the season, averaging about 20 percent, and reaching as high as 25 percent in the Caribbean in the Fall.

According to Pedelaboarde, 75 percent of the allocated space does not pan out, but he believes that “overbooking is not a bad thing. It is necessary to protect yourself, and it indicates a lot of activity.”

Group business accounts for 50 percent of Home Lines’ business and is still growing, according to David Sutherland, senior vice president of marketing. He said that there is a substantial erosion of group business, but added that “this is the cost of acquiring business. There is no question that groups help expand the market, and it creates customers for the sponsoring agency.”

“Different Route for Admiral”

Admiral Cruise Line is the only one that does not encourage group sales.

“We would rather encourage FIT business, because we believe that is a more secure tack to take,” said Robert Mahmarian, vice president of Admiral. Incentives, he noted, are the only exception, as they provide “quality business.”

“If we focus on developing a strong consumer base, other lines cannot draw our followers away with large group discounts. We will also be more able to withstand a downturn in the industry,” Mahmarian explained.

According to Mahmarian, groups account for only 25 percent of the line’s sales, and he is not anticipating any growth in 1987. The Emerald Seas also has been chartered 17 times in the past 15 months, but these sailings have not been included in the group sales figures.

“Double-Edge Sword”

The general consensus is that group sales are a double-edge sword, expanding the market at one end while further augmenting the discount trend at the other.

“It’s a catch-22 situation,” said Sutherland. “You attract consumers with more favorable pricing, and then they look for the same type of bargain again.”

Those interviewed also agreed that with at least 10 newbuildings coming on line in the next decade, group discounting will become even more prevalent.

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