1990 Cruise Market Overview: State of the Industry

Ten million North American cruise passengers by year 2000 is a pipedream according to Dan White, Transportation Analyst at Countynat West Limited, who said the world’s yards do not have the capacity to build the necessary cruise ships when most of the tanker and bulk fleets have to be replaced within the next ten years.

Speaking at the recent Seatrade Cruise Shipping Conference in Miami, White said that the replacement of the world’s aging tanker and bulk fleets would tie up yard capacity and force newbuilding prices to rise through the decade.

The Cruise Lines International Association, which has reported an average annual growth rate of more than 10 percent through the 1980s, has also projected an annual growth rate of 10 percent or more through the 90s. On that basis, Cruise Industry News last summer was the first to project an annual North American cruise passenger volume of 10 million by year 2000. That number has since been widely adopted in industry fora.

But CIN also emphasized that in order to reach 10 million passengers, fleet expansion would be necessary, requiring 50 new ships by the end of the decade.

Improved Sales and Marketing is Key

While White warned of a slower industry expansion in the 90s, James Brokken, Executive Vice President of Manufacturers Hanover, said he believed there would be a downturn in the industry’s fortunes since there existed a real possibility for excess supply. He attributed that to the cruise lines inability to get their message across to the consumer. Brokken underlined that the cruise lines need to improve their marketing, maximize onboard revenues and expand their markets.

Robert Dickinson, Senior Vice President, Sales and Marketing, Carnival Cruise Lines, said that to reach 10 million passengers a year, the industry must make significant changes, mainly to understand that the competition is not other cruise lines, but landbased resorts and sightseeing destinations. Dickinson said that the cruise industry had only penetrated 2 percent of its potential market.

But Dickinson also said that if travel agents improved their present sales conversation ratio from three to 15 percent to 20 percent, or be able to close one out of five sales, agents would generate 10 million passengers a year.

Noting that there were “only 2.5 million Americans who have cruised and are still alive”, Dickinson pointed out that the industry’s target for growth must be first time cruisers whether for upscale or mass market lines. “And don’t think you can upgrade that much,” he said, “the prime audience is the first time cruiser.”

To be successful in the 90s, all the lines must look at the first time cruiser, according to Dickinson.

Dickinson also said that the cruise lines must re-address the message. It cannot be price he said. “lf you do not know what a cruise is, you won’t buy it because it is 50 percent off,” Dickinson said.

Richard Fain, Chairman of Royal Caribbean Cruises, said that television advertising has helped create awareness of cruising, “but we must do a better job of conveying all the benefits,” he added.

Fain also noted that while the cruise lines pride themselves on the ships becoming destinations in themselves, the industry is also dependent on others, from taxi drivers to island governments. Our future is also increasingly intertwined with the political currents in Washington, D.C. as well as in the Caribbean islands, Fain noted.

In order to be successful, the cruise lines must become larger, Dickinson said. “There must be sufficient critical mass to fund the necessary marketing expenditures,” he said. “With economies of scale comes lower costs which can be used to reduce price.”

Dickinson said that any high ticket discretionary purchase was the competition.

Inefficient Distribution System

Dickinson blamed the distribution system for inefficiency. “We must understand that our distribution system is nowhere as efficient as it can be,” he said, pointing out that the sales conversion ratio of vacation retail sales was only from three to 15 percent.

Dickinson said that the average retail agent had no sales skills, was underpaid and moreover had no incentive to sell. He said that most agents were salaried and received around $300 a week whether they closed a sale or not. Comparing travel agents to car sales people, Dickinson said that “we need a new type of travel agent.”

Dickinson also noted that travel agents always looked for more money for promotions and cruise nights. “But it is a people problem,” he said, “if they were better sales people, they would need much less promotional dollars. Why don’t we spend more dollars on teaching agents how to sell.”

Dickinson also noted that there is an annual turnover of some 30 percent among travel agents, with 20 percent switching agencies and 10 percent leaving the business.

“If we can help agents increase effectivity to 20 percent or be able to close one out of every five sales, we’ll reach 10 million passengers,” Dickinson said.

Confusing Pricing Policies

Brian Kravits, Vice President and Director of Cruise Marketing for Liberty Travel and Gogo Tours, said that he expected the capacity increase in 1990 to be a double-edged sword, including price confusion. He wondered how any agent can keep track of FIT rates, guaranteed group rates early bird rates, introductory rates, two-for­-one rates, and so forth. He also noted that his company was competing against discount sellers, consolidators, cruise clubs and others. “We wonder about the cruise lines strategies for long term sales,” he said.

Joyce Landry of Landry and Kling noted that cruise lines’ sales representatives also could do with some sales training. “Only a few years ago, all they did was to throw brochures at us,” she said.

Josephine Kling of the same company noted that there had been a lack of activity by every cruise line because of the mergers and acquisitions and management changes. “This uncertainty penetrates the whole organization,” she said, “down to the lowest levels, and is one of the reasons for the slowdown in 1989.”

Bob Duffet, Chief Executive, Passenger Shipping Association Retail Agent Scheme, London, said that boardroom decisions had strong impact all the way down the line to the lowest sales representatives and affected travel agents as well.

Ron Biting, President of the National Association of Cruise Only Agents (NACOA) noted that of two major cruise line consolidations, one worked well for his group, while the other did not. But he declined to identify either one.


While Fain presented RCCL’s CruiseMatch as an adjunct to the cruise line’s reservations system, Dickinson said that Carnival was not keen on automation. He said that he did not want his staff to be automated and that Carnival has “the best reservations system in the world.”

Dickinson said that the best agents make only two or three bookings a day which does not warrant an automated system. He said it was easier for an agent to call up than to “flip through” several computer screens. Dickinson emphasized that cruise bookings were not as simple as booking air or a rent­ a-car. He said that cruise lines with several ships also have several price categories and that reservations agents are able to “sell” over the phone, offer a deal, or suggest another cruise.

Kravits noted that his company’s travel agencies were computerized but that his priority was to “straighten out sellers and rates” before looking at automation.

Fain said that RCCL wanted to give more tools to travel agents and that the cruise line maintains its reservations agents and that its phone service was excellent. Moreover, Fain noted that CruiseMatch may also be used as a follow-up for instant confirmation of a booking.


Captain John Maxham of the US Coast Guard urged the cruise lines to improve ship safety standards and practices or face further external regulation. He was concerned with what he saw as an increasing trend towards refurbishment of older cruise ships built to safety standards now considered inadequate.

Maxham said that 70 percent of the cruise ships operating from US ports where built according to safety requirements predating SOLAS 1974.

Maxham also said that the Coast Guard is focusing its efforts on ships ten years and older. (Recently the Coast Guard has held back several vessels, most recently the OceanSpirit for not meeting safety standards, and last fall, the Veracruz.)

Maxham also said that the cruise lines should improve onboard communications in light of the recent report by the National Transportation Safety Board. (The NTSB recommended that 75 percent of crew responsible for emergency firefighting be able to understand and communicate in a common language, and to understand and communicate in English with passengers.)

Bjornar Hermansen, Executive Vice President of Premier Cruise Lines, said that the ship safety issues had been vastly overplayed and that the alleged language problem was mainly nonexistent. He said that ship safety was usually handled by deck and engine crews and that these were normally of one, maximum two nationalities. The mix of nationalities in safety crews are much less prevalent than indicated, he said.

Kirk Lanterman, CEO of Holland America Line and Chairman of CLIA, called for ships over 40 years of age to be scrapped. He said they are responsible for creating the super-discount and day-cruise market, but that they may also be turning passengers off because the ships do not measure up to passenger expectations.

Lanterman also said that these ships are bad for the industry’s image with accidents, poorly trained crews and other problems.

Mauro Terrevazzi, Chairman and CEO of the Vlasov Group, brought up an issue not usually debated in industry fora. He said that with the growing cruise fleet, 10,000 new crew members would be needed by 1990 and 25,000 by the end of 1994. But people are not eager to go to sea anymore as there are plenty of jobs ashore, he said.

Terrevazzi also said that flag restrictions constricted the labor pool. He said that 24 ships were under construction in Italy alone requiring Italian crews.

Kling expressed concern on another emerging issue, that of maximizing onboard revenues. She said that the search for onboard revenues had gone too far, when she experienced bingo announcements during dinner. In the meantime, one individual in the audience proposed that cruise lines should find ways to earn revenue from ships’ infirmaries as well.

Ed Mass, Jr., President of Dolphin Cruise Lines, responded that not everything is done as a profit center.

Mike Ronan, Director of Port Planning for Royal Caribbean Cruise Line said that another issue for this decade will be the need to address infrastructural requirements in many ports of call as the number and size of cruise vessels increase.

Ronan said that port facilities will need to be expanded; tour vehicles of all types must be purchased; and personnel will require training.

Ships versus Ports

Eric Dawson, Chairman of the Board, US Virgin Islands Port Authority, said that the issue of ship vs. port was very touchy. “If passengers generate little revenue, we have a problem,” he said. “Why should we accept thousands of passengers if they do not spend money?” Dawson pointed out that no one was addressing this problem.

Art Kane, Chairman of the Florida; Caribbean Cruise Association, said that there was a different passenger today who did not buy cameras anymore, but t-shirts and was looking for distinctive products. But Warren Titus, President of Seabourn Cruise Line, disagreed. He said that passengers will shop ashore if presented with attractive opportunities.

Titus said that while the ships of the future would offer even more shopping, the “customers will go where they find bargain and quality.”

Ronan said that while it was also true to some extent that cruise lines compete with Caribbean hotels, they also compete with many other things. He underlined that three major cruise lines were also building hotels in the Caribbean.

Ronan pointed out that many factors determine the selection of a port and that such factors as bunkering and shopping must be seen in balance with other attractions.

Jose Buitrago, Executive Director of the Puerto Rico Ports Authority, said that the cruise lines can be most helpful if they reschedule calls away from weekends so that we (Puerto Rico) can get maximum value from investments in ports to accommodate the big ships. He said that rescheduling would also allow the island to sell more weekend land-packages.

Ronan answered that it would take time before cruise lines can readily redistribute, which is difficult in the mass market, he said.

New Markets

Regarding the further development of the Caribbean, Ronan said that the big ships were concentrating in the Caribbean, in those ports that already have the business, thus distancing themselves further from the small ports.

Kane said that different lines go after different market segments and that there would always be different people for different ports.

Mass said that smaller cruise lines have an edge in being able to offer more unusual itineraries. Mass also believed that Cuba will open before too long as the economic pressures will be too strong for the present government to resist.

Titus said that while he saw limited potential for further growth in Alaska, there was tremendous potential in the Mediterranean barring political problems.

Responsible for one of the most colorful presentations at the conference was Arne Ellefors of the Baltic Tourism Cooperation, representing 22 ports in Denmark, Finland, Norway, Poland, and the USSR, who outlined the cruising opportunities in this region of Northern Europe from Leningrad to the North Cape. Ellefors and his associates wore white suites with the names of the ports embroidered in red, with matching hats. His presentation was humerous, fast, with liberal use of slides and overheads.

As for a European cruise market for ships generally operating out of North America, Nigel Lingard of Fred Olsen Travel said that while there were 170,000 Germans who took a cruise last year, they basically all cruised on German-language ships. So there is not a homogeneous European market, he said, but national markets within Europe.

Survey results presented by Jay Lewis of Market Scope showed that European travelers perceived cruises to be too expensive and primarily for older, wealthy persons.

Travel agents survey by Market Scope said that client preferences were the Caribbean, Mediterranean, Norwegian fjords and the Baltic, in that order.

“Pie Chart”

According to CLIA statistics as of January 1990, the Caribbean/Bahamas/East Mexico/­transcanal cruises commanded 58.3 percent of the cruise market; the Mediterranean 7.6 percent; the West Coast/Mexico 6.6 percent; Alaska 6.5 percent; Bermuda 3.5 percent; Hawaii 3.4 percent; Europe (other than the Mediterranean) 3.1 percent; South America 1.9 percent; transatlantic 1.7 percent; and South Pacific 1.6 percent.

The rest of CLIA’s world including the Northeast/Canada and the Far East command the remaining 5.8 percent.

(CLIA only covers its own member lines, which include nearly all operators in the U.S. market, and cruises of three days duration or longer. CLIA’s statistics do not include two-day or one-day cruises.)


Lanterman said in his opening speech that CLIA projected a 13 percent increase in 1990 to 3.7 million cruise passengers. Through the 90s he said that the prime cruise market of 35 to 50 year olds would grow to 77 million.

Lanterman also noted that CLIA’s membership of travel agents had grown from 15,500 in 1986 to 20,000 in 1989 and that NACOA’s membership roster had grown from 19 in 1985 to 800 in 1989.

This year’s Seatrade Cruise Shipping Conference, March 20 through 24, which took place at the Fountainebleau Hilton Hotel on Miami Beach, drew a record number of exhibitors and delegates.

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