The cruise industry seems destined for a steady growth course through the year 2000.
According to the latest calculations by this newsletter (CIN), demand will outpace supply by 1995 based on existing and known new tonnage to be introduced, and a continuation of the historical 10 percent annual market expansion. Even if market expansion is cut in half, at a five percent annual growth rate, demand will equal supply by 1995 and outpace supply by 1996.
1997
It is expected that as new fire safety rules are put into effect in 1997 (part of the new SOLAS fire safety rules introduced in stages), it is estimated that as much as 20 percent of the berth capacity will be retired. Operators will retire ships as they become too costly to upgrade to meet the new safety codes.
Thus, in 1997, the cruise fleet could see a dramatic reduction in capacity that could lead to market demand exceeding berth supply by nearly 50 percent given that other market factors remain the same.
From 1997 to the year 2000, the cruise fleet would be able to afford an annual increase in capacity of 500,000 passengers, while demand would still exceed capacity.
In recognition of the market potential, it is also expected that the cruise lines will continue to build so that by the year 2000, the North American cruise fleet could consist of 150 ships, all sailing full, and carrying nearly seven million passengers a year, while another 2.5 million passengers would be wait-listed.
As optimistic as this may seem, it is a plausible growth scenario, according to CIN calculations.
Variables
A successful scenario may unfold all or in part pending a number of unpredictable variables. At the top of the List are several restrictive legislative measures which, if enacted, would penalize new ships built at foreign yards and/or impose U.S. labor law standards on foreign workers aboard the ships, which would significantly impact capital and/or operating costs. A combination of a “threatening” legislative environment here and high building costs abroad could also curtail industry expansion.
An equally serious threat lies in the cruise lines’ own marketing and sales techniques and product delivery. While the cruise Lines have maintained a 10 percent annual market growth rate, it has been achieved at the cost of deep discounting and heavy promotion and advertising expenditures which have diluted yields.
The discounting may also have fostered a bargain mentality among passengers that will make it difficult to raise fares to a level that will improve earnings and support future expansion.
Along with the discounting, some cruise lines have cut costs to the extent that the on board product is less of what it used to be, and attempts to recoup revenue by increasing passenger on board spending are less likely to turn these passengers into repeaters.
In addition are the so-called “unforeseen circumstances” that seems to appear with some regularity ranging from hurricanes, to airline strikes and bankruptcies, terrorist incidents, etc. Such events, depending on where and when they occur, can have a significant negative impact on the industry because of its relative concentration in certain sailing regions.
Also, in spite of the industry’s successful track record of expansion and the favorable outlook, there are also cruise companies today that seem to barely have survived the last few years. This serves again to underline some of the cost at which the industry has maintained its expansion rate.
Outlook
Most importantly for the industry, growth projections look extremely promising through year 2000.
