Smaller niche operators will have to run leaner businesses while searching out new ways to position their products to travel agents and consumers in order to differentiate them selves from the mega cruise lines.
There is a question looming over the industry as to whether consumer demand for cruising has peaked in the last few years as the annual double-digit passenger growth of the 1980s seems to have faded. And, as the larger companies struggle for ways to jump-start consumer demand – mainly through discounting - smaller cruise lines may be the ones which incur the most casualties.
Some niche operators are doing well despite the recent industry downturn.
At Seabourn Cruise Line, company President Larry Pimentel said that 1995 will be the second consecutive year that the company is turning a profit.
Seabourn’s advantage is that the company is piggy-backing with the Carnival Corporation, benefiting from economies of scale in such areas as purchasing of services.
But Seabourn is also making it on its own, so to speak, by carving out a unique niche. The company is presently growing, but not by adding ships. Instead, the upscale cruise line is expanding with a unique worldwide tour program.
The company’s new 1996/97 cruise book (brochure) emphasizes destinations more than the ships.
“Tours are an integral part of our product,” said Pimentel, who added that agents also make more in commissions by selling cruises and tours.
“We are creating experiences,” said Pimentel, “and we are coincidentally in the cruise business.”
Seabourn has also been turning to foreign markets and its goal is to generate 25 percent of its passengers overseas.
“We are very expensive, but we also offer great value,” said Pimentel.
Another upscale line that seems to be on a successful course, but without the benefit of piggybacking with an industry giant, is Silversea Cruises. Instead Silversea relies on the experience of its owners and management.
According to company President and COO William Smith, the two-year-old upscale line will achieve a 70 percent load factor for 1995 without having to resort to last minute discounting. “We have achieved in two years what some lines look to do in a lifetime,” he said, adding that Silversea aims to reach 85 percent tn 1996.
Silversea is presently in discussion with the T. Mariotti yard about its option for two additional ships. Although no details have been finalized, Smith revealed that the ships would be slightly larger at around 399 passengers each.
Smith credited Silversea’s success to several factors, including former President John Bland’s intense focus on the travel agent community, and the line’s strong guest orientation.
At Clipper Cruise Line product differentiation is the key to success.
“We have positioned ourselves as a travel company which happens to use small ships to travel to unusual places,” said Paul Duynhouwer, President of Clipper. He also noted that Clipper will post a $3 million pre-tax profit in 1995.
In order to stay afloat, Clipper’s per diems are around $350 and are not negotiable because the American-flagged company must pay higher wages, taxes, and incur more dry-docking charges, while, due to its diminutive size, lacks economies of scale.
To ease any agent’s fears about the line’s financial solvency, said Duynhouwer, all passenger deposits are left in an escrow account until the cruise is completed.
Duynhouwer also said that Clipper will continue with two ships, warning that one of the biggest dangers today is expansion “without making sure the market support is there.”
Other operators find strength in bigger fleets.
This month signaled the inaugural of Royal Olympic Cruises, a new entity based on an alliance between Sun Line Cruises and Epirotiki Cruise Line.
At the time of announcing the new venture, Sun Line President Alex Keusseoglou noted that the new firm will have economies of scale not by having larger ships but by operating more ships.
And when the Jan. 1, 1995 merger of Radisson Diamond Cruise and Seven Seas Cruises to form Radisson Seven Seas Cruises was announced in October 1994, the line’s President and CEO Mark Conroy noted that it would realize a first year $5 million bottom-line improvement because of reduced overhead expenditures. What has resulted is that headquarters have been joined, reservations are handled through the existing Radisson Hotels reservations network in Omaha. NE, and the line has been able to tap into the hotel chain’s hospitality procurement system for volume buying.
Others believe in finding unique niches. Slated to launch in January is Canaveral Cruise Line which will conduct three-day sailings on the newly purchased Dolphin IV from Port Canaveral.
The new venture was formed by the Kosmas Group, which manages a number of high-end resort properties and is looking to link cruise sales with their properties.
Starting in March is Royal Venture Cruise Line (RVCL) with its Sun Venture conducting two- and five-day cruises from Tampa.
According to founder Anastasios Kyriakides, RVCL is being positioned as a “boutique style” line which offers “better value for the money.” Kyriakides also said that RVCL will fill a “growing Tampa area market.”
Being a start-up is not a disadvantage, noted Kyriakides, since the line and the product can be molded to fit market demands.
Economies of Scale Not Always Necessary
According to Fred Mayer, Chairman and CEO of Commodore Cruise Line, “economies of scale don’t necessarily maner in all cases.” He noted that Commodore intends to operate in areas that don’t interest the larger players.
“Our intention is to concentrate on a small portion of the market where there’s little competition from large lines and where we can dominate our niche,” said Mayer. “The formula, however, is to continually adjust and refine and advance your product.
“We have an idea of what to capitalize on. There are various modes of cruising, not just the traditional means,” noted Mayer.
Expansion is in Commodore’s future, according to Mayer, who earlier indicated that he would like a three to four-ship fleet by 1997. These would most likely be existing vessels since Mayer noted that smaller lines with older vessels don’t have the overwhelming debt service that companies with newbuildings must carry.
Another small operator is Alaska SightSeeing International (ASI) which has its core business in Alaska and will be facing more competition next year with the influx of ships.
According to an ASI spokesperson, the company has built a strong following based upon its distinctive itineraries that sail into isolated areas which larger vessels cannot reach.
Capitalizing on its small-ship strength, ASI is starting a new program from Seattle through Puget Sound; introducing shorter California wine country cruises from San Francisco; and exploring new ports along Canada’s Inside Passage.
So, in spite of Refency Cruises’ demise, there is clearly room for smaller operators as long as they can differentiate themselves successful in the market place and do not compete head-on with the big companies and their mega-ships.