State of the Industry: 1997

Last week’s “State of the Industry” debate at the Miami cruise convention can best be characterized as tightly controlled with little or no dissent among the speakers and with no questions allowed from the floor.

It was a total turn-around from last year when the speakers went overboard attacking each other.

But there can be too much of a good thing (harmony) when the panel of senior cruise line executives can find nothing to criticize but the America World City! That was an easy target since company executives were not there to defend the project.

Apart from that, there was a little discussion around Carnival Corporation’s planned vacation stores, but in the end everybody toed in line behind Carnival Cruise Lines President Bob Dickinson.

In addition, the speakers’ point of view predictably reflected their respective companies’ market positions and fleet characteristics.

Great Years

Cruise Line International Association Chainnan Richard James, who is also senior vice president of sales and corporate relations for Princess Cruises, gave a predictably upbeat industry presentation.

James said that in 1996, the three largest cruise companies made more money than ever – and more profit per bed than ever – more than $1 billion in operating profits.

Defending discounting, James said that discounting was misunderstood, and that cruise lines bad been able to lower prices because of the cost efficiencies offered by the new and larger ships, which in combination with increased shoreside economies of scale, have driven down operating costs, and made cruises more affordable, thus growing the market by making cruises available to more consumers.

The new, big ships coming will drive down costs even further, according to James, making cruises even more affordable.

James predicted that the next years will be the golden age of the cruise industry as it taps the 50 million Americans who have expressed an interest in cruising, but who haven’t cruised, plus the millions of Americans who can afford a cruise but haven’t been reached yet.

In addition, James said Europe was developing as a significant second market with Asia as a potential third major market.

Dickinson added that “business had been fabulous in 1996,” and that bookings for 1997 were ahead 37 percent through March compared to last year.

Richard Fain, chairman and CEO of Royal Caribbean International (RCI) took a more somber approach, saying that while the industry may be coming of age, “this is not a placid time of life,” comparing the cruise industry to a teenager.

Fain also noted that the much-heralded generic CLIA campaign will not solve the industry’s problems. Athough Fain did not define the problems, he said that, “As we grow globally, we are increasingly faced with new issues, including what is our product?”

According to Fain, an important issue in the future will be how to cater to different clientele on the same ship. He said that people of different backgrounds will have fundamentally different demands.

Tim Harris, chairman and CEO of Princess Cruises and P&O Cruises, agreed with Fain, saying that one of the key issues is how readily a U.S. product can be transferred to other markets and how those markets can be tapped.

Kirk Lanterman, chairman and CEO of Holland America Line, echoed how 1996 had been their best year and how 1997 looked to be even better.

He attributed the results partially to the improvement in the cruise fleet, with new ships replacing older ones, and to product improvements. “The products of the various companies are becoming much clearer,” Lanterman said. “It makes the agent’s job easier.”

Lanterman also said that cruises were increasingly being accepted worldwide as a vacation form.

Antti Pankakoski, chairman and CEO of Cunard Line, said that after years of work, the industry still suffered from consumer misperceptions that prevent people from cruising. He said that lines must saturate the market with the “unbeatable benefits of a cruise vacation.”

Richard Sasso, president of Celebrity Cruises, said that while price was the primary force driving sales today, it should be replaced with what he called QVl – quality, variety and invention.

“If the present growth trend continues, 1997 will be a good year for all of us,” added Kristian Siem, chairman of Norwegian Cruise Line. He predicted that market demand will absorb the new tonnage, although be also expressed hope that the lines will slow down their building pace.

Market Growth

According to James, the CLIA membership fleet carried 4.6 million passengers in 1996 compared to 4.4 million in 1995.

While it was not clear whether the increased number of passengers also included those from foreign markets, Fain noted how RCI bas been what he called “enormously” successful in bringing Europeans to its American-style ships.

“There is demand for American-style products,” Fain said.

Dickinson noted how the Carnival family of companies also generates passengers from overseas markets, and that the company also pursues different strategies by offering products designed for people in overseas markets as exemplified by Airtours, Costa Crociere and Carnival Cruises Asia.

Harris noted how Princess and sister company P&O Cruises operate and market cruises in Europe. He said that American products sell particularly well in the Carribean.

Pankakoski added how Cunard generates nearly 50 percent of its revenues from non-American markets. Dickinson also pointed out that a European cruise infrastructure has been developing in the Caribbean with European ships homeported in Aruba, Curacao, Dominica and Guadeloupe.

Ship Sizes

“No ship is too large if it works,” said Dickinson, comparing the present mega ships to the 5,000 to 6,000 rooms of Las Vegas and Orlando hotels.

“We are nowhere near our limit,” Dickinson said. Harris noted how big ships enable the cruise lines to do different things. “Size gives you an opportunity to design and build new things,” Harris said. “The key is choice – to offer passengers unlimited choices – and still design intimate environments.”

Sasso, meanwhile, said that the quality of the on­ board product was affected by size. “It depends who you are addressing in the marketplace,” he said. But when Dickinson asked Sasso how Celebrity’s passengers differ from Princess’ passengers, Sasso said he could not answer for Princess, and Harris and James left the question unanswered as well.

According to Panakakoski, the big ships are a good idea – sort of. They help create interest in the market and help broaden the markel They also help differentiate the smaller lines in the market, Pan.kakoski said.

“The larger ship is better for the owner,” Siem said, “not for the passenger.”

Agent Support

The panel of cruise line executives all expressed their support of travel agents, and compared to last year, no one predicted that direct bookings were just around the corner any longer.

Dickinson meanwhile commented briefly that his company’s planned “vacation store” was still in the study stage. The concept is believed to be similar to a car dealership franchise whereby an agent would buy or lease a franchise from Carnival and would sell only Carnival products.

Fain said that it would be best if the concept remained in the study stage, and James commented that the product range would be too limited with only Carnival products and thus could be a disservice to the industry.

The stores could become the used car salesmen of the cruise industry, suggested Fain, and undermine the already “unbelieveably successful distribution system of travel agents.”

Dickinson responded that such comments only motivated him even more to build the stores, to which Fain responded, “If you do it and it works, we’ll copy it.”

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