The cruise industry will continue to build new ships and will attempt to take market share away from the landside leisure sector by offering new innovations and by tapping new international source markets, according to the panel of executives speaking at last week’s cruise conference. Industry fundamentals remain “very strong,” asserted executives, although any discussion of this year’s Wave Period and of growing recession fears in the U.S. were notably absent.

“I cannot imagine that the leadership of this industry will not continue to invest in newbuildings,” said Jack Williams, president of Royal Caribbean International (RCI), who asserted that RCI’s recent delays in exercising options for new Vantage-class ships “are not a reflection of any sign of concern or any weakness (in the market) – we just wanted to get some experience with the first ship (in the series).” It was noted that P&O Princess Cruises had also recently delayed exercising newbuilding options.

Do these developments indicate a coming pause in newbuilding orders after the past few years’ frantic surge, as a result of continuing price pressures in the North American market? Colin Veitch, president of Norwegian Cruise Line, answered, “It depends on what sort of margins cruise lines are willing to accept during a period of rapid expansion. Demand can be generated in the short term through pricing. In the longer term, demand can be generated through innovation.”

Bob Dickinson, president of Carnival Cruise Lines (CCL), expressed no comments indicating his own company would pause its aggressive newbuilding program. “This industry has been capacity constrained since the early 1970s, and it continues to be capacity constrained. We have to add more ships to get a larger segment of the overall vacation market.” Cruising comprises just over two percent of the overall leisure marketplace, he said, and only 13 percent of North Americans have ever cruised. While the entire North American cruise fleet had 6.9 million North American passengers in 2000, Branson, Missouri had eight million visitors last year, Las Vegas 22 million, and Orlando 40 million.

“We are still in the embryonic stages of our growth,” Dickinson said.

After asserting that the industry will indeed continue its newbuilding plans, the executive panel then focused on two main pathways to profitably fill new berths: globalization and innovation.

Globalization

“I believe that in 2000, the industry clearly recognized for the first time that cruising isn’t just a U.S. phenomenon,” said Peter Ratcliffe, president of P&O Princess Cruises (POC). “The industry embraced globalization in quite a significant way. The world is getting richer. The world is growing older. So we are now starting to see significant growth from outside the U.S., and because they (the markets outside the U.S.) are in their early stages of development, we will see an even higher growth rate there, particularly in Germany and the U.K.”

According to Pier Luigi Foschi, president of Costa Crociere, “Europeans have more than four weeks of vacation per year and their spending during vacations is very high.” Yet Foschi sees limitations that will affect growth as a result of infrastructure constraints in European ports. “We can already see it happening with companies competing to get the best berth on the best day,” he said. “As Europe and in particular the Mediterranean becomes more of a cruise destination, I do not believe the ports are equipped to sustain growth.”

With POC moving aggressively into the German market, Foschi also underscored Costa’s own designs on that sector. “Currently our passengers are 40 percent Italian, 30 percent from other European countries, 20 percent North American, and 10 percent South American. Germany will be one of the largest cruise markets in Europe in the next five years, and Costa will be allocating a ship to that market. What kind of ship, and which ship – it’s too early to discuss.”

“When you look at Germany,” added Ratcliffe, “there are 60 million potential cruisers there – it’s the largest vacation market outside the United States.”

“The world is the cruise industry’s playground there are so many more opportunities out there as we build new ships and prepare for the future,” said Rick Sasso, president of Celebrity Cruises. “Had we not taken steps (and built up so aggressively), we would indeed be capacity constrained. We’ve constructed ships today so we are not capacity constrained tomorrow.”

Innovation

It is not enough just to build new vessels and deploy them worldwide, said Veitch. “It is important that we not just bring in more ships, but that we persist in innovation,” he explained.

“Cruising has been successful because of its innovation versus competing products,” he said. “Each cruise line has its own approach and there has certainly been an evolution overall. Sometimes, evolution takes big jumps, and sometimes it takes smaller steps. What we did at NCL with Freestyle Cruising was a big jump – to bring true open seating to the main restaurants of big ships, and remove that core element of structure from the cruise product,” Veitch added.

According to Ratcliffe, whose company has instituted “Personal Choice” cruising, “Passengers want more choice, not just in dining. They want control, they want to personalize their experience on the ship.”

Said Dickinson, “In F&B, several things happened somewhat independently last year – first, NCL made a big splash, then we at Carnival made changes, and Princess as well, all around the same time. The industry perceived it as cause and effect, but it was all just part of the same evolution.”

In addition to dining changes aboard Carnival ships, Dickinson pointed to other successful innovations such as the non-smoking Paradise (“We will have additional smoke-free vessels,” he noted), as well as Carnival’s vacation guarantee. “I continue to be amazed others have not followed,” said Dickinson, who speculated that other lines can’t offer the guarantee because “their marketing departments overpromise in their brochures, bringing expectations so high that the product falls short.” RCI, POC and NCL executives said they had no plans to offer their own vacation guarantees, although it should be noted that no other Carnival Corp. brand besides CCL offers the guarantee either.

RCl’s Williams noted his company’s innovations on the marketing front, ”with a new ad campaign that is quite different from anything else out there, to get the first-timers off the fence” – that message further bolstered by the company’s innovative new cruise products: the Voyager-class vessels at RCI and Millennium-class ships at Celebrity.

Other Issues

According to Dickinson, “Cruises booked directly over the Internet represent a fraction of one percent of our business, but 20 percent of all of our bookings have some form of Internet component. The Internet provides people with a private, unthreatening environment to ask the dumbest questions they want remember, 87 percent of the population has no foggy clue about cruising.”

Dickinson also reiterated a point he has made repeatedly in the past: “Six to eight thousand travel agencies have gone out of business in the last six years, but the distribution system has to keep up with the growth of the cruise industry. Right now the industry has about 10 percent direct bookings. We expect that number to grow.”