State of the Industry: 2006

The recent Miami cruise conference offered little in the way of defining the industry’s status with most executives ducking behind the cover of being public companies so they could not say much. Except for Rick Sasso, president and CEO of MSC Cruises in the U.S., who gave the first indication that this year’s wave season may have come up short when he said that it has been good, but not tremendous, and slower than last year’s.

While cruise earnings are nearly back to 1999 levels, Colin Veitch, president and CEO of Norwegian Cruises Line, pointed out that the mix is different, with ticket prices nowhere near 1999 levels, but compensated for by much higher onboard revenue.

Added Dan Hanrahan, president of Celebrity Cruises: “As an industry we are trying to get the passengers to spend more onboard and keep them from spending in port. They (the passengers) clearly spend and we want a higher percentage (of their spending).” “We are offering much more than we did 20 years ago,” noted Veitch, “and people are willing to pay more for that.”

According to Stein Kruse, president and CEO of Holland America Line, the value proposition of a cruise is basically the same as before, despite the onboard spending, but, he said, “we have become better at enhancing the experience and through that, we are increasing onboard revenue. It is now 22 percent of yield. We have kept the experience from before; just added a lot.”

At Royal Caribbean International, President Adam Goldstein said that the line offers targeted experiences to sub-segments of passengers onboard. So rather than having everybody pay for something they may not be interested in, the targeted offerings are for those who choose to pay, he explained.

Bob Dickinson, president of Carnivals Cruises Lines, added that charging for onboard services and experiences does not diminish the value for those who do not take advantage of the opportunity. He also said that passenger spending for art auctions does not come out of their vacation budget, but is from their household budget.

Dickinson also said he believes the potential North American cruise market is three times the size of today’s market, and that the industry is capacity constrained. He is also concerned that passengers repeat so much they do not let enough first-timers onboard thus preventing the marketing from expanding .

The negative publicity surrounding the disappearance of George Smith from the Brilliance of the Seas has had little if any impact on bookings, according to Goldstein. Carnival has seen no impact, and Dickinson described the disappearance of Smith as a bizarre story and a non-event (for which he later apologized to the Smith family).

And ships will get bigger. Said Goldstein: “I f you look at the trajectory of size of our ships, we have brought in each class successfully.” Dickinson, however, claimed that the numbers for such big ships did not add up, suggesting that Royal Caribbean has the size-race to itself.

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