“The industry is on a great road to the future,” said Edwin Stephan, cofounder of Royal Caribbean Cruises. “The big companies are global and if there are places they don’t go to yet, they soon will.
“And the biggest ships will be the biggest moneymakers.”
Stephan held various positions with other shipping companies in the 1960s, including the Yarmouth Shipping Company and Commodore Cruise Line, which he also cofounded. He set his sights higher, however, and saw a bigger potential for new ships. He eventually got the support of Norwegian shipowner Sigurd Skaugen (I.M. Skaugen and Company), who agreed to build three ships. He also brought in two other Norwegian shipping companies, Anders Wilhelmsen and Gotaas Larsen.
“I was looking for safety first and foremost,” Stephan said, “and (ship) culture, which the Norwegians had.”
‘Overcompensate’
In 1968, Stephan said the market was wide open. The trans-Atlantic liner companies were trying to convert to cruise service, but had old ships and soon ran into union and flag problems, before going out of business.
“So we stepped in and filled the gap with new ships,” he said. “I knew the demand was there, at Commodore we sold out our entire summer season in one week. But I was not interested in running the Boheme, unless we could improve the safey.”
Stephan said while watching out for weather, disease outbreaks onboard, collisions and fire, his policy was to overcompensate passengers whenever there was a rare incident.
“We had a ship that got caught in a hurricane once,” he said. “We gave people another free cruise and everybody was happy.”
Economies of Scale
Economies of scale are key to driving earnings, according to Stephan. “Larger ships offer better economies of scale and give better margins. In addition, we had a captive audience onboard and all their onboard spending goes to the bottom line.
“Another benefit the industry has,” he added, “is that ships can move. And our occupancy was always 100 percent or better. Even great hotels don’t achieve that.
“At the same time, as the ships have gotten bigger, operating expenses have come down. We used to pay travel agents 16 percent. Now the cruise lines are telling agents they love them, but still give passengers the option of booking directly. Fuel costs have come down, too.
“On the whole, the future is looking very good for the top brands. Once people are on the ocean, they relax and start enjoying themselves.”
$3 Billion
“The barriers to entry are high,” Stephan continued, “but if you have $3 billion and are willing to build a fleet of ships right away, a startup can still do it. One billion dollars for a newbuild is no big deal based on the return you get.
“Word-of-mouth is the most important advertising you can get. When people get off a cruise, they are happy. And chances are it cost less than going to Disney World.”
Stephan retired from Royal Caribbean’s board of directors as vice chairman in 2003 at the age of 71.
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This article ran as part of a special Legends and Leaders section of the 100th edition of Cruise Industry News Quarterly Magazine, Spring 2015. A PDF download is available here.
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Ted Arison: Creating the Fun Ships
Micky Arison: Exceeding Expectations
Nicola Costa: Developing Europe
Arne Wilhelmsen: Next: Sensible Growth
John Chandris: Innovation is Key
Art Rodney: Launching New Brands
Helge Naarstad: The Ultimate Experience
Stanley McDonald: Full Ships from Day One
Barney Ebsworth: It’s All About Marketing
