Coming off a strong 2017, which saw record earnings and looking ahead to an astronomical global cruise ship orderbook, key cruise industry leaders sat down on Tuesday for the State of the Industry panel in Ft. Lauderdale to discuss what’s at stake for 2018 and beyond.
Among the participants were Arnold Donald, president and CEO of Carnival Corporation; Richard Fain, chairman and CEO of Royal Caribbean Cruises; Frank del Rio, president and CEO of Norwegian Cruise Line Holdings, and Pierfrancesco Vago, executive chairman of MSC Cruises.
Together the four executives represent companies accounting some 82.5 percent of the market capacity in the global cruise industry this year, according to the 2018-2019 Cruise Industry News Annual Report.
The conversation started with China, which is seeing a downturn in capacity this year as operators make adjustments based on demand. This year China will account for around 2.2 million passengers, from roughly 27 million expected to cruise globally in 2018.
“China is stable, it’s still a work in progress in many ways. We all see it as a long term investment and are willing to be patient,” said del Rio. “She’s still not achieving optimal results.”
Del Rio said itineraries from Chinese ports have to be expanded, and the South Korea travel restrictions need to be lifted at some point.
The company continues to operate the Joy in the market on a year-round basis, but moved its 2019 newbuild, the Norwegian Encore, away from a previously announced China commitment, putting the ship in the Caribbean instead.
Donald said demand is still there in China for Carnival’s brands, and it remains a business-to-business sales model, although efforts are underway to adjust that.
“It’s probably going to be the largest cruise market in the world sometime in the future,” Donald said. “Probably more in the distance future, but that is because of ship building capacity.”
Fain noted one of the cruise industry’s strengths is the ability to move its assets based on demand or geopolitical events.
Thus, with the market changing in China, the company will add the new Spectrum of the Seas into the market in 2019, but the Mariner is heading back to the Caribbean and the Ovation will rotate between Alaska and Australia.
Vago said assets move and they can redeploy due to geopolitical events.
“China has great potential,” said Vago. “If we could overcome the cabotage restrictions and call in more ports, and embark and disembark along the Chinese coast, there will be a much bigger boom … that would have incredible potential and incredible opportunity.”
Norwegian Cruise Line will double Cuba capacity this year with a second ship, according to del Rio, who said the ships heading to Cuba were full at high prices.
Donald said “everyone” has new ships coming and the global market was underpenetrated.
Expanded demand is coming from building up source markets outside of North America, del Rio said, as well as pushing into new demographics. He said millennials account for 25 percent of Norwegian’s passenger sourcing.
“We align pretty nicely with what they want,” del Rio said.
Donald talked about overtourism, with new, very visible, very big ships calling at ports globally.
“Our guests don’t want to go to a place that is overcrowded,” said Donald.
Fain explained that it is more a conversation of sustainable tourism.
“This is not a numbers game; it’s a game of doing it in a better way. It’s a question of where people go and how you protect the environment in which you’re doing it,” he said, adding that educating guests was important. “We want them to leave with memories and understanding and knowledge. We want to do a better job of explaining what they are seeing.”
Vago said when it came to overtourism, one must look at the data. He pointed to Venice, which he said gets 30 million visitors annually, of which the cruise industry accounts for 1 million.
“We can control the flow,” he said. “We can control the disembarkation and embarkation.”
Del Rio said security is considered first in evaluating new ports, but second comes the destination experience. He described shore excursions as a big money maker for the company, with large margins.
“We are looking for new experiences,” del Rio said. “We aren’t looking for another beach.”