Cruise Market Watch

Click here for full story in NY Times.

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When you are a researcher, you just can’t help but be analytical.  But I must not be the only one to wonder while on a cruise what the revenue is from an average cruiser – and how that income is distributed among cruise line expenses?  In case I am not, here is a typical breakdown based on Cruise Market Watch statistics.   The average cruise passenger spends a total of $1,454 per cruise.  Note this is for all cruise lines, luxury to contemporary.   With the typical cruise lasting 7.1 days, this amounts to a per passenger per day (APCD) projected to be $205, with $155 per day ticket price (75.6%) and $50 per day on-board spending (24.4%)

For the cruise line, about 7% of this revenue is spent on fuel, 11% shipboard payroll, 11% agent commission and 6% food.  You can find further detais in the chart below.

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The new ship is scheduled for delivery in 2012, following the 2011 launch of the Carnival Magic reports Seatrade Insider.  This is big news as it ends a near two year drought in new ship orders and helps validate the cruise industries strong position with consumers and continued dedication to growth.  The current economic environment also helped Carnival procure an excellent price, at $200,000 per lower berth compared to $202,000 for the Carnival Magic and $259,000 for RCI’s Allure of the Seas (sister ship of the Oasis).

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Cruise Market Watch releases 2010 cruise industry market statistics based on current economic conditions and anticipated new ship builds.

Among the 2010 highlights:

• Total worldwide cruise passenger capacity will increase 6.9% over 2009.
• Annualized total passengers carried worldwide in 2010 are estimated at 18.4 million.
• The total worldwide cruise market is estimated at $26.8 billion, a 7.4% increase from 2009.

The majority of the increases are attributed to cruise lines significantly increasing passenger capacity with the addition of new ships.  Additionally, pricing pressures to fill them in 2010 will be mitigated due to improved consumer confidence. Ticket prices and onboard spending are expected to improve modestly compared to 2009, although they will still remain below 2008 levels.  Average cruise revenue per passenger (APCD) for 2010 for all cruise lines worldwide is projected to be $207.68, with $156.80 ticket price and $50.88 onboard spending. In addition, growth of international passengers will outpace North American cruise passenger growth on a percentage basis, and a weakening U.S. dollar will strengthen overseas earnings.

The combination of an attractive vacation value and marketing buzz surrounding new ship designs will provide opportunity to introduce new cruisers to the cruising experience. This will stimulate market growth for the industry through 2013. The end of 2013 projects passengers carried to reach 21.3 million, a 15.7% increase from 2010.

With cruise line stocks Carnival Corp (NYSE: CCL) and Royal Caribbean (NYSE: RCL) trading over 50% and 150% above their price 52-weeks ago (and even further above March 2009 lows) most of these positives are already baked into current share prices although events are still bullish long term for the industry.  All the cruise ships in the entire world filled at capacity all year long still only amount to less than ½ of the total number of visitors to Las Vegas – that single city in the desert. The flexibility to move the ships to match demand and where the best yields can be achieved is a distinct advantage.

Photo Source: gabriele82 on Flickr

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Cruise Market Watch appears on PBS’s Nightly Business Report, Friday November 20th, 2009

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In mass-American culture, bigger hasn’t always meant better to everyone, but it has certainly meant brand buzz.

While some refer to the Mall of America as “Sprawl of America,” it is also the most visited shopping mall in the world.  Opening in 1992, it attracts more than 40 million annual visitors and employs over 12,000 people. Complete with indoor theme park, underwater adventures, hotels and shops, the mall is a successful mix of entertainment and consumerism.

Also in 1992, the High Mobility Multipurpose Wheeled Vehicle (HMMWV or Hum-Vee) began selling to the public under the brand name “Hummer.” The Hummer became the world’s most distinctive SUV and an iconic brand. Its main appeal lay in its unique appearance, sheer size and the feeling owners experience driving one.

In 1999 Royal Caribbean launched the first of five Voyager class ships, the Voyager of the Seas.  At 3,114-passengers it was a revolution in design and size.  With on-board amenities that included an ice-skating rink, inline-skating track, basketball court, mini golf course and rock-climbing wall the ships became a brand signature for Royal Caribbean. The ship and the “Get Out There” advertising campaign opened the cruise market to new, younger and more active vacationers with an “explorer” mind-set.

Branding Royal Caribbean

The Oasis is a further extension of Royal Caribbean’s brand differentiation.  In the Nation of Why Not, the Oasis seeks to continue to fulfill the brand promise of cruise innovator and “tell-your-friends you have been there” experiences.

As large as it is, only 5,400 people in the world can experience it each week.  That creates scarcity, and as long as the buzz continues to create demand, that creates pricing power.  Within the contemporary cruise segment, Disney has been the best by far at creating a brand consumers want to be associated with so much they are willing to pay 100% premiums.  Pricing power gained through branding is the Holy Grail Royal Caribbean investors are risking their $1.4 billion dollars on.

Currently, ticket prices for a seven-day cruise aboard the Oasis start at $1,049.  The Oasis features 37 different cabin types to maximize revenues by finding the right fit to various traveler budgets.  This compares to a seven-day on the Norwegian Jewel for as low as $249, and eight days on the new Carnival Dream start at $599.

Maintaining higher ticket prices will be essential for shareholders.  Royal Caribbean’s new ship builds have run at a cost 20% higher per berth than the Voyager, Radiance and Millennium class ships and 14% more expensive than peers.  Royal Caribbean ships have been 7% more expensive to build than Carnival historically, but net yields have been 7% lower.  So far, higher capital expenditures per berth have not paid off.   While the higher barrier to entry makes it harder for competitors to match, it is also not a proven model others are yet willing to chase.

Onboard Revenues

For all cruise lines, onboard spending has risen 25% over the past decade while ticket prices have actually declined.  Moreover, onboard spending has been historically less volatile than ticket prices.  So, with approximately 28% of cruise line revenues already coming from onboard spending, Oasis certainly creates the “right environment” for increased onboard spending.  With the port of call faded into the background in importance, cruisers seek out the variety of onboard activities and shopping experiences.  On the Oasis, these can include botox treatments, teeth whitening, and dozens of shops (including a tattoo parlor), boutiques, cafés, casinos, bars and restaurants.

The Oasis also offers opportunity for improving returns through improved fuel efficiency and other fixed costs of operation, such as payroll and victualing may be lower on a per passenger basis.

Something for everyone

Cruisers who want exotic, quaint and remote ports of call seek out luxury lines such as Seabourn and Regent.  On my cruises aboard Carnival, I am genuinely chagrinned by cruisers who are willing to go different islands, yet visit essentially the same Margaritaville’s and Hard Rock Café’s that aren’t that dissimilar to bars in their home towns.  I prefer to seek out the uniqueness of each island.  Others prefer the comfort of something familiar, while at the same time being able to say “they were there.”

If it is truly about brand differentiation, the onboard experience vs. the island destination argument is not relevant.  So the Oasis is limited to ports of call that can handle 5,400 passengers debarking at the same time and dock a 220,000-ton ship.  If the Oasis attracts new cruisers, ones seeking the Oasis experience and what it uniquely has to offer, then it strengthens the brand and grows the market.  If the strength of that experience is such that it can continue to generate higher ticket prices, then it will reward shareholders as well.

The Oasis, however, is not an experiment.  Allure of the Seas, its twin sister, is due for delivery in Port Everglades in a year.

Sources: DVB Research & Strategic Planning; Pareto Securities

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Followers of my blog may have noticed a drop off in the quantity of posts.  Part of the reason is due to having less time, related to my full time employment and part time teaching of business statistics.

Readers might like to know I am also posting consumer related cruise posts at Planet Eye Traveler – the most recent being my journey to see the rock star of the cruise ships – Oasis of the Seas. You can read the story at http://planeteyetraveler.com/2009/11/15/my-oasis-of-the-seas-story/.

Of course, keep coming to Cruise Market Watch for updates on cruise industry trends and statistics.

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The growing Indian tourism sector has proven an opportunity for new venture Louis Cruises India.  The subsidiary of Louis Cruises was officially launched in India on the 19th of September 2009.  MV Aquamarine, a 1,200 passenger capacity cruise vessel will cruise from its homeport in Kochi (colonial name Cochin).  The vibrant city situated on the south-west coast of the Indian peninsula is located in the scenic and prosperous state of Kerala, hailed as “God’s Own Country.”

Kochi currently receives 6 million domestic and .5 million internationational tourists annually with a 15% growth rate.  Its proximity to the equator, the sea and the mountains provide a moderate equatorial climate.  Its historic blend of Arab, British, Chinese, Dutch and Portuguese influences provide a rich cultural setting.

According to Mr. Oneil Khosa, CEO & MD of Louis Cruises India “exotic voyages to Maldives and Colombo are generating a large interest.”  The product offering will be a fusion between Western and Indian themes – in entertainment,  food and service.  As a part of the launch, Kerala Tourism has signed an exclusive deal with Louis Cruises India wherein both parties will engage in joint marketing efforts for promoting Louis Cruises India. These include an inaugural sailing in Mumbai (Bombay) with media guests and Bollywood tie-ins.

Aquamarine will be conducting Kochi-Maldives-Kochi and Kochi-Colombo-Kochi cruises with overnight stays at both the destinations. The cruises have been specially designed to allow guests the flexibility for either 3-night or a 7-night cruises.

Mr. Khosa previously served DVB Bank as a cruise industry focused financier. DVB Bank has been active in the cruise industry M & A activities apart from conventional asset lending. Before joining DVB, Mr. Khosa was employed as a First Officer with Royal Caribbean Cruises Lines.

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Travel agents report an average increase of 14% in cruise ticket prices during June, July and August of 2009 compared to April 2009, according to the quarterly Cruise Pulse survey. Pricing, while still below the same period the year prior, indicates stabilization in the cruise market.

There is also evidence of stronger pricing for cruises booked for 2010 departures, driven by interest in the new ship builds, more favorable demand in the European market and re-surging interest with luxury cruise lines.

Data was gathered August 25 to September 8, 2009 from 349 travel agents from around the world.  Margin of error +/- 5.2%.

Read the full report here.

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I launched www.CruiseMarketWatch.com last August as a way to highlight my research and marketing skills in a practical and demonstrable way. Since then, the site has had 54,000 page views from 14,500 unique visitors and ranks first for the search term “Cruise Market.”  I have been published in the Travel Trade Gazette and Cruise Shipping Miami Today, attended the Cruise Shipping Miami convention, surveyed over 600 travel agents and created an iPhone app for cruisers.  Not bad for a part-time pleasure. But perhaps most importantly, it has helped me stay emotionally connected to the love of my life, to whom the site is dedicated, as she travels the world.

I started out knowing I wouldn’t out scoop the cruise sites that post news releases onto the web.  If it already exists, it’s not unique – so why should you visit?  I try to find cruise trends that have an impact from a marketing perspective and actually write something insightful.  Moreover, I provide market data for free that simply can’t be found anywhere else.

Since my passion is applying analytical and strategic thinking to the development of remarkable products and promotions, I’d like to share five Google Analytics site statistics from the past year.

Top 5 most read blog posts

1. Top 5 new cruise ships for 2009
2. Cruise marketing top 10 greatest moments
3. Premium Cruise Line Celebrity Generating Buzz with Solstice
4. Royal Caribbean’s campaign “Get Out There” is going, going, gone…
5. View from under a cruise ship

Top 5 blog posts that haven’t been discovered yet (personal opinion)

1. Get your pod chirping, the video
2. Why choose to cruise
3. Cruising past recession island
4. Relax – cruise lines can go after the spa business
5. Top 10 cruise port pubs

Top visiting countries of origin

1. United States
2. Canada
3. United Kingdom
4. Germany
5. Netherlands

Top 5 referring sites

1. Boards.cruisecritic.com
2. Prweb.com
3. Google.com
4. Linkedin.com
5. Surveymonkey.com

Top 5 keywords searched

1. cruise market
2. cruise market watch
3. cruise industry market share
4. cruise market share
5. top 5 cruise lines

I hope each visitor has been rewarded for their time and taken away something of value.  I have made a lot of new friends this past year.  I would love to hear your feedback and can be reached for any reason at any time at my personal email address ryanwahlstrom@gmail.com.

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