Archive for November, 2009

Cruise Market Watch Announces 2010 Cruise Line Market Share and Revenue Projections


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

Nightly Business Report

Cruise Market Watch appears on PBS's Nightly Business Report, Friday November 20th, 2009 discussing the cruise industry and launch of the new mega ship, Oasis of the Seas.

What “Oasis” means to Cruise

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

Oasis of the Seas
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

In search of Oasis of the Seas

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

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