The “Pop Tart Cruise” on Carnival Splendor November 2010 was greeted with curiosity and had little impact to bookings or ticket prices. The Costa Concordia January 2012 incident was greeted with shock. Bookings and prices did drop and while they have since recovered; public consciousness of the event still hasn't gone away (and either has Captain Schettino). I get the sense the “Cruise from Hell” on the Carnival Triumph February 2013 is being greeted with “enough is enough.”
Sure, with over 10,000 annual cruise sailings every year there are little things that can happen to cruise ships (pier bumps, rouge waves etc.,). And with a seven percent compounded annual growth rate, the likelihood of such events simply continues to be multiplied. Nevertheless, when a company dusts off the pre-Concordia advertising campaign themed “Land vs. Sea” to run in the subsequent year’s wave season, one is tempted to question good judgment.
I know. Memories are short. The media will move on to new stories. Carnival obviously overcame the fact its first cruise ship, the Mardi Gras, ran aground on a sandbar during its inaugural voyage in 1972. And don’t expect any instant drop in ticket prices. Prices for close-in sailings (those sold one to three months in advance of departure) took five months after Concordia to bottom in June 2012 .
The direct impact to the bottom line can be quantified by simply accounting for the 14 canceled Triumph sailings scheduled between Feb 11th and April 13th 2013, plus the ill-fated Feb 7th voyage. The amount totals $20.8 million in revenue according to Cruise Pulse. Based on the Splendor being off line 101 days, we believe Triumph guidance of 71 days is overly aggressive and the Triumph will likely cancel 7 more cruises up to the May 5th sailing, adding $9.8 million to lost ticket revenue.
But unfortunately the story may not end there. On the margin, where cash from ticket revenues meet up with corporate expenses this event will continue to be felt. Not exactly what an industry wants at a time when they are already being squeezed by a slowing European economy and the specter of inflation to costs for fuel and victualing.
When prospective cruisers hear Triumph passengers saying: “The credit, refund and $500 aren't really important. It’s not about the money. We will pay Carnival anything just to let us off the ship.” You have to wonder, will this time be different?
Repeat customers and die-hard cruisers will just get more bargains. And when prices get low enough, it is amazing how memories fade. But no spin can turn this publicity into a good thing for the industry. In order to attract the best talent to work aboard ships, continue to penetrate the large “never before cruised” market and stay the course with investors attracted to exponential passenger growth these events can’t continue. With 10,000 more "at bats" over the next year, getting wood on the ball 99.99% of the time so 20.9 million cruisers all leave happy and share their positive experiences is critical. In the interim, Cruise Market Watch will continue monitoring the ticket revenue and pricing trends.
A type of boomerang occurs for companies and victims that suffer tragic events. First is the event itself, which is followed many months later by its reemergence in the news during subsequent trails and lawsuits. And so it is with Carnival, Concordia passengers, crew and their families while the captain of the cruise ship finished his pre-trial hearings last week. While no date has been set for the actual court case, we can expect the news flow to continue.
As demonstrated by the word cloud of that news flow below, the Captain remains squarely at the center of the discussion.
And the impact has been felt in the industry. Three weeks ago on September 25th, the word "Costa" was mentioned 67 times in Carnival's Q3 earnings conference call. That was more than “Executive” (66 times), but less than “quarter” (96 times).
In summary, earnings were reduced as a result of the Concordia incident by about $500 million, and Costa lost about $100 million in 2012. In the most recent financial quarter – a quarter that booked revenue for sailings six to eight months after the accident, Costa accounted for over half of Carnival’s decline in net revenue yields.
The Costa brand’s occupancy drop was 5% in 2012, with an 11% decline in the second and a 6% drop in the third quarters. In the fourth quarter of 2012 Costa’s ships are expected to match the occupancy rates of a year prior, albeit at lower prices.
Going forward, pricing and occupancy for Costa's bookings in Q1 2013 are tracking lower on a year-over-year basis. However, these differences will narrow as year over year comparisons versus 2012 become easier. According to Howard Frank, Carnival’s Vice Chairman and Chief Operating Officer “Based on consumer research, the brand perception in each of Costa's major markets is gradually improving so we are greatly encouraged by the resiliency of the brand.”
In fact, Carnival has a new build on order for Costa with expected delivery in the Fall 2014 The Costa brand is also helping to develop an emerging cruise market strategy in Australia and Asia. Carnival has increased capacity by 8.5% in these markets and will be sending the Costa Atlantica to join the Costa Victoria in China in the spring of 2013. Costa was an early entrant into the Chinese market and has a marketing history there.
Posted By Cruise Market Watch / 24th September 2012
People might be tempted to stereotype statisticians and other data crunchers as being heavily math leaning, if not somewhat lacking of the artistic gene. Not always so. The telling of an easy-to-comprehend story from a complex data set is really a skillful art. It is the same thing with finding creative ways to use the sometimes massive quantities of information in a database. Out of the box thinking can provide new value to users in ways they never imagined.
That could be a point of differentiation in the commoditized world of online cruise booking. As one of history’s greatest artists/designers Coco Channel said “In order to be irreplaceable one must always be different.”
Posted By Cruise Market Watch / 18th September 2012
Segmentation is happening all around us every day; SUV or economy? Soda or energy drink? VP or Junior Analyst? Cruise ships are no different – they each have distinct characteristics which we mentally place into groups (large and small, luxury and well, yes cheap). But what happens if we let the numbers speak for themselves? Cruise Market Watch developed a statistical model based on similarities within three dimensions:
~ average duration of cruise
~ average price per person per day (weighted across all cabin categories)
~ ship passenger capacity
From 221 different cruise ships accounting for over 9,000 sailings in the next 12 months, our model produced 10 distinctive cruise ship segments.
Each segment describes, based on the data provided, the “class” to which its members belong (naming the segments is, however, more art than science). Segment members are mathematically most similar to each other along the three dimensions, and most dissimilar to members of the other groups.
Interact with the graph below by clicking segment selector and discover each segment’s averages and ship members. And yes, Oasis and Allure really are in a class all by themselves. The math is un-biased, so don’t hate.
The other day I was waiting in line at my favorite local java-fix establishment and something caught my eye. Instead of the now ubiquitous tip jar at the counter there was an exciting new challenge in front of me, Bach vs. Mozart! It was worth dropping in a dollar for the sheer brilliance. The excited and smiling employee at the register indicated tip revenue was up over 50%! Imagine that.
Has sameness regulated the normal and ordinary to barely noticeable at your business? What if someone broke the rules tried something different? Good ideas and a will to act are two required pieces. Meld these with a strategy and you get change my friend, coin change that is.
Flickr Chinese Dragon Year Statue (Photo credit: epSos.de)
Chinese grooms did not traditionally purchase diamond engagement rings for their prospective brides. It was only 20 years ago that diamonds begin to appear in engagement ceremonies among the Chinese elite. But smart marketing campaigns and the increasing purchasing power of China’s middle class have reshaped luxury spending over the last two decades. While the United States still leads the world in diamond demand they will eventually be replaced by China (not unlike the current Olympic medal count battle). Experts in the diamond industry put that timeframe in less than 10 years.
There is a strong analogy for the cruise industry. Consider each cruise ship as a diamond, each seeking to discover new lucrative source markets to drive growth.
Most Chinese still think of cruise ships solely as a means of transportation and favor train and airplane. But as more and more Chinese open up to the idea that “a cruise ship is actually a floating five-star resort" (aka getting there is half the fun) their perceptions of cruising are also changing. "Cruise travel is becoming the new form of tourism favored by Chinese." Last year’s cruise statistics validate this claim (made during a cruise forum in northern China’s Tianjin): International cruise destinations from mainland China in 2011 increased by around 50% compared to 2010. This means the Chinese no longer just take river cruises on Yangtze, but are looking at more exotic and sunny destinations. A Mediterranean or Caribbean cruise is likely to arouse their fancy, if their recent exodus to Maldives and Guam are a leading indicator.
Global statistics show the bulk of cruise travelers come from North America followed in (far) second place by Europe, and then the rest of the world. Between 2008 and 2012, for example, North Americans outnumber Europeans by as much as 120%, and Europeans outnumber passengers from other countries by as much as 200%. But just as Cruise Market Watch brought to readers attention back in 2008, cruise line executives are looking east and the prospects are astonishing.
Even with conservative forecasts, the implications are far-reaching. In 2009, there were only 365,000 Chinese who went cruising (compared to 110,000 in 2008), a mere fraction of North America’s 12 million plus. But the world totals are likely to begin to skew in favor of the Chinese in coming decades if their luxury spending trends and evolving perception of cruise travel is any indication.
Forecasts on the high end have placed China’s outbound tourists to 300 million (all modes of travel). This is roughly equivalent to an entire continent’s (North America or Western Europe) population.
Despite the glimmerings of economic recovery felt in leading source markets, the cruise industry as a whole will only see a relatively modest jump in cruise passengers in the next five years. Analysts predict that the economies of North America and Europe are likely to remain sluggish, and this translates to slower growth in consumer spending, especially on non-essential goods and services.
Looking at present statistics (20,135,000), the compound annual growth rate (just a little below 8%) will only result in about 28 million passengers in 2018, a mere 9.3% of China’s potential cruise passengers of 300 million.
The rough stone is ready to be cut into a faceted gem. Cruise traffic going to China, which was only 750,000 in 2011, is also likely to increase. The Seatrade All Asia Cruise Convention descended on Shanghai in 2010 for the second time to open up Asia to international itineraries. China tops the list because of its touristic appeal: It has varied geography, a 4,000-thousand-year-old history, staggering archaeological discoveries and a huge population with immensely diverse regional customs and beliefs.
All these exciting developments mean one thing: China’s dragon is ready to breathe new fire into the cruise industry. All the cruise industry has to do is fan the flames.
Use of the phrase "A picture is worth a thousand words" is thought to have originated from a 1921 article by Fred R. Barnard in the trade journal Printers' Ink, where he advocated the use of images in advertisements on streetcars.
The Port of New Orleans has a cruise line terminal that accommodates cruise lines such as Carnival, Norwegian, and ACCL. (Photo credit: Wikipedia)
The cruise industry is often defined as a niche to the global tourism industry. The reason is that, in contrast with other branches of the tourism sector, the cruise industry is mostly driven by supply and not by demand. In fact, cruise lines make profit by providing more capacity (ships) and itineraries.
However, these are only two of the marketing strategies that cruise lines use to increase profits. Experts in this industry know that the cruise prices fall when too many ships are positioned in the same port/area. How to overcome this problem?
In recent years, an interest has arisen in small/local ports as a possible way to attract a new typology of cruisers. “Off beat” ports are synonym of “new”, “less crowded” and “interesting”, and everyone wants to feel special, even when choosing a mass type of vacation such as a cruise.
This is evidenced by comparing 2011 and 2012 PortPulse rankings. Notice in the table below the percentage of unique sailings has increased by double digits in smaller ports (ranked 101 and higher) compared to the low single digits in the largest ports (ranked 1-100).
But why is it problematic for cruise lines to add small/local ports to their itineraries?
Features of ship ports and problems concerning small ports
Experts in the cruise industry claim that this business is not about destinations but about itineraries and routes. Hence, it’s understandable that, to be taken into consideration, small ports have to be in the right circle route. Given that cruise ships can cover 200 nautical miles per night, the small ports need to be within this distance parameter from other big and known ports.
Moreover, small ports are required to present a not very deep draft, which is a necessary condition for the cruise ships’ mooring, together with other specific technical features.
From the point of view of the port profile, small ports often don’t offer the same quantity of local amenities of bigger ports. When booking a cruise, cruisers not only look at the on-board activities, but also and mostly at the excursions available on the locations of the cruise itinerary.
However, the most challenging of the issues are the concerns that can arise as regards to the impact of cruise tourism on the existing economic and environmental resources. Even when economic projections confirm a potential economic growth of the sea area, strong protests can be held against the cruise companies. This is often the case in areas where most of the citizens work in the fishermen industries. Concerns range from water pollution, which may affect the fishing activity, to the changes to the historical and cultural assets of the area.
A new era for the cruise industry?
Even though little-known ports require a challenging plan of promotion, many cruise lines have focused on this aspect to increase their profits.
2011 saw some interesting statistics as regards to the cruise lines that have added less-explored ports to their itineraries, especially in North America.
Would this strategy also be applied to other areas of the world? For example, refer to the table below focused on the port of Benoa, Bali. As illustrated by passengers sailed, it has moved up the PortPulse rankings from 623rd in the world in 2011 to 394th in the world in 2012.
And which cruise companies would mainly adopt this strategy? The answer is in the cruisers’ hands.
Cruising has always been about more than just sailing – it’s also about visiting and exploring destinations. One of the best ways to do that in Old San Juan Puerto Rico is a horse and carriage tour with Las Calesas Del Viejo San Juan. Not only will you get to see the highlights of Old San Juan, you will learn about the culture and history from your skilled and knowledgeable driver. The sound of horse’s hooves over the cobblestone streets can’t help but transport you back to the early years of Spanish rule in the 16th, 17th and 18th centuries.
Experiences such as these explain the positive cruise industry economic impacts to local economies and small businesses that operate shore side excursions.
Puerto Rico is no exception. With a 2012 Port Pulse™ rank of 26th (out of over 830 embarkation and destination ports around the world) the Port of San Juan benefits from the spending of 150,000 crew and 920,000 annual passengers. That is a direct economic impact estimated at over $125 million.
Review seasonality of 2012 passenger and crew spending in San Juan, cruise line share and embarkation vs. destination statistics in the charts below by clicking the image to enlarge.
Cruise passenger and crew spending in ports of call from direct spending on a variety of goods and services including ground transportation, clothing, food and shore excursions. For embarkation/debarkation ports estimates also include lodging as part of a pre- and/or post-cruise stay, air and ground transportation and miscellaneous port and cruise line services.
Sources: Crew and passenger visitation rates and port spending estimates derived from Business Research & Economic Advisors, Florida-Caribbean Cruise Association and Cruise Lines International Association. Each ship's unique destination itinerary, sailing days and passenger capacity from Cruise Market Watch.
Posted By Cruise Market Watch / 23rd December 2011
Carnival recently announced an upgrade to its advertising campaign just ahead of the 2012 wave season. Right on the heals of NCL’s “Cruise like a Norwegian” and RCL’s “The Sea Is Calling” Carnival’s “Land Versus Sea” commercials are aimed directly at the yet to be tapped first time cruiser market.
What destinations can cruiser newbies discover aboard Fun Ships in 2012? And from what home ports can they set sail? What could Cruise Market Watch do but count and map the options in the interactive table below.