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Record Performances Propelling the Industry to Continue Innovating and Improving
Let’s Get Technical
Record Performances Propelling the Industry to Continue Innovating and Improving
The State of the Industry set the stage for Seatrade Cruise Global’s agenda chockfull of workshops, panels, exhibiting and networking opportunities at the Broward County Convention Center. But more importantly for the auditorium packed with cruise tourism stakeholders, it gave a glimpse of the future, insight to current trends and input on how it all applies to attendees and their destinations.
This information was all on the menu of the event’s keynote roundtable discussion featuring presidents, chairmen and CEOs of the world’s largest cruise lines. Moderated by Peter Greenberg, travel editor of CBS and Emmy-award winning investigative reporter, the panel included Frank Del Rio, president and CEO of
Norwegian Cruise Line Holdings; Arnold Donald, CEO of Carnival Corporation; Richard Fain, chairman and CEO of Royal Caribbean Cruises; and Pierfrancesco Vago, executive chairman of MSC Cruises.
Their message was clear—despite the record performances, highest occupancy rates in a decade and a new high of 27.2 million projected cruisers in 2018, there is still plenty of potential as the industry continues to evolve from a niche player to a mainstay in the mainstream that aims to welcome a larger portion of the 1.8 billion travelers expected by 2030.
Part of this will be filled by cruise lines adding more pages to the order book. Twenty-seven new vessels will sail in 2018 alone, and the total investment equals $60 billion over the next decade—a $10 billion
increase in just a year from 2016’s order figure—and will add more than 230,000 lower berths.
As for industry efforts to add new and unexpected onboard features, like a race track, “no idea is absurd anymore,” according to Del Rio. “These ships are big. Anything can fit on them, and they are only going to get bigger.”
According to Fain, they are also “fundamentally different than we built 10, 20 years ago” because designs have adjusted to meet the changing needs and desires of cruisers, which not only helps to generate demand keeping ships full, but also drive the highest guest satisfaction levels in the company’s history.
And cruise lines are not only meeting today’s evolving wants and needs, but
predicting for the future. MSC Cruises, which Vago called the “latest kid on the block,” has matured quickly after starting in 2003 and growing 800 percent in its first 10 years.
“Now we’re ready for our second phase of growth,” he continued and told that this means not only tripling passengers in the next 10 years, but also envisioning the desires, lifestyles, entertainment options and more that guests would want in the not-too-distant-future of 2030.
While the look to the future is alluring, the focus on the present is equally enticing.
“If this was Christmas and you were Santa Claus, I’d ask for nothing,” quipped Del Rio in regards to cruise lines’ record-breaking performances.
This is partly due to the overall positive economic conditions, but as the panelists would show, it also has everything to do with the industry’s constant innovations, even when they have everything on their Christmas lists.
“Part of what distinguishes our industry is we are not resting on our laurels,” told Fain, showcasing the significance of “coming up with new and better ways of doing things and disrupting ourselves before others disrupt us.”
Part of this philosophy of good business coupled with grand aspirations has been on display in Cuba, with the cruise industry experiencing little impact from the recent restrictions.
“Cuba has been terrific…a home run,” told Del Rio, continuing that they are doubling capacity in Cuba in 2018 with an additional vessel in Port Canaveral.
“The Trump administration tweaks that were made to travel to Cuba impacted the cruise industry very little; it impacted land-based vacation much more, so there’s some way maybe we benefit from that, but quite frankly we didn’t need much benefit because the ships were full at very high prices,” he continued.
However, he reminded that Cuba still has limited capacity due to infrastructure. “We all wish we had more tonnage available to go to Cuba…but hopefully that too will change.”
“Cuba’s small,” said Donald, noting that while three ships across Carnival Corporation brands call Cuba, that only represents three percent of its brands’ 90 vessels.
“It’s a big world,” he continued, with the industry traveling to more than 700 ports. And he told that they all have potential for more: “Every market is underpenetrated, and we are the best vacation experience and the best vacation value there is.”
—ARNOLD DONALD, CEO, CARNIVAL CORPORATION & PLC, & CHAIRMAN, CLIA
The poster child for all that opportunity in the big world has become China, with 130 million outbound tourists and the industry’s goal to capture five percent.
“China’s stable,” told Del Rio. “It’s still a work in progress in many ways. I think we all see it as a long-term investment…we’re willing to be patient.”
But after just arriving seven months ago, Norwegian has shown not too much patience is needed to succeed.
“We’re very happy with our results in our first year,” continued Del Rio. “We were profitable in our first year. We’ll be even more profitable this year.
“But she’s still not achieving optimum results. We’re all working hard to bring them, figuring out what the Chinese consumer wants...We’ve conquered other markets, and we’re pretty sure we’re going to conquer this one.”
Asked by Greenberg about plans on how to refine the product, Del Rio pointed out that Norwegian Joy is the highest rated vessel in the fleet. “So we know the guests like it, and the ships are full. And now we have to work on other parts of the equation.”
And Del Rio told that in addition to onboard experiences facilitating more yield, the other equation factors include expandable itineraries and lifting South Korea travel restrictions.
What about demand—does that still exist now that the honeymoon phase is over?
“Demand’s always there,” told Donald before pointing out that China will become “probably the largest cruise market in the world some time in the future.”
He acknowledged that this will likely “be more of a distant future” because shipyards are limited to how many ships they can build, and those ships are sent to markets around the world.
But even before this future, the industry is benefiting from China as a source market. As Donald indicated, cruise ships around the world are starting to welcome more Chinese passengers.
“They all want to go on holiday; they all want visas to come to the rest of the world,” said Vago, while also noting the growing middle class and relatively lacking options of countries to visit in the China region, along with the potential if more options were available along the coast that are currently impacted by geopolitical concerns.
“And the most important thing is this—it’s in their five-year plan…if it’s in their five-year plan, it’s going to happen,” told Donald.
Fain pointed out that China demonstrates the industry’s ability of “creating something which didn’t exist before. I think our industry is actually known for the disruption it causes; it creates new opportunities.”
And plenty of these opportunities still exist for the industry, which has evolved from a growth phase to a more mature mainstream option, which is key in growing consumer demand, according to Fain.
“I think if you look at the industry as a whole, we are still young, still in our infancy, but I think we probably moved beyond the point where we ought
to feel…‘they don’t understand us’ kind of attitude.
“I think people are beginning to understand us, and I think that’s why the industry is thriving. We are no longer a niche player…We are mainstream, and I think you are seeing that in the U.S., beginning to see that in Europe, see it in Australia, and in due course will see that in China and other parts of Asia. That’s part of the strength of our industry—the ability to get that message across.”
Del Rio reminded Greenberg that he once called cruising “an American sport… That’s not the case anymore. We’ve all done a fantastic job of expanding our source markets—not just beyond China, extending in Europe, other parts of Asia, South America.”
He told that alone helps with demand, but the industry’s success in sourcing the largest cohort of travelers, Millennials (which comprise 25 percent of Norwegian cruisers), has led to a “double dose of expanded demand.” So what do Millennials want, anyway? “They want exactly what the cruise line delivers—they want value, they want diversity, they want experiential events,
opposed to buying things…so we align pretty nicely with what they want,” said Del Rio.
Donald told that this wave of Millennial cruisers “didn’t come as a surprise because they’re interested in experiences, which is what cruising is.
—FRANK DEL RIO, PRESIDENT & CEO, NORWEGIAN CRUISE LINE HOLDINGS LTD.
“When you cruise, you join a community. You’re not buying a product; you’re choosing a community. That’s why the brands are so different.”
Another thing making the industry different—and an envious advantage to land-based tourism—is its ability to reposition assets.
“Adaptability is part of what makes us so resilient as an industry,” said Fain, while pointing out that sometimes it has its downsides. “People say you move too much…and we do, if this market is weak, we move over here, and the pendulum always swings too far…we never get it exactly right.”
Of course, that sure beats not being able to move at all. “Most industries don’t get to move the pendulum at all; they sit there and suffer.”
Donald told that part of this adaptability needs to be used to solve what he considers the industry’s top line—listening with empathy to ports and working together to mitigate overcrowding in regions around the world, including Venice, Barcelona and Dubrovnik.
Though overcrowding is mostly driven by land-based tourists, the size and visibility of the ships makes them a symbol, and cruise lines need to be sensitive to that, he told, especially considering the future growth.
After all, the industry always aims to develop mutual success with and the sustainability of the destinations, or as Donald said, “make every place we touch better.”
“What we’re really talking about is more sustainable tourism,” said Fain, who told cruise lines need to do a better job of spreading out their guests among different ports and excursions to avoid negatively impacting the destinations they visit.
“It’s a question of where people go …[and] how do you bring people in a way that protects the environment, but also educates them,” he continued. “We want them to leave with memories and understanding.
“When you do go and work with local communities, there is so much you can do to bring histories to life to make the experience more meaningful to the guest and more sustainable to the destination”
As an example, he gave Royal Caribbean’s creation of Falmouth in Jamaica, giving an option in the middle of the other ports on the islands’ ends, along with reinvigorating the area and developing activities by enacting the local community. “What we ended up with is more people, but less density.”
So how do cruise lines evaluate where to position their assets?
“Let’s start with security,” said Del Rio, pointing out that it has to be safe for ships “both in the navigational sense and also once we’re there.
—PIERFRANCESCO VAGO, EXECUTIVE CHAIRMAN, MSC CRUISES
“And then experiences—we want folks to get off the ships and experience what’s there.” He reminded that part of that is good business, with shore excursions as a large source of revenue, “but it’s also what the customer wants. So we’re looking for new experiences. We don’t want just another beach, but what can we do with these places?”
And the answer is quite a lot, as Norwegian’s private development in Harvest Caye, Belize shows since it is now in the top three of Norwegian’s 500+ destinations, as do the numerous other cruise line private islands and hundreds of millions of dollars committed to improving those experiences.
Of course, this should also come as no surprise, as cruise lines’ private ports often end up with some of the highest guest satisfaction ratings, with a reason being the simple control of the product’s delivery, along with creating products that guests want.
Why should destinations make those kinds of investments in and pay the same attention to products and delivery?
Vago stressed that these investments are crucial not just to attract cruise tourism, but also because passengers often sample destinations on a cruise and then return for land-based visits, multiplying the economic impact.
And as Donald reminded, cruise ships’ destinations are ultimately decided by passengers. “We’ll take people where they want to go.” �
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