Cruise Sector treads water ahead of capacity surge
F
or the cruise industry, much of 2014 has been about preparing for what is to come as new ships are set to enter service thick and fast. Carnival Corporation will
increase capacity by almost 10% by mid- 2016, while Royal Caribbean International
will launch two more Quantum-class and two more Oasis-class ships before 2018. This year saw Norwegian Cruise Line
launch Norwegian Getaway (capacity: 4,000), Carnival-owned Princess Cruises launch Regal Princess (3,600) and Royal Caribbean launch Quantum of the Seas (4,180). That is before the forthcoming ‘Battle of Southampton 2015’ when Carnival-owned P&O Cruises’ 3,600-berth Britannia will go head to head from the port with Royal Caribbean’s 4,180-berth Anthem of the Seas in the pair’s inaugural seasons. Agents this year welcomed commission
rates returning to a level generally regarded as viable following two years of reduced payments, and P&O Cruises pushed its commission to its highest since 2011,
The Deloitte view
The cruise market has seen sustained growth of about 7% per annum in recent years, driven by more diverse and larger capacity ships, new ports and destinations, and more for consumers to do, whether on board or on shore. Six new ships were added to the
global fleet during 2014 and a further 17 are scheduled for 2015 and 2016 which will provide more than 9% additional capacity. The risk is overcapacity. Cruising is a high fixed-cost, long-term
play, with companies having to make commitments years in advance of when revenues will be generated. Failure to secure good occupancy levels can have a
significant impact on the bottom line. The sector has seen a number of
challenges and geopolitical events can have a drastic impact. For example, the troubles in Ukraine this year resulted in a number of itineraries being amended, and this can be costly. However, to some extent falling fuel costs and the continued availability of cheap credit help mitigate some of the yield challenges the industry continues to see. Consumer confidence is key. Shocks
such as the Costa Concordia disaster or outbreaks of norovirus can quickly knock confidence. The industry needs to remain alert to managing these risks.
Distribution of cruise product is
still relatively focused through travel agencies, making it harder for the operators to really know their customers and use some of the new analytics tools to better target and retain customers. So what about the more immediate
future? Recent survey data has indicated a more positive outlook among agents for 2015 bookings, with those reporting hitting sales targets significantly up on 12 months ago. More options are likely to stimulate demand and if wage growth starts to feed through in the first part of 2015 this should give consumers greater confidence to book.
Cruise operators hope a flat market this year is not a bad omen ahead of the launch of a glut of new capacity next year, reports Hollie-Rae Merrick
offering up to 13.5% in a summer incentive. Royal Caribbean urged agents to tear up
current strategies for attracting new-to-cruise clients, with Thomas Cook and Barrhead Travel entering store partnerships with the line. Cook also partnered with Carnival UK’s P&O Cruises, Cunard and Princess Cruises. But with MSC Cruises, Norwegian Cruise
Lines and Princess Cruises also announcing ship-builds, all lines sought to persuade more agents to sell cruise products. MSC continues to trial making shore
excursions commissionable at 15%, and attempts to convert non-cruisers saw Princess Cruises involved in a reality TV documentary aboard Royal Princess – to mixed reviews. Yet convincing current cruisers to book early and pay more may prove as much of a challenge as attracting a new audience. But despite all the promotions, UK
passenger numbers look set to remain becalmed at about 1.7 million this year. As one senior figure at Royal Caribbean said: “We’re all fishing in a pond of 1.7 million – we need to grow that pond.”
44 | Travel Weekly Insight Annual Report 2014
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