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Analysis: Mexican Riviera Cruise Forecast Still CloudyAugust 23, 2010 By: Susan Young Travel Agent
Royal Caribbean's Mariner of the Seas
A few months ago, West Coast cruising to the Mexican Riviera took a hit from cruise lines who decided their ships could be better utilized at higher revenue fares elsewhere. Agents believe a “perfect storm” of factors contributed to the decision.
Those included a steadily increasing capacity of berths dedicated to those voyages; increasing consumer concerns over Mexico’s security; high unemployment, loss of jobs and a sour economy; as well as consumer over-familiarity with western Mexico’s port options.
Essentially, the losses include these. In January, Royal Caribbean’s Mariner of the Seas will sail out of southern California, leaving the region for more lucrative revenue cruises in Europe and Galveston, TX. Norwegian Cruise Line will move the Norwegian Star out of southern California and into Tampa for the winter 2011 season. And Carnival Cruise Lines has already repositioned Carnival Elation to Mobile, AL, although the line still has two ships operating year-round Mexican Riviera cruises and a third based in southern California much of the year.
But several months beyond the shock of some of those announcements, Travel Agent wanted to know what impact the announced changes having on agents’ bookings and client demand? What’s the mood for potential California cruisers? What’s the latest on the region’s economy? And what impact, if any, is the violence south of the border having on Mexican Riviera bookings?
Pricing and Yield Improvements
Carnival’s repositioning of Carnival Elation and consumers who are now apparently booking Carnival in lieu of other lines who plan to move ships out of the market may be having a positive impact. “What we’re seeing is some improvement in terms of pricing and yields for our ships on the West Coast – Carnival Paradise, Carnival Splendor and Carnival Spirit,” Terry Thornton, Carnival’s senior vice president for marketing planning, told Travel Agent.
Thornton says the apparent right-sizing of capacity is beginning to take hold, but also cautions that there is still a bit of a downdraft in terms of economic conditions in California.
While the entire U.S. is still in the midst of an economic slump, California is one state that’s still getting hit harder than at least 46 others, according to the most recent RealtyTrac monthly foreclosure report. In July 2010, one in every 200 homes in California was in foreclosure. Neighboring states were even worse. One in every 167 Arizona homes was in foreclosure, while, taking the top spot in the nation was Nevada, with one in every 82 homes in foreclosure.
Many state and local governments also have sizable budget shortfalls; that’s affected some workers’ take-home pay. “We have many government workers in our community who have had to endure unpaid furlough days for a long time now,” acknowledges Craig Nash, co-owner Nash Travels, Elk Grove, CA. “It is not clear when that will end, either. That naturally affects their choice of vacation.”
Travel Agent also pulled summer unemployment and job loss numbers from the U.S. Bureau of Labor Statistics. These too remain discouraging. The Western region’s unemployment was the highest in the nation for June at 12.3 percent; the overall U.S. unemployment rate was 9.5.
In addition, between June 2010 and July 2010, California had the largest month-over-month employment loss of 27,600 jobs. “California’s economic situation certainly has an impact on consumer spending,” believes Carrie Finley-Bajek, owner, Cruise Holidays, Mission Viejo, CA.
Security concerns south of the border also may be deterring some travelers, although Mexico continues to do everything possible to demonstrate that the situation is safe for visitors to cruise ports in the region. Thornton says: “We cannot seem to shake the tragic and bad news in Mexico.”
Recent media reports about violence in Mexican border towns have caused increased concern from travelers considering vacations in Mexico, according to Finley-Bajak. She says “crimes in border towns have created a ripple effect on consumer buying of Mexican resort vacations and cruises.”
From another perspective, “yes, some clients have asked about crime in Mexico [but others] have said they have already been to Mexico enough times … and want something different,” says Nash.
In the 1970s and 1980s, “The Love Boat” television show gave Americans a snapshot of the Mexican Riviera and an exotic world they might aspire to visit some day. But today, Mexico’s West Coast cruise destinations are highly familiar to mainstream cruisers, many repeat visitors. Interestingly, the “Love Boat” line, Princess Cruises, also has eliminated more than a dozen Mexican Riviera sailings this year and next.
On the Front Lines
“It was a sad day when Royal Caribbean announced that the Mariner of the Seas would be moved,” said Nash. “We had some clients who were hoping to go on the ship, who were crushed when they heard it was leaving.” He says some families cannot pay the airfare required to take a cruise from a Florida port, and notes that “next summer, for example, there will only be one ship doing the seven-night Mexico cruises from Los Angeles.”
Disney Wonder is coming to Mexico next year
Is he seeing a booking impact? “This lack of choice will keep some clients from choosing to sail,” he says. Some of his die-hard Royal Caribbean fans are still holding out for a replacement ship and, thus, waiting to book. Adam Goldstein, Royal Caribbean’s president and CEO, told blog readers that Royal Caribbean hopes to return to Los Angeles in the not-too-distant-future, but he gave no specific timetable or plans.
Nash says other clients are simply booking on whatever other line is sailing from Los Angeles at the time they want to vacation. Thus, both Nash and his clients are excited about the pending arrival of the Disney Wonder in January 2011. “Our sales of Royal Caribbean have, unfortunately, decreased, but our sales of Carnival and Disney have increased,” he says. “So, it has shifted our focus.”
Finley-Bajak says the evolution of a California cruise customer is that the individual typically will take a weekend cruise from southern California, then the customer will venture out on a longer, seven-day Mexican Riviera cruise, and after that they’ll head for the Caribbean, followed by Alaska or Europe. So she’s thrilled to have Disney back in southern California doing Mexican Riviera sailings.
In addition, “overall, our office has seen an increase in European cruise demand,” she says, noting that her agency’s mature clients are also now shifting to smaller upper premium ships like those operated by Azamara Club Cruises and Oceania Cruises as well as the small ships and river lines.
Right Sizing and Geographic Limitations
Industry experts say a “right sizing” of southern California’s cruise capacity was needed. In many ways, the lines are victims of their own past successes as they added more cruises from West Coast ports throughout the past decade. Thornton acknowledged that Carnival’s capacity took two big jumps in 2007 and in 2009.
Put another way, “Royal Caribbean’s Mariner of the Seas and the Carnival Splendor together offer over 6,110 double occupancy berths every week on seven-night Mexican Riviera cruises from Los Angeles,” says Finley-Bajak. She also notes that when the Alaska off-season hits, the southern California ports of San Diego, Long Beach, and Los Angeles swell to accommodate ships from Princess Cruises, Holland America Line, and Norwegian Cruise Line.
In discussing the unpopular decision to move Mariner of the Seas, Goldstein told readers of his corporate blog in May that the ship normally did sail full, but “the critical question is at what price?” Fares and yields weren’t comparable with what the ship could command elsewhere. In the end, the line said it had a duty to shareholders to move the ship to secure the most productive use of that asset.
Months have passed, yet on Internet message boards, some agents and consumers still fume at individual line decisions of earlier this year. Others say that while they don’t like fewer sales choices, they do understand the business decision to take a ship from one market where it’s making less money and home port it in a region where consumer demand can fuel higher fares and better yields.
And another line has done just that. Earlier this month, Crystal Cruises announced it will replace two Mexican Riviera sailings for Crystal Symphony in April 2011 with two new seven-day getaways exploring other parts of the Pacific Coast. Those voyages will sail between Los Angeles and Vancouver, BC, calling at Santa Barbara and San Francisco in California; Seattle; Astoria, OR; and Victoria, BC.
Bill Smith, Crystal’s senior vice president, sales and marketing, said that while Crystal is keeping several fall 2010 itineraries through the Mexico Riviera, the revamped “itineraries will offer our guests new destinations” and the “beauty of a floating resort is that you can move your hotel to other destinations when there is demand.”
West Coast cruises to the Mexican Riviera – unlike voyages from the Caribbean, which can sail to multiple foreign lands in multiple regions – essentially can only go so far and then back on a seven-night cruise. And, cruise lines also can’t simply sail up and down the U.S. West Coast without a port call in Mexico or Canada, due to requirements of the Merchant Marine Act of 1920, also called the Jones Act.
“The traditional Mexican Riviera sailings offered year-round get tired,” says Finley-Bajak, who believes the southern California cruise market doesn’t offer enough variety for family travelers. Also, “during the summer months when most families can sail, there is limited capacity, higher prices, and the same Mexican Riviera itineraries,” she said.
Thornton acknowledged that rates are generally higher in summer in many parts of the world, but for a family vacation, he still says cruising delivers incredible value when compared with land-based vacations. Currently, Carnival offers three-night and four-night year-round Baja California cruises from Long Beach on Carnival Paradise. It also operates seven-night roundtrip Mexican Riviera cruises year-round from Long Beach on Carnival Splendor.
Following this summer’s Alaska season, Carnival Spirit will sail to San Diego for five-night and nine-night cruises, then return to Alaska next summer. Again in fall 2011, it will sail five- and nine-night voyages from Los Angeles, before repositioning to San Diego in January 2012 for five- and nine-night voyages.
Carnival is attempting to diversity the itineraries. Based on guest feedback, its five-night voyages spend two days in Cabo San Lucas, although the visit does not include an overnight in port. The ship heads for international waters after the first day in port, and then returns to Cabo the next day for a second call.
Carnival Spirit’s nine-night voyages also feature a similar two-day stay at Cabo, plus calls at PuertoVallarta , Mazatlan and, for the first time on a regular itinerary, quieter, picturesque La Paz on the Sea of Cortez. That itinerary offers a new twist for repeat cruisers and is more efficient fuel-wise for Carnival.
A Look to the Future
While some agents report it’s been a challenging year for southern California cruising, most seem upbeat about the future. Disney’s arrival next year is one positive factor. Also, “southern California does operate very popular Panama Canal itineraries and longer voyages to Hawaii,” says Finley-Bajak. “These itineraries are great.”
In addition, some ports are beefing up the quality of their cruise passenger facilities; the Port of San Diego – with initial funding assistance from Carnival Corp. -- will open a new 52,000-square-foot, $22 million cruise terminal in San Diego later this year. That new terminal will handle 2,600 passengers, and when it’s completed, the port will upgrade its existing B Street Pier Cruise Ship Terminal.
Moving forward, Carnival’s Thornton says that what’s going on now is right sizing of the southern California market, particularly in lieu of the economy. “We are very committed to this market; we’ve been operating there year round since the 1980s and we know enough about it to see that this is not a long-term situation,” he says.
“We still have plenty of confidence in West Coast deployment,” Thornton stresses. “Over time, we’ll build that [capacity] back. There are plenty of opportunities. It’s just a matter of time.”
What have the planned shifts in southern California cruising capacity meant to your agency? Are your clients simply going onto other ships from the same ports? Or, are they looking for new vacation options? How has it impacted you? Tell us your experience.