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Recovery in Progress: Bookings, Pricing Headed UpwardMarch 19, 2010 By: Susan Young
Rick Sasso, president, MSC Cruises USA; Dan Hanrahan, president and CEO, Celebrity Cruises; Stein Kruse, president and CEO, Holland America Line; Kevin Sheehan, CEO, Norwegian Cruise Line; Adam Goldstein, president and CEO, Royal Caribbean International; Gerry Cahill, president and CEO, Carnival Cruise Lines
“What a difference a year makes and we’re all very thankful for that,” said Kevin Sheehan, CEO, Norwegian Cruise Line, talking on a cruise executive panel talking about the “state of the industry” at Cruise Shipping Miami this week. “A year later we’re seeing solid signs of recovery, [although it’s] one that will play out over the next few years.”
For example, he cited a 100-to-300 percent improvement in stock prices for Carnival Corp. and Royal Caribbean Cruises Ltd., the world’s two biggest cruise firms, since last year’s conference. “The stock market is usually a leading indicator of where an industry is headed so we should all feel a sense of cautious optimism that the industry is being looked upon so favorably,” Sheehan said.
The industry is seeing positive yield growth, although below what Sheehan characterized as “pre-meltdown levels.” But beyond that, he said the general climate of the industry is much more positive and “becoming contagious to the industry’s customer base.”
Last year, cruise lines enticed wary consumers onboard with unprecedented deals from lower deposits to kids sailing free. By the end of 2009, a media blitz about amenity-laden ships [such as Oasis of the Seas] also kicked in, noted Sheehan. He told the audience that excitement created by “history making vessels” will continue this year as 12 new Cruise Lines International Association (CLIA) member line ships are launched.
He urged the industry to continue to push the extraordinary value of a cruise vacation. NCL recently looked at pricing for a family of four on a cruise, in Las Vegas or in Orlando. A cruise could save the family 15 percent for comparable features.
“And, unlike Las Vegas, where a family can visit a replica of Venice, or in Orlando where they can see a slice of Morocco or Mexico in a theme park, we offer the real Venice, the real Morocco, the real Mexico” Sheehan said. Guests also visit multiple destinations not just one when cruising.
Industry growth in yields and capacity is now augmented by expansion into other markets, most noticeably Europe, Sheehan said, citing “the impending modern-day Spanish Armada that will descend on Barcelona in 2011.” Three of the world’s largest cruise ships of major contemporary brands will home port there during the summer.
Europe is hot but what about the Caribbean? “We cannot deny it’s the industry’s bread and butter,” Sheehan said, stressing that Florida continues to be the industry’s hub and new capacity will continue to fuel Caribbean cruise growth.
Alaska has seen a reduction in capacity, he said, citing a significant increase in the cost of operating in the region as well as a consumer demand reduction because of the recession. “As an industry, we hope to work with the government of Alaska to find a solution for the cost disparity we see today,” Sheehan said.
All executives on the panel said their booking curve is beginning to lengthen, a relief to all. “It seemed that at the end of 2008 and into 2009, the window had shrunk so much that we were actually contemplating copying Disney World and setting up booths at the pier and selling cruises on the spot,” Sheehan quipped. Now, he said, the lines are getting some the largest lead times in year and have experienced a robust Wave Season.
Pricing Improvement Timeline
But when will pricing improve? Sheehan said it will really take time, given that the industry was really “whacked” on the pricing side last year. NCL is raising its prices on April 2 and other lines too are doing that.
Gerry Cahill, president and CEO, Carnival Cruise Lines, said business came back robustly last fall and that gave the lines the ability to change their pricing mentality. “This year if the consumer is sitting there waiting and saying ‘pricing is going to down longer if I wait longer,’ they’ve got the wrong story.”
He said all the lines are pushing to rebuilt the pricing [to a higher level], as it’s important for a healthy industry. “I think we’re going to see a great amount of growth from the North American market this year,” Cahill said.
Adam Goldstein, president and CEO, Royal Caribbean International, said his line is focusing on several factors that, when combined, could result in pricing increases. They include creating great customer satisfaction, upholding environmental stewardship, doing the market development, and continuing to push the value message globally.
“This is the year when you can actually sit here and imagine that that [pricing increases] will happen,” stressed Goldstein, “whereas last year was a lot more difficult to think that even if we did all the right things, that that kind of scenario could unfold. So the opportunity is much more visibly there, and hopefully we’ll be successful in doing it.”
Stein Kruse, who was originally born in Norway came to the U.S. 32 years ago; he knows both the European and U.S. markets well. “Don’t underestimate the power of the American consumer,” Kruse stressed. “They’re really a resilient bunch.”
The marketplace in general is improving he said, noting that retail sales are up, people are starting to buy again and shops are full. “I live in Seattle and if you try to get a restaurant reservation in Seattle, good luck,” Kruse said.
According to Kruse, not only is pricing coming up and the booking curve improving, but he’s seeing longer voyages being booked. Because the premium and luxury segments were hit hard quite early in the recession, Kruse also says the uptick for those segments came a bit earlier in the recovery process than for the contemporary brands.
Quipping that no one had yet answered the question of specifically “when” pricing would return to normal levels, Dan Hanrahan, president and CEO, Celebrity Cruises responded: “I don’t have a Crystal ball either. I wish I did. I can tell you that 2009 makes 2010 look good…It should only get better.”
Last year, Hanrahan said consumers sat on the sidelines, but it wasn’t just about not investing but also about not spending. Now, consumers are digging into their wallets to book a vacation. “We’re seeing that change, the booking window is lengthening,” he said, “but I think it’s going to take time to get to the prices that rightfully we deserve. [Frankly,] I don’t think we were at the prices we rightfully deserve back in 2006 and 2007.”
While it will take time, Hanrahan, as with the other executives is encouraged; yields for his line are projected to increase between 3 and 6 percent this year.
Rick Sasso, president of MSC Cruises USA, said the industry has been through tough times before and that typically consumers take about six months to worry and act cautiously. Then they begin to feel more comfortable and begin to book again. “Things are getting better and it will return to something very spectacular in the next six months,” he predicted.
Crediting a hard working travel agent community, Sheehan said that coupled with the industry’s discipline and continued press coverage of a cruise vacation’s value, diversity and uniqueness will help achieve better pricing: “As I look out into the future, I see the stars beginning to align.”