Booming Sales, "The Guest" Reign at Seatrade State of the Industry

By Susan J. Young Mar 7, 2018 9:30am

Cruising is booming and the major global cruise lines couldn't say enough about how good they expect 2018 to be at Seatrade Cruise Global 2018's “State of the Industry” on Tuesday at Port Everglades, FL.

Put another way, "if this were Christmas and you were Santa Claus, I want to keep it just the way it is. It's fantastic," said Frank Del Rio, president and CEO, Norwegian Cruise Line Holdings.

Speaking to an audience of thousands, Richard Fain, chairman and CEO, Royal Caribbean Cruises Ltd., sees globally that "people are beginning to understand” what cruising as a vacation is all about. “We’re no longer a niche, no longer something esoteric."

"We see that in the U.S," Fain said. "Cruising has become mainstream" as a vacation choice, and it's beginning to happen in Europe, already moving that way in Australia, and “I think you’ll see it in China.”

During the conference's opening General Session, executives from the "Big Four" global cruise companies were interviewed by travel journalist Peter Greenberg of CBS News to provide their "take" on business and cruise opportunities and challenges.

China Rising

Creating a robust source market in China is a "work in progress,” said Del Rio, as Norwegian Cruise Line recently began serving Chinese consumers with Norwegian Joy. “I think we all see it as a long term investment.”

Still, he stressed that NCLH was happy with results thus far, the ship is profitable and should be again this year. While the industry needs to work on yields in China, "I’m sure we’re going to conquer this one," he said, adding that "it's the onboard experience that generates the most yield" and it would be helpful if South Korea travel restrictions were lifted.

"The demand has always been there,” said Arnold Donald, president and CEO, Carnival Corporation, who put things in perspective – calling the market “teeny” right now. For all lines collectively it's 2 million Chinese sourced guests annually, and that compares with 135 million total outbound travelers from China.

Donald also noted that the lines must deal with “a lot of entities that are state owned,” creating operational “dynamics that don’t exist elsewhere," but China will be the largest market in the world in the future.

Still, growth is restrained by global shipbuilding capabilities. All lines are building ships, but Arnold noted that those ships are going to both existing markets, as well as new ones including China.

“As an industry, we’re amazingly good at creating something that wasn’t there before,” emphasized Richard Fain, chairman and CEO, Royal Caribbean Cruises Ltd.

"China has a great potential," said Pierfrancesco Vago, chairman of MSC Cruises, who now manages a cruise line that expects to triple its passenger numbers in the next 10 years.

Vago would like to see a solution to Chinese cabotage restrictions, so that cruise lines can embark and disembark guests along the Chinese coast, not just at designated cities.

Cruising to Cuba

As a Cuban-American bullish on Cuba cruising, Del Rio says that even with sanctions, or what he describes as "the Trump tweaks" (a reference to U.S. President Donald J. Trump's changes to Cuba travel policy), NCLH is still performing under those sanctions and the sanctions are "impacting cruising very little."

"Cuba has been great for the industry," ships are sailing full with high prices, and NCLH is doubling capacity to Cuba in 2018, Del Rio emphasized.

Cruise Dynamics

"The world economies are strong," said Del Rio, who said that while the U.S. is still the largest market for people who cruise, Europe is rising, as are other international regions. And while Boomers are still the largest source of his firm's cruise guests, 25 percent of passengers onboard Norwegian Cruise Line, NCLH's contemporary brand, are Millennials.

Customers definitely want experiential, especially when choosing a community (cruise line brand) to join, the officials said. The executives also discussed the need to prevent "overtourism," which has become headline fodder in such spots as Venice, Barcelona or parts of Alaska.

They also said it's important to listen with empathy to local communities and their concerns, and to recognize that guests don't want to go places that are overcrowded or sites they feel are being desecrated or abused.

Donald mentioned the industry's successful collaboration with the Mayor of Dubrovnik to spread out cruise ship arrivals so all ships didn't arrive on the same day. He said that was important because UNESCO had considered "delisting the Old City as a UNESCO World Heritage Site."

Fain talked about protecting the environment, educating destinations about the importance of their history and culture to cruisers, and the important requirement for port visits -- that cruisers leave with memories.

When his company's brands go into a port, they talk with and work with the local community about how they can help "bring history to life" for guests. Fain used the new port of Falmouth, Jamaica, as an example.

Today, this new port helps spread the company's guests around the island. "We are in the business of providing experiences," Fain said, noting that when the lines sit down and work with the destinations, they find good solutions.

"It's all about the experience," Del Rio said, noting "we're good partners" as evidenced by more ports inviting the lines to come than those discouraging that. Vago and Del Rio also mentioned there are more land day trippers to Venice than cruise line guests going ashore.

Safety Concerns

Greenberg asked the panel about the recently changed U.S. State Department advisories for travel to specific countries and a new four-category system for that. Is that confusing? How are they coping? What do passengers say?

Cruise lines are connected to intelligence community and law enforcement sources worldwide, noted Donald, stressing: "We make sure we keep guests and crew safe."

That said, he said there are "so many places to go to have experiences...We have a big world." Arnold also said that over time there are always places that people don't travel to, but that actually there were more terrorist acts 10 years ago than there are today.

"Our customers trust us," said Del Rio, talking about the ability to move ships if need be to assure that where the lines sail to is safe. He gave the movement away from the eastern Mediterranean as an example, but added: "We can't wait for the eastern Mediterranean to come back, the Black Sea to come back...for Turkey to come back."

Vago believes guests trust his line's itinerary choices. "They're there for fun," he said. "They're not there for the thrill of it."

Seatrade Cruise Global 2018 General Session Audience Editorial Use Only

Meeting Guest Desires

Building the cruise market is all about exceeding guest expectations, said Fain, whose brands -- like others on the panel -- are filling their ships. "Our satisfaction rate of our guests is the highest in our company's history," he said. When you focus on what the guests want, you [can] come up with something very new," that fills ships and at higher yields.

Fain mentioned that 30 years ago when a new ship was on the drawing board, employees had to fight to come up with new ideas. But now employees are coming to management with so many new ideas, the company is almost having to beat them off with a stick, he quipped.

"For us innovation is a personalized travel experience," stressed Donald. "In today's society people want things customized." He stressed that new ship design is intended to deliver that, coupled with innovations to assure the brand experience resonates with guests.

"We have an industry that is really supply driven," stressed Vago. "We are in a perfect sustainable growing process." He said it's amazing that the lines can supply new hardware, and word of mouth about what cruising is about is driving demand.

Del Rio drew chuckles from the crowd when he said he asked his grandchildren what they wanted to see on a cruise ship. The children came back the next day and said "a race track," so now Norwegian's newest ship has a 1,000-foot-long, double decker, eight-turn 10-car race track where guests can zip along at 35 miles per hour.

"It's the funnest thing I've done in 50 years," said Del Rio, adding that "maybe no idea is absurd anymore. These ships are big and just anything can fit on them."

How Big is Too Big?

"It's all about the guest and exceeding expectations," Arnold reiterated. Whether the vacation is on a new ship or one that's 15 years old, he sees "innovation is in the personalized travel experience. In the end it's a hospitality business." He added that the numbers also have to make sense. Getting the right yields is important to profitability.

Referring to Royal Caribbean's creation of larger ships, Vago quipped that "Richard [Fain] beats himself every year." That created raucous laughter from the audience when Fain responded: "I have to have some competition."

But the executives also said, it's not just one size fits all, it's different things for different people, and guests desire individualized options: "If there's one thing I'm thankful for every day, it's that we have resisted the urge to homogenize ourselves," said Fain.

He said his line hasn't gone bigger simply to be bigger, but because it needed the space to provide those specific things that guests wanted -- such as an ice skating rink. "I don't know whether ships will get bigger," he said. "But it won't be [if it happens] because we think bigger is better, but because better is better."

Del Rio said "small ships have gotten bigger, medium ships have gotten bigger over time, and the big ships have gotten bigger."

"And small ships have gotten smaller over time," Donald said, that ship size is based on what resonates product-wise for the guests. "We have to create demand," he said, noting that the industry has done much better at that than just five years ago.

Looking Ahead

Greenberg asked the executives, "What keeps you guys up at night?

“What keeps me up at night is realizing how the world has changed and how the pace of change has changed,” stressed Fain. “The pace of change that we’re experiencing today is the slowest we will ever experience every again."

He said the lines are spending billions anticipating what the guest wants years ahead, and it’s important to keep current with what people want. "It is a constant challenge."

Running both a cruise line and a major shipping company worldwide, Vago said, “we are in the shipping business, which works globally 365 days a year, 24-7, and that’s what keeps me up.” He’s always thinking of what’s happening to the fleet globally with so many complexities.

Del Rio said, that the 30,000 men and women who work for his firm are dedicated, the company has a solid long-term plans, and "I'm very bullish on the long term.” He believes he has the people and resources to do what’s needed.

That said, “the only thing I worry about are the things I can’t control, but those are short term in nature, but they bounce back,” Del Rio noted. He cited geopolitical factors, saying “I’ve seen it time and time again." Yet he also emphasized "how resilient our industry is" over the long term.

Bringing in humor, Donald said "in the cruise business, we create fun." So he cited a particular party given annually at Seatrade, generating clapping from the audience. On a more serious note, he said his company will keep hiring the right people and providing good training across all nine brands.

The goal? It's "to have guests be extremely excited that they can't stop talking about how great the cruise is," Donald said.

Sailing Through the Week

More than 11,000 cruise industry representatives of ports, destinations, shipbuilding companies, interior outfitters, high technology companies, cruise lines and environmental suppliers are among those attending the annual conference at Port Everglades. It concludes later this week.

On April 8, 2019, the Seatrade Cruise Global 2019 conference will return to the Miami Beach Convention Center after an absence of three years; that facility has been under renovation and expansion.