Cruise Executives: Stay the Course

Urging the industry to take a page from Apollo 13, Stein Kruse, president and CEO, Holland America Line, recalled a famous movie line as the damaged spacecraft is overdue in contacting Mission Control during a communications blackout. The mood is gloomy with NASA staff believing the worst had happened. Then, the mission control manager director confidentially stands up, straightens his tie and says, “Ladies and gentlemen, I believe this will be our finest hour.”

Rick Sasso, president and CEO of MSC Cruises USA

Speaking on the “State of the Industry” panel at the annual Seatrade Cruise Shipping Convention in Miami Beach on March 16, Kruse and other executives said such a confident attitude is needed throughout the industry despite a barrage of doom and gloom in the media about housing foreclosures, loss of jobs and financial portfolio losses. While acknowledging the difficult economic plight of many consumers, Kruse also said it was important to recognize that 90 percent still have jobs and 90 percent own homes. For them, he said a vacation is still an entitlement and what the cruise industry offers is a fantastic product.

As chairman of CLIA’s marketing committee, Rick Sasso, president and CEO, MSC Cruises USA, cited the industry’s strong history of growth despite past obstacles like the Iranian oil crisis of 1982, the beginning of Desert Storm in 1990, the September 11, 2001 attacks, and the fuel escalation and credit crisis of 2008. He noted that CLIA member lines introduced seven new ships in 2008. In addition, the CLIA fleet posted 104 percent occupancy in 2008 (reflecting third berths in some cabins).  


He noted that while media stories focus on big business bail-outs draining taxpayer funds, in contrast, the cruise industry’s positive economic impact was $38 billion in 2007, with more than $18 billion of that in direct spending. Sasso and other executives cited value as the prime message for the industry this year.

Top cruise destinations this year are the Caribbean, followed by Alaska, the Mediterranean/Europe and Mexico. Sasso said half of all agents in a recent CLIA survey expect 2009 to be a very good or good year, compared with 2008. He also said 92 percent are optimistic about the cruise outlook over the next three years.

Describing cruising as a magnificent art form with ships as gorgeous works of art, Sasso cited these as prime factors in the industry this year: significant value packages and promotions; 14 new ships joining the fleet; the continued evolution of shipboard facilities; diversification and global expansion; development of year-round markets; voyages to new, exotic remote ports and the continuing growth of domestic home ports.

The CLIA 2009 passenger forecast is for 13.35 million passengers, up 300,000 from 2008, said Sasso. In addition, there are 21 new CLIA-member line ships representing a $14 billion investment on order for delivery in 2010-2012. As with other cruise executives, he cited the importance of maintaining course and moving full speed ahead.

Industry executives said unprecedented cruise deals, an inclusive value proposition, and intense marketing are all helping build bookings. “We’re living in unprecedented times, and with that I believe we are facing unprecedented challenges” said Kevin Sheehan, president and CEO, Norwegian Cruise Line. But he also noted that more than 130 new vessels come online this decade, more than in the previous two decades, and that the industry has proven it can absorb the added capacity. New exciting onboard features, a greater pool of past guests, and a significant number of people who have never cruised are positives, he said.

Still, Sheehan noted that the economic challenges are sizable, with reduced ticket prices, a shorter booking window and softer onboard spending. But “we are doing a good job – in partnership with our travel partners – in filling our ships, albeit at never-before-seen-prices,” said Sheehan.

Sheehan said 2008 was the year of notion of the staycation and some analysts believe 2009 will be the advent of the No-cation of 2009. Sheehan said he believes “2009 will not be a lost year, but instead will bring about a more cautious traveler. We have to work to ease the consumer’s skittishness about committing to big purchases such as a vacation.” He said the industry is already doing that offering lowering deposit requirements, relaxed cancellation policies and offering insurance in the event of a job loss.

Gerry Cahill, president and CEO, Carnival Cruise Lines, said that two years ago, in his former role as CFO of Carnival Corp., he would have typically faced a difficult economic year by slashing the marketing budget. But now running the cruise line, he has a different view than he had just two years ago: “I think it’s the biggest mistake we could make if we were to cut the marketing in this time,” said Cahill. Emphasizing the importance of agents, Cahill said marketing is the engine that will cause consumers to go to a travel agent and to book.

“One of the most critical things we can do is to maintain our consumer marketing spend, because it drives people to [do that].” said Cahill. Citing confidence in the distribution system, Cahill said the value in the marketplace should be viewed as a real opportunity for cruise lines, travel agents and those who are able to take a cruise for the first time.

“I think the spending of our advertising dollars has to stay where it is,” noted Dan Hanrahan, president and CEO, Celebrity Cruises. “I think the way we spend them is more important than it’s ever been before. I think in the past people cruised because they were coming back again regardless of what marketing they saw. And today, it’s important that we spend our marketing dollars extremely efficiency. So while we’re not cutting any marketing dollars at Celebrity, we’re trying to be a lot smarter about the way we spend the money and to be a lot smarter about the way we approach past guests and new guests. It’s a different kind of marketing that’s taking place today.”

In addition to great pricing, great value and the ability of marketing to deliver more cruisers, Adam Goldstein, president and CEO, Royal Caribbean International talked about the advantage the industry has right now: “We are largely in competition with land-based travel and tourism products, [which are] in tremendous disarray right now because it seems the United States government has decided that it’s apparently not acceptable business behavior to go to meetings like this [referring to Seatrade].” He said the cruise industry has an advantage in terms of the simplicity and nature of its cruise products.

Cruise executives noted that not only ticket pricing has softened but onboard spending too has softened, as people have less disposable income. The dilemma of whether to fill a ship at a lower price, or let some cabins sail empty surfaced. “We manage day to day, cruise by cruise, but not filling ships does not make sense,” said Kruse.

As for destinations, “research has always shown and still shows today that people really care a lot about what destinations they're visiting on their cruises.",” said Goldstein, who noted that many Caribbean destinations are making investments to upgrade their facilities, making it easier to welcome cruise ships and their guests. Kruse and Goldstein both cited St. Maarten as one of the best for that, and Goldstein also mentioned the positive attitude in Jamaica. Executives criticized Alaska for onerous state regulations that are not only nearly impossible to meet and exceed what any other Alaska industry is required to provide.

Moving forward, “the main message … is that we’ll continue as an industry to evolve, we’ll continue to diversity, and diversify not only in the experience that we offer but in where we source our guests from and how we innovate and build our ships,” said Hanrahan. Sheehan said travel agent partners need to continue to get the word out of what a big bang consumers get for their buck. “There’s no crystal ball or recipe for success in these times. We have to focus on the opportunities and stay on message about the value our industry offers.”

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