Cruise Shipping Miami: State of the Cruise Industry Address

arnold donald
Arnold Donald, president and CEO, Carnival Corp. // All photos by Susan J. Young

Top “takeaways” from a high powered executive discussion at the 30th annual Cruise Shipping Miami on Tuesday morning covered everything from market penetration to first-time cruisers, from safety to globalization and regulation.

The breezy session was a mix of humor intertwined with serious commentary, as moderator Katty Kay from the BBC in Washington D.C. fielded questions to Arnold Donald, president and CEO, Carnival Corp.; Richard Fain, chairman and CEO, Royal Caribbean Cruises Ltd.; Kevin Sheehan, president and CEO, Norwegian Cruise Line; and Pierfrancesco Vago, executive chairman of MSC Cruises. Here’s a look at those top takeaways:

Outlook After Tough Times

Donald said that while the industry dynamics are good, "clearly over the past few years, we have experienced demand growth less than capacity growth worldwide." The key to getting more demand is to attract more new cruisers, he said, but acknowledged "they have no clue" about what cruising is all about.

The industry's future success depends, Donald said, on the industry's push to "to emote" the experience and what it's like onboard and ashore.

Fain described the past few years as an anomoly. "The reason that's so noteworthy is that it was so unusual because as an industry, over its history, the industry has had such strong growth and good performance," Fain noted. But even during those tough times, "we showed how resilient we are as an industry," he emphasized, noting he's sorry the industry had to prove that so many times, but "I'm feeling very good about the years ahead."

“It's a great industry and it's a phenomenal value," said Sheehan, noting that's what attracted him initially to the cruise industry. There have been difficult times during the past six years but "all these wonderful companies have done well and we’ve been able to persevere through every single one of these events and grow the industry right through it all."

Sheehan hopes for a strengthening economic landscape improves, rising real estate prices, a strong stock market and “all the things that are going to increasingly improve over the next couple of years and will allow us to get get back on track with booking curves."

He says right now pricing represents "a ridiculously strong value," which is good for consumers, but he'd prefer it not be quite as good. "We want to be paid for this wonderful proposition," he says and believes the industry can get higher prices.

Donald quipped that the cruise value proposition was a lot better for guests than staying with their relatives for a vacation and "we're a lot more fun."

Europe has experienced economic problems over the past few years, said Vago, citing a shrinkage of 6 percent. Yet, he also said, at the same time Europe has experienced cruise passenger growth of more than  50 percent, again showing resiliency.

Kevin Sheehan, president and CEO, Norwegian Cruise Line
Kevin Sheehan, president and CEO, Norwegian Cruise Line

Adapting Communications and Technology

Vago said it’s important to push aside the old cruising image and create a more modern one. Consumers still wonder “what am I going to do onboard,” he says. Or, ask themselves if they have to wear a black tie. As with Donald's earlier comments, Vago stressed, “they have no knowledge” of what today's cruise experience is about.

To reach these guests, Vago indicated the industry is reaching out via social media. MSC Cruises now has 2.3 million Facebook fans and an MSC You-Tube TV channel.

Fain noted that all ships have WiFI for guests but acknowledged that getting enough bandwidth has been an issue, although "it's getting better." Previously, Fain said technology was utilized to do things cruise lines couldn't do in the past, but now technology helps them do things better.

Sheehan cited apps that allow guests to make a cruise reservation from a mobile phone or simply to talk while onboard with other family members around the ship, particularly important for families trying to keep in touch with their kids.

Growth Across the Globe

Talking about the difficult economic period in Europe, Vago said that even in a period of no economic growth, the cruise industry has grown, showing its resiliency. But while economies have improved somewhat, Vago said the north of Europe and the south of Europe are two different speeds of recovery.

Donald sees tremendous growth potential across the globe, but he also said the industry is capacity constrained, with lines only able to add so many berths. So even if the industry doubled its global market penetration, it simply couldn't absorb that.

But for the future, "the reality is there is great opporunity everywhere," said Donald. He cited Carnival Corp.'s Costa Cruises and Princess Cruises brands as heavily involved in Asian cruising with such home ports as Shanghai, Singapore and Japan. He also sees much opportunity moving forward in northern and southeast Asia along with Australia.

Katy asked the executives whether brand differentiation is enough, or whether cruise lines need to create products that are specifically tailored to individual countries. The leaders said that no matter where guests are from they want good food, they want things for kids to do and they want interesting times ashores. But they also said there's a need for lines to better localize the onboard product and also to give guests different experiences based on their own specific needs (families versus couples, active travelers versus those who want to relax, young people or mature travelers and so on).

Fain said Royal Caribbean, for example, had to learn to cook rice in large woks and not on a grill; there is a difference than North Americans might not perceive, but Asian customers in their feedback clearly did.

"The international markets are very distinct in terms of psychographics," believes Donald, noting that his multiple brands all cater to different guests and, at times, different psychographics -- both within a country and, even more distinctly, across a country.

In Australia, Donald stressed that every person gets significant vacation, while in China, the boss can tell employees the day before they can’t go. “So the whole concept of planning” has to be adjusted for those cruises, for example.

Fain believes it's a plus that -- unlike other industries -- the cruise industry has resisted the temptation to homongenize its brands. “One brand isn’t necessarily better than another, but just different,” he said. “And the fact we’ve resisted that temptation is one part of the reason our industry has been so successful.”

richard fain
Richard Fain, chairman and CEO, Royal Caribbean Cruises Ltd.

Fostering the Snowball Effect

Guests who have cruised once are five times more likely to take another cruise, emphasized Fain. “Getting that first person is like a snowball effect." He says that the lines spend a fortune on advertisements, but what’s really effective is when their friends tell them, their brother in law says "come with us next time," and their colleagues tell them.

Fain says Europe is just on cusp of that snowball effect. But while there’s huge growth, “the real key is explaining to people why cruising is not what they think it is,” Fain emphasized. In other words, misperceptions limit growth. \

Fain said he believes that's why so many lines try to do things that are unique or add one-of-a-kind features to ships. Only a small percentage of guests actually climb Royal Caribbean's rock walls, Fain acknowledged, but said it's very important to have such features to draw people into the experience of the cruise.

Similarly Sheehan talked about his previous appearance four years ago on the television show, Undercover Boss, noting that every time it airs in re-runs, Norwegian’s bookings pick up. “You gotta do something that’s different," Sheehan said, otherwise the line won't benefit. He said that a Norwegian ship becoming a BudLight Hotel during the Super Bowl delivered a billion social media impressions.

Luxury Market Growth

Katy also asked the executives about growth in the luxury market. “The luxury market is doing pretty well, and it was the first to recover a lot of people who backed off a bit [during the recession],” said Donald. He noted that during that period some people thought a new car or a luxury cruise was too indulgent.

“We’re seeing a big demand for luxury,” said Arnold, who noted that his company's Seabourn Cruise Line brand is  doing very well.

Dealing with Intense Media Coverage

Vago characterized cruising as "sexy" as industries go, noting that's going to attract coverage for any incidents, even rare ones. Despite the fact that companies carry millions of people safely every year, public perception is deeply swayed by a rare flu, fire or operational incident.

First timers avoided booking a cruise after Carnival Triumph, where no one was hurt or killed. Donald said that with the highly tragic Malaysian Airlines situation this week, he doubted it would keep anyone in the room from taking a flight. People are more accustomed to flying as a normal part of life. People still don't know that much about cruising.

While the executives bemoaned the sensational press coverage of late, Donald acknowledged that from a communications and educational side in the past, “we hadn’t done enough” including providing information well before anything happened and to put things in context.

For example, "the cruise virus isn't a cruise virus, it's a land virus" that people bring onboard, said Arnold;  also focused on norovirus which he said is contracted by only .006 percent of cruise guests, yet seven percent of all people on land are struck with the nasty bug every year.

Sheehan pointed out that it’s not your loyal cruisers that have issues, but the new cruisers do.

Fain too cited the "rareness" of incidents as a factor. He used an example of how doctors who practice obstetrics and anaesthesia pay more for insurance than brain surgeons. Why? People understand brain surgery is dangerous he says, but they think with childbirth or anaethesia no one will have a problem.

So the industry needs to continue to hammer at perspective, but Fain said the industry is getting better at providing it.

Explaining Safety Policies and Regulation

Vago also cited the importance of the industry's voluntary safety initiatives undertaken after Costa Concordia, the Passenger Bill of Rights and other major safety and security enhancements.

As for industry communications, “I think we’re getting a lot better,’ but fortunately we haven’t had that much experience," said Fain. "It's only recently that we have...Our mantra is continuous improvement. The industry does learn and keeps getting better [at explaining things].”

Arnold says it’s important for lines to explain what checks are put in place; he cites Carnival Corp.'s board-level safety committee, its brand advisory boards, flag-state requirements, International Maritime Organization regulations and so on.

He stressed no one was hurt or killed on Carnival Triumph, but the customer comfort issue definitely surfaced. So he said his firm has invested hundreds of millions of dollars for guest comfort back-up system (keeping toilets working and hot food flowing, for example) if there is a loss of power. “Our goal is to exceed guest expectations but we can’t exceed it if they’re not comfortable," he noted.

Many myths exist about the cruise industry, stressed Fain, but he said "the biggest lie is that this industry isn’t highly regulated.” He said many Americans think that if something isn't regulated in the U.S., but it's regulated globally, that it's not really regulated.

He talked about the importance of the International Maritime Organization, based in London, a division of the United Nations, with strict regulatory requirements, the treaty nations signed including the U.S. for "Safety of Life at Sea” and so on. He says the industry is actually more regulated than most industries.

Cruise ships are regulated as well by their flag state, inspected by the U.S. Coast guard, inspected by US Public Health and U.S. Agriculture and so on. Fain also said the recent Cruise Vessel Safety and Security Act passed by Congress, is actually portrayed as a great leap forward, yet almost everything within that law was already required by law.

The law was structured in such a way that people could convince themselves it was positive change, according to Fain. But he said it also helped the industry, which had supported the legislation, as it articulated the policies, he said.

“At the end of the day, we are ruled by public opinion,” acknowledged Sheehan. He said it’s the safest industry out there, he’d like to see the cruise industry stay out of the news for a period of time, as it’s never good to be on the defensive. It’s much better to be out there on the offensive."

Sheehan said "we just need to have a period of stability from the news standpoint, and once we do, this industry will thrive."

Taxation, Tourism and Jobs

Coming from the Washington D.C. area, Kay asked the executives how they would respond to such comments as those by Senator Jay Rockefeller about the need for the cruise industry to contribute its fair share of taxes. Cruise lines are often foreign flagged lines, not U.S. companies.

The executives said their companies pay taxes all over the world, including port taxes and sales taxes, and stressed that their brands are global. The tax laws are the way they are in the U.S., they noted, because of global competition and any modification could have an adverse economic impact on the U.S

“The most important issue for Americans today is jobs," said Fain. He added that there is a myth that much of the cruise industry's money leaves the U.S., so that's why several years back CLIA set up an independent study by Price Waterhouse.

According to Fain, the latest study found that the cruise industry contributes some 325,000 U.S. jobs. He says much of the European leadership understands how valuable the cruise industry is economically to the economy, but he doesn't see that kind of understanding in Washington D.C.

Donald cited the lack of a Minister of Tourism for the United States as a problem. “It kind of speaks to the perception of tourism. The U.S. doesn’t have that and hasn’t elevated it to that level of focus, but it drives an unbelievable level of jobs."

He said the lines want to make it easy for foreign visitors to come to the U.S. and it's important to have infrastructure that supports tourism. He then focused on the negative experiences foreign travelers have in entering the U.S., telling the multi-national audience that when they came through U.S. Customs and Immigration at Miami International they may have encountered long lines. In addition, he quipped, "and you’re not necessarily treated with love and tenderness,” to which the crowd clapped.

He noted that Carnival Foundation has recently made a $200,000 grant to Common Good, a Boise, ID, nonprofit group that helps refugees, trains them and finds them jobs. “Their model is a new social opportunity,” he said, showing that entrepreneurship is not dependant on charity. “And that’s what we do as an industry,” he said, referring to the support of jobs.

christine duffy
Christine Duffy, president and CEO, CLIA

CLIA's Vision and Statistics

Prior to the cruise executive panel discussion, Christine Duffy, president and CEO of CLIA, provided a keynote address about CLIA's vision for the industry and its future.

On the news side, she announced to the audience the formation of the new CLIA Italy, the 14th organization to fall under the CLIA Global umbrella. CLIA now has 61 cruise line members and 13,500 travel agency members representing 50,000 individual agents.

RELATED: CLIA Announces Formation of CLIA Italy

Duffy cited some interesting statistics from research CLIA did a few months ago by surveying travel agent partners. One slide highlighted that 70 percent of travel agents expect their cruise sales this year to range from good to excellent. In addition, 95 percent of these agents said the improving economy should drive good to better sales. learned about much of this original research during a recent New York media event. Agents might click on the link below for more detail.

RELATED: Christine Duffy Updates Media on State of the Industry

Duffy said the industry’s customer satisfaction scores are high, and the industry brings in such a high rate of repeat guests.

But in order to grow the marketplace, she said lines must seize the opportunity and go much deeper in terms of market penetration. She also spoke about how the industry is beginning to tap into the 95 million Millennials market, a new generation of cruisers who started cruising with their parents. “They have a strong desire to travel and share experiences, which represents a significant future market,” Duffy stressed.

Burgeoning technology on ships, high energy activities onboard and ashore, and ever more luxurious, inclusive cruises are helping create excitement in the marketplace, she said. While ship features are ever more diverse, she cited the importance of well-trained travel agents “so that we make sure so we find the right cruise for each and every customer.”

And she said the reality for the industry is that regulatory policymaking and media environments make it crucial that the industry continue to reinforce that it has $100 billion in positive economic impact worldwide, $33 billion in jobs, and direct spending in all 50 states, including Florida where the direct spend is $7 billion and the industry reflects 131,000 jobs.

Suggested Articles:

MMGY Global CEO Clayton Reid expects that travel industry recovery will happen "sooner than people can see clearly today." Read more here.

After the House approved the $2 trillion COVID-19 stimulus package on Friday, President Donald Trump signed the bill into law. Read more here.

From Thailand to Nepal, tourists across Asia are finding their vacations turning to nightmares as airlines cancel flights and countries close borders.