State of the Cruise Industry: Trump Effect, Cuba and More

“Demand for cruising in the last 10 years has increased 62 percent,” Cindy D’Aoust, president and CEO, Cruise Lines International Association (CLIA), told thousands attending the Seatrade Cruise Global conference's "State of the Industry" general session at Port Everglades, FL, on Tuesday.

Some 25.3 million ocean passengers will sail on CLIA lines in 2016, she said, noting that more than $50 billion in new cruise ship orders are on the books right now. That’s twice as many new ship orders than what the industry had a decade ago, emphasized D’Aoust.

What’s Driving Business?

The four major cruise company executives then sat for a "State of the Industry" discussion with reporter Susan Li of MSNBC, the session's moderator. "What's driving business?" she asked. 

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"All of us have great experiences onboard our very differentiated brands,” said Arnold Donald, president and CEO, Carnival Corporation. “People love cruising, they see it as a great value and they can’t stop talking about it to all their friends and relatives and we all do a reasonably good job of now promoting [the experience].”

“Customers are happy, the economy is doing well and we’ve had the Trump effect,” said Frank Del Rio, president and CEO, Norwegian Cruise Line Holdings,who said the stock market is at an all time high.

Dio Rio continued: "We haven’t had any external shocks to the system, so all systems are go and I think all of us are seeing that in bookings and pricing. It’s going to be a good year.”

Pierfrancesco Vago, executive chairman, MSC Cruises, focused on the ability of cruising to give people the freedom to travel -- to go to places in the world they might not go to on land.

Vago said the cruise industry’s focus on safety and security makes them feel cocooned and confident to travel: "Customers think, 'I can visit that part of the world and I can do it in a safe mode. I can explore, and I can ‘touch’ places.”

From the perspective of Richard Fain, chairman and CEO, Royal Caribbean Cruises Ltd.: “For a long time, we’ve really been expecting this – [a strong surge in demand for cruise vacations] -- and in the last few years, we’ve had a lot of things that retarded this, but all of a sudden, I think the understanding of what a cruise offers, seems to have taken hold.”

He said it's almost as though someone released it from a bag. "We’re seeing it in the United States, which is a tremendous market because of consumer confidence and the economy doing well," said Fain, but added "actually we're [also] seeing it in Europe and Asia is just exploding.”
Donald added that part of the burgeoning demand is because “we’ve invested a lot to create demand.” He said there’s “no big correlation between economic growth and demand. One factor? The industry is all over the world, so it has the ability to weather any recession that hits one region or economy.

The Trump Effect

What about the Trump effect? Li asked. "What about policies that U.S. President Donald J. Trump's administration may take that could have an effect on corporations, such as border taxes, corporate taxes that may be cut?”

“It’s too early to tell,” said Donald. “We just have to wait to see what the taxes are.” He said his company pays taxes everywhere in the world and operates in lots of political environments…so the industry just has to wait for specifics of any policy changes. 

Donald noted that the cruise industry pays lots of taxes that other industries don’t pay, and in some cases, there are taxes the industry doesn’t pay.
Vago emphasized that it wasn’t Washington as much as Brussels [the European Union] that was impacting the cruise industry. “From the regulatory side, Brussels sometimes is certainly more the driver for our industry,” Vago stressed.

“One of the things that is very heartening to me…is that people do understand the economic benefit that we all contribute to the local society,” Fain said, pointing to CLIA’s release of annual numbers and a thorough economic analysis that show the local economic impact in jobs and other factors.
For example, Fain noted that CLIA’s recent numbers show the cruise industry is responsible for 350,000 jobs, just in the United States, and there are many more across the globe. 

“When you have that kind of economic impact, governments tend to want to help [the industry involved],” Fain said. “While nobody can predict the future, we have some really good reasons to believe that maybe we’re not as vulnerable than some.”

Del Rio said “most businesses today recognize that the Trump administration is a pro-business government and we’re all going to benefit from a basket of initiatives, whether it’s infrastructure, whether it’s less regulations, tax reform that could put more money in consumers’ pockets, and that’s good for all businesses.”

Today, the industry carries 25 million people across all social/economic levels, Deo Rio noted: “So everyone is going to benefit if it’s true that these kind of initiatives come to fruition.”

“I agree we have to wait and see,” he added, “but at least we’re talking about the right things and that puts a bounce in everybody’s step, and has triggered the Trump Effect.”

He said the stock market is up nearly 13 percent since the beginning of the year “and that’s...great for business.”

But What About Cuba?

Del Rio, a Cuban American who emigrated to the U.S. when he was seven, is now head of a company that sails to Cuba and has publicly expressed his delight at that development. All three of his line’s brands are sailing there this year.

So Li asked Del Rio about President Trump’s potential “revisiting” of the Cuba situation – with the potential for Trump to roll back existing policies put in place by former President Obama allowing the cruise industry to begin service.  

“Let’s hope he revisits it in a positive way,” said Del Rio. “I’m all for lifting the embargo. It’s been a failed policy for 57 [or so] years.” He said that after that time frame, “you’d think someone wants to try something new.”

Del Rio continued: I salute President Obama for starting that process. All of us are going to Cuba or have already gone. It’s a major market that could develop over time.”

He noted that “Cuba has infrastructure limitations today but certainly Cuba can be a major force in the cruise business for years to come, and I hope the administration sees that potential. They are business oriented.”

As for discussing the issue, “I think it’s in the best interest always to just bring people together,” said Donald. “Who knows what the administration is going to come up with. I have no particular insight on that."

Donald said that as long as the Cuba policy that impacts cruise travel isn't rolled back, "we’ll continue to forge forward.” He agreed with Del Rio that the embargo being lifted would be the best policy for Americans and for the Cuban people.

“But the powers that be will discuss that,” Donald stressed. “We’re just privileged and honored to be able to sail there."

He said Cuba is a beautiful country with beautiful people and "so many Americans want to go there.”

Fain found it interesting that the cruise industry is so much in the center of the discussion about Cuba, and says it demonstrates the industry's advantage: “Nobody’s talking about, ‘oh, this is great for the hotel industry.’ Nobody is talking about, ‘oh, this is great for the airline industry.’”

Cruising offers an opportunity to visit ports of call or places that would be a little more difficult to visit, said Fain. Even though Cuba is a fairly insignificant part of any cruise line's business right now, "I think it says something about one of the great attributes of cruising, which is that we bring that infrastructure with us.”

China Potential

Li asked if the administration would opt to label China a currency manipulator, what effect that would have? Doesn’t that hurt businesses that do business in China?

“China one day – it’s inevitable -- will be the largest cruise market in the world,” said Donald. Probably, larger than the entire cruise industry is today and it’s just sheer numbers of people.”

He added that the China market will take a long time to develop, the industry has to build ships to serve it, and there isn’t enough shipyard capacity to make it happen in a short time frame.

“But for us again, we’re in the business of travel and we can connect people," said Donald, adding that currency manipulation as a topic for cruise leaders to weigh in on, “is kind of beyond us.”

Vago emphasized that “our assets are movable,” referring to the ability of ships to be moved to markets, based on global conditions. “The world is the oyster,” he said, pointing to the industry's three percent market penetration, which reveals great potential.

Whether executives are talking about China or Cuba, Vago said it’s important to remember that the cruise industry’s assets can move as needed. Still, he's excited about the potential for those markets and others across the globe.

Stay tuned to our cruise news page for other upcoming stories with more details from the annual Seatrade Cruise Global conference, continuing this week.