According to cruise line executives interviewed by Cruise Industry News, 1997 will be a very competitive year. So competitive in fact that Bruce Nierenberg, Executive Vice President at Norwegian Cruise Line, described it as being a "dog fight" in the Caribbean.

Is the future any better? According to Bob Dickinson, President of Carnival Cruise Lines, the next three years will be similar to the past two years.

"The problem now is to sell 1997 cruises at 1983 prices, " Dickinson said, adding that "you can only do that if you have sufficient economies of scale."

According to Rick James, Senior Vice President of Sales and Corporate Relations at Princess Cruises and Chairman of Cruise Lines International Association (CLIA), the lower pricing is a function of cruise lines targeting the mass market. He said that with all the new ships coming into service, the industry's objective is to get as many first-timers to cruise as possible. (The theory is that these passengers will in turn be confirmed cruisers and by word-of-mouth promote cruising to others.)

James compared cruising to the first years of the automotive industry when cars were expensive until Henry Ford made them affordable to everybody. And, when everybody had to have a car, the prices went up again. "It is a cyclical phenomenon," James said, although he does not foresee cruise fares going up before the turn of the century.

James also noted that while the Caribbean is price sensitive and bookings are close-in, the other major sailing regions, Alaska and Europe, are doing well for Princess.

Travel agents also need to be "fired up," according to Dickinson, who said that of some 41,000 travel agencies in the United States, 7.5 percent produced 69 percent of Carnival's bookings; 63.5 percent produced from one to four bookings each; and the remaining 29 percent didn't book any Carnival cruises. 

New Ships

Five large ships enter service in 1997, including the Enchantment of the Seas and Rhapsody of the Seas from Royal Caribbean Cruise Line, the Dawn Princess from Princess Cruises, the Rotterdam VI from Holland America Line, and the Mercury from Celebrity Cruises, plus the smaller Grande Prince from American Canadian Caribbean Line.

Accounting for ship withdrawals and redeployments, the cruise fleet will grow from 119 ships in 1996 to 122 ships in 1997, increasing the berth capacity to 114,553 and the annual passenger capacity to 6.2 million passengers - up approximately eight percent over 1996.

Problems?

The cruise lines are bringing in ever fancier ships and improving their products, while holding prices at rock-bottom levels, but still the market is not responding overwhelmingly.

While CLIA has predicted a passenger increase for North America for 1996, based on the first six months of this year, fall and winter business are reported to be off.

In fact, CLIA has been promoting holiday cruises (Christmas and New Years) as late as the beginning of December. These cruises are traditionally booked far in advance.

But even if CLIA's numbers for 1996 are up over 1995 (we will not know until March), the picture is not all positive, since the big cruise lines are admitting that 15 to 20 percent of their passengers are from overseas source markets. Hence, have the lines been substituting Europeans for Americans while maintaining load factors? There is nothing wrong with that except that it throws the North American market statistics off course.

Meanwhile, based on travel agents' reports that the cruise lines are spending more on marketing and offering deeper discounts, business should be up.

Thus, the industry goes into 1997 under the shadow of a big question mark. Why is it not attracting more North American passengers?

More, Bigger and Better?

It used to be that cruise line executives would describe the industry as product-driven, that is, new ships would generate more passengers.

The problem, however, has been that the new ships may have been coming too fast, outpacing the market. Then, the cruise Lines had to resort to increased marketing and discounts to fill the ships.

The combination of more and bigger ships, more marketing and deeper discounts, have in turn created a cycle that feeds on itself.

Example: A 100,000-ton ship is exceeded by a 105,000 ton ship which is exceeded by a 130,000-ton ship. What is next?

Clearly, economies of scale work, but in a market where one cannot raise prices, but must depend on economic efficiencies to increase earnings; economies of scale begets more economies of scale.

Thus, as long as earnings are capacity driven, everyone who wants to make more money is forced to build bigger and more efficient ships.

Along with that, as the ships become bigger and more mass-product (read: alike), the cruise lines look for more features to differentiate themselves and to attract passengers. Size alone is not enough, according to cruise line executives, who emphasize choices and options for passengers. The latest such option is reported to be an ice skating rink. (However, that is not new to warm climates either. In the James Bond film "Goldfinger" the Fontainebleau Hotel on Miami Beach featured an ice skating rink.)

Whether size and options translate into "better" is a different question. And so far, the market has not yet given its answer.

Ultra-Ships

The mega-ship term seems outdated in light of the new giants. Ultra-ship may be the new term.

These new ships can carry between 3,000 to 4,000 passengers with third and fourth berths occupied, plus crews in excess of 1,000.

This number of people may in turn totally change the port experience for passengers. Some of the most popular ports are crowded already and there is little visible expansion opportunities.

In addition is the infrastructure at the airports and embarkation ports. Many of these facilities are already over-crowded on Saturdays and Sundays.

Four thousand people standing in line to go through two or three airport security metal-detectors would not be a pleasant sight. Nor would four thousand people looking for their suitcases in an already crowded warehouse structure. And, are there air-conditioned waiting facilities and rest rooms for so many people?

At Princess, James said that the cruise line had taken all these factors into consideration and that the Grand Princess, for instance, will have two gangways for embarkation/disembarkation.

He said that with a ship of that size (105,000 tons) it was very important to understand the flow of passengers not only aboard the ship but also ashore. Some of the cruise experience is also land-based, James said.

The ultra ships are the result of economies of scale, which may generate profits, but perhaps at the expense of changing the cruise product too much or too fast? What happens if the traditional cruise passenger, whom the industry depends on for word-of-mouth advertising, gets turned off?

However, the cruise lines hope that the new ships will appeal to the typical Orlando or Las Vegas visitor thus helping to grow the cruise market. The presumption is that these ships will offer enough experiences to satisfy the Orlando visitor and enough gaming and entertainment to satisfy the Las Vegas visitor.

Profitability

Dickinson also said that only eight cruise lines will make money in 1996, including the four Carnival brands.

While the Carnival brands undoubtedly make more money than anybody else, it is expected that a number of other companies will also be profitable, although to varying degrees, including Princess Cruises and Royal Caribbean Cruise Line as well as (in alphabetical order) American Canadian Caribbean Line, American Classic Voyages, Celebrity Cruises, Clipper Cruise Line, Commodore Cruise Line, Costa Crociere, and Norwegian Cruise Line.

Thus, contrary to expectations, 1996 has not been such a bad year in spite of all the discounting.

While 1997 will see more new ships (as will 1998, 1999 and year 2000), they will be big and efficient, thus providing their owners with more economies of scale across the board.

But in the long run, for the big cruise lines to continue to be profitable and for the medium-sized and small cruise lines to survive, the industry needs more passengers. Better yet, it needs more passengers, willng to pay more.

Dickinson foresaw other scenarios, amongst others, the worst being that competitors would drive price down even further. "Our margin may go down," he said, "but they will go out of business." In another scenario, he foresaw competitors "taking cost out of their product, which will only hurt them."

So, the questions in 1997 (and beyond) become those of pricing and product experience as well as whether the ultra-ship is the cruise product of the future, meeting future lifestyle trends?

Travel Agents

In spite of CLIA's admirable efforts, it is surprising when Carnival says that only 7.5 percent of 41,000 travel agencies, or approximately 3,000, book 60 percent of its cruises. In addition, some 26,000 agencies book only from one to four cruises, and about 12,000 do not book its cruises at all.

Based on our estimate that Carnival will carry some 1.3 million passengers in the 12-month period, that means the 3,000 agencies booked 780,000 of Carnival's passengers or 260 for each agency, or 0.7 passengers per day.

That is still not an overwhelming amount of work and much less so for the 26,000 agencies that booked from one to four Carnival passengers per year.

Also, when the North American market generates a total of 4.5 million passengers from a travel agency base of 41,000, that means on the average each agency generates 109 passengers per year.

That in tum means that each travel agent generates one passenger every 14 days or 27 passengers per year since the average agency has four employees.

Clearly, CLIA and the cruise lines have only scratched the surface, but why is that after nearly 20 years of effort?

Meanwhile, the much-publicized $10 million-per­ year generic advertising campaign may be on indefinite bold as VISA declined to participate.

"When CLIA voted on the campaign, it was for a $10 million program with $5 million from a co-op partner - that is all they agreed to move forward with." said James. However, Godsman noted that CLIA is reviewing several options for presentation to its membership in January.

CLIA has several other developments for 1997, including the upgrading of its Web site - which currently receives 40,000 hits per month - to make it easier to access and more informative. CLIA also intends to position cruises more aggressively against land vacations and will continue to promote the professionalism of CLIA member agents.

The association's existing promotional efforts Sail-a-Bration and Natlonal Cruise Vacation Month - are also doing well, said Godsman.

"These campaigns are going gangbusters and we think that 1997 will be the industry's strongest year in some time."

Changes

The past years have been full of surprises and changes. There is no reason to believe that 1997 will be any different, especially in light of all the new capacity entering service.

The demise of one or two cruise lines and the withdrawal of several ships is forecast. Meanwhile, Cunard Line and Premier Cruise Lines are for sale; and several are rumored to be looking for partners or be possible take-over candidates.

One source said that Carnival Corp. is looking at Costa Crociere as well as Norwegian Cruise Line and Celebrity Cruises, in that order. A top-level executive at Carnival also said that Crystal Cruises was an "interesting" company that could be merged with Holland America Line.

Meanwhile, the outlook for smaller operators such as American Hawaii Cruises and Commodore Cruise Line seems at best uncertain.

Also, 1997 will see further polarization of the industry into the big and strong lines and the smaller and/or weaker lines.

The numbers favor the big cruise lines, from economies of scale to the sales distribution where the big travel agencies need the volume and support offered by the big lines with name recognition.

For the small linesa unique niche is a must.

Boost

In 1997 the industry will also receive a boost from Disney Cruise Line, which will be gearing up its marketing efforts for the line's two ships that will arrive in 1998.

So, the bottom line is that the industry can expect another exciting year, but in the end, the winners and losers from 1996 will be the same as in 1997.

It is a typical case of whether a glass is half full or half empty? We hope it is half full. (Ed.)