The industry mood is somber with most cruise line executives expressing cautious optimism for 1991, despite a recently reported boost in bookings. At the recent Seatrade Cruise Shipping Conference in Miami, Feb. 5 - 8, industry executives seemed to make an effort to avoid talking about the year ahead and said little of substance.

Carnival Cruise Lines's Vice President of Marketing and Sales, Robert Dickinson, toned down his usually strong and colorful remarks although he reported record bookings during the prior week. He expected a strong booking trend to continue and the cruise lines to be the beneficiaries of the war and recession when the market realizes the value of cruising. However, retailers said the boost in bookings came in response to steeper discounting.

Two Scenarios for the 90s

Two scenarios for the 90s were presented by Don Tatzin, Director, Arthur D. Little, one for the cruise lines seeing "dark clouds" and another for those seeing "silver linings."

Tatzin said that the economic slowdown, the war, discounting, increasing costs, and capacity addition could impact several operators negatively. Moreover, he said that increased fuel prices would also have a longer secondary impact.

The silver linings contain the sustained interest in all kinds of vacation travel; extremely high passenger satisfaction; travel agents' sales push; more cost effective ships; and the slowing down of capacity growth by the mid 90s.

Tatzin said that some lines predict load factors to decline as low as 60 percent and discounting to go as high as 35 percent. But those who focus on the silver lining, create public awareness, generate bookings, and have access to capital, will be less affected and will come out stronger.

According to Tatzin, some cruise lines have built a corporate and product strength that make them better able to counter negative factors. He mentioned the introduction of shorter cruises in response to the changing American travel market; increased public awareness through more aggressive marketing; purpose-built ships; mergers; price cutting when necessary to fill ships; product enhancement; development of new destinations; product quality control; and cost control.

Tatzin said that he expected an average annual growth rate of demand from five to seven percent through the 1990s. He also said that he expected older tonnage to be retired and that substantial new tonnage would be introduced towards the end of the decade. He also expected further packaging of cruise-land combinations; further product enhancement; destination and itinerary development; as well as cost control.

The two major factors of the 90s will be access to capital and decision support systems, according to Tatzin. He said that lenders will be more cautious which will especially affect start-ups and that extensive revenue and reservation management systems will be implemented.

Tatzin foresaw three possible strategies for the 90s: large cruise lines will concentrate to satisfy the largest market segment with national marketing and travel agent support; smaller cruise lines will focus on markets not targeted by the large lines and market regionally, maybe even abandon mass marketing methods; and luxury lines will carefully target their markets and focus heavily on quality control.

Looking Forward to 1992

Hans Golteus, President of Kloster Cruise Limited, emphasized that the cruise industry was weathering the recession better than other major industries such as real estate, airlines and automobiles. Golteus said that Kloster had its second best year ever in 1990, netting its highest per diems ever and increasing onboard sales as well.

Golteus also said that Kloster Cruise was bracing itself for rougher seas ahead and had taken strategic moves to prepare for the worst, including what he called a tough company-wide efficiency program to cut all costs by 10 percent. Golteus also hinted at more discounting in 1991. He said he was looking forward to 1992.

The speakers also expected more consoli­dations, mergers and acquisitions in 1991, with smaller players having no choice other than joining forces with bigger lines with more resources. Golteus said that Kloster had already been approached by a smaller operator.

Dermot McDermott, Chairman of Cunard Line, said that he expected additional consolidations in the 1990s, but that he also expected more niche operators to emerge.

McDermott said that he expected the industry to continue to grow but "maybe" not at the 10 percent average annual growth pace of the previous decade.

He also noted that more than 50 new ships were built in the 1980s and that more than 30 new ships were presently under construction.

Golteus and McDermott agreed with Nicola Costa, President of Costa Cruise Lines, when he said that bookings were mixed and that passengers were booking much closer in.

Golteus McDermott and Costa also concurred that retirement of ships was highly unlikely. Instead, Costa pointed out that older ships could be deployed profitably in other markets were age and scale of economies were less important.

European Market

According to a survey on the European market conducted by John McNab, Chlef Executive of the Port of Tilbury, "all the lines surveyed agreed that 1991 is going to be a difficult year due to the immediate effects of the Gulf War and due to the U.S. recession and a weak dollar." McNab said that the war's impact on the European cruise market was deeper than perceived as it would hamper the growth of the Mediterranean market, even causing potential new operators to reconsider entering the market.

McNab feared that the Gulf War could result in more cruise lines pulling out of Europe altogether in 1991. He also said that the lines surveyed said there were not any increased bookings in other parts of the world to compensate for the drop in Mediterranean activity.

McNab said he expected European passengers to return to the Mediterranean after 12 months, while U.S. passengers could take several years.

Market Potential

Reiterating his usual position, Dickinson said he was optimistic about the industry's growth prospects and outlined a market potential of 50 to 90 million American cruise passengers. He said that the cruise industry has only reached a two percent penetration of what he called the specialized leisure vacation market (defined as three nights or longer away from home with at least one night stay in a hotel or a cruise ship) and that less than six percent of the U.S. and Canadian population (approximately 15 million people) has ever taken a cruise.

Dickinson said that the industry was still in its infancy and that its growth was supported by the fact that cruising enjoys the highest customer satisfaction of any vacation alternative. He noted that the cruise industry had been the fastest growing segment of the travel industry in the past 12 years and that it will be the growth leader in the 1990s.

Seemingly repeating his remarks from last year's conference, Dickinson also said that the key to future growth was in improving the sales efficiency of travel agents. Assumingly speaking also as the Chairman of the Cruise Line International Association, Dickinson made a strong pitch for sales training through cruise conferences, video cassettes training, and in-agency seminars.

Dickinson also said a preferred supplier was the way to create more effective sales and said that he expected retail vacation stores to exceed the productivity of cruise-only agencies.

The real impediment to growth will be found on the supply side, according to Dickinson, who said the ability of the ship building industry to add new tonnage will determine whether 10 million passengers a year will be achieved by year 2000.

Increased Costs

McNab said that he expected increased airfares for the cruise lines air/sea programs in 1991. He said that when a low cost airline goes under, the remaining airlines often used it as justification to push up the prices. McNab also said that the Gulf War had pushed up fuel costs for the vessels as well as for aircraft.

Other executives speculated that significantly increased fuel costs could force ships to sail shorter distances and spend overnights in ports, which would impact the traditional sailing patterns or the popular regions.

Safety

William O'Neill, Secretary General of the International Maritime Organization (IMO) said that the growth of the cruise lines will inevitably increase the exposure to a major accident occurring.

O'Neill noted that IMO did not require major changes in design and construction made retroactively. As a result, he said, "modern ships are generally safer than older ships simply because they have been built to higher standards, with safer materials."

He said that the safety gap between old and new ships was compounded because passenger ships lasted much longer than other ships. "Many ships operating today were constructed to standards laid down in the 1960 SOLAS convention or before," O'Neill said.

O'Neill also said that IMO was concerned about the Large open spaces, or atriums, which are featured on modern cruise ships. He said that proposed regulation would make it mandatory for atriums spanning three or more decks to be equipped with smoke detectors, extraction systems and sprinklers and that each level should have enclosed, vertical means of escape.

O'Neill wondered how the owners and designers expected to evacuate several thousand passengers. He said it was not easy getting even a few hundred people off when a ship is in imminent danger of sinking.

Ship vs. Port

Baltron Bethel, Director General of the Tourism, Bahamas Ministry of Tourism, said that cruise passengers spent on the average $60 each during their visit in the Bahamas, with the largest portion being spent on transportation (tours) followed by arts and crafts, other purchases, and entertainment.

Bethel noted that the spending potential in his estimate was as high as $150 per day, per passenger. This can be achieved by increased activities on shore, he said, and by convincing the cruise directors to present these activities to the passengers.

Cruise line executives denied that social directors some time make selective recommendations. Norman Howard, Senior Vice President of Cunard Line, said that Cunard's approach was simple; it is a question of the quality of the attraction, he said.

Howard also said that the role of the social director was to be as helpful to the passengers as possible, whether selling tour packages or helping those who wish to travel on their own. Margarita Tamayo, Vice President, Passenger Services, Royal Caribbean Cruise Line, said that "we try to very responsive to passenger comments on shore excursions.

Bethel also pointed out that no destination in the Caribbean is anti-cruise, but there is a concern that non-renewable resources are being contaminated and that the cruise lines should market the destinations more. "The concern is that the cruise lines use the destinations, but don' t put anything back into the economy," Bethel said.

Dan Livergood, Vice President of Dolphin Cruise Line, said that the cruise ships have contributed to the economy of the Bahamas. Livergood said also that the hotels themselves should be more active, offering special activities and events to the cruise passengers.

Livergood noted that the quality of the shoreside experience some time was lacking. "Once the passengers leave the ship, they depend on us for product delivery ," he said, "even on shore: He said that shoreside expectations are often not met and that some time there are attitude problems on behalf of tour operators.

Leo Wyman, head of the cruise section of the Jamaica Tourist Board, noted that he saw no merit in discussion what aspects of tourism is most important. He said that in Jamaica he could cite several examples where the development of infrastructure to support cruise tourism had also benefited hotels and resorts.

Bethel said that the Bahamas had not seen any noticeable decrease in passenger spending since the introduction of new large ships. He added that "you would expect any investor who invests $200 million in a ship to seek maximum return."

"We don't do enough to merchandise what we have. The merchants too often sit back and expect passengers to come and spend their money," Bethel said.

In tracing the development process of itineraries, Howard identified what he called roaming itineraries, covering a wide geographic area without reporting ports, and tracking itineraries where ships sail regularly. He said that in each of the popular sailings regions, the cruise ships first explored the region on roaming itineraries.

Howard said he expected more new turnaround ports to emerge and that new access to old destinations (he mentioned Eastern Europe and the Baltic) would bring new ports into cruising. Howard said he also expected increased emphasis on land contact and new itineraries targeting special markets.

Howard also pointed out that the industry was expanding both in the short cruise and the long cruise segments.

He said that the shorter cruises are tailor made for the segments of the population that are taking shorter but more frequent vacations, while the longer cruises are suited for the growing number of older, higher-income passengers.

Howard predicted that the variety of cruise itineraries will continue to grow as passengers demand new places to go to.

Dr. A. Di Cio, President of the Venice Port Authority, expressed concern that the tourism infrastructure of the port destinations might not be able to handle the volumes of passengers from the ships as they increase in size and as more ships may be in port at the same time.

Dr. Di Cio said that cruise tourism must be seen in the larger context of the whole tourism product.

Howard also noted that while special events in port help attract attention, events, and even mega-events such as the Olympics or Americas Cup, are seldom enough for a cruise line to design itineraries around. "But if an event is in a port on or near one of our itineraries, we look to tie in," Howard added.

Other topics raised at the conference focused on onboard spending, yield management and tax issues.

Ken Trippe, Chairman of Cruises Brokers, said that he presently counted 23 cruise ships acknowledged to be for sale plus nine that were available for charter.

New Products

CruiseMatch 2000 was exhibited at the cruise conference, demonstrating its instant ability to make a cruise booking and provide confirmation, including cabin number, even of dining room seating.

CruiseMatch will also provide agents with daily updates on brochure rates, schedules and other news from RCCL.

The system, which is owned by Royal Caribbean Cruise Line, is currently operating in 50 agencies in System One and World Span, while another version is expected to be introduced by mid­ year for use on any PC.