According to various industry sources, the cruise industry can look at a projected overall growth rate as high as 15 percent 1990. The record-high growth projection is based on most of the growth taking place in the 3/4 market, however, with this year's introduction of the 2,050-passenger Fantasy and the Nordic Empress.
A recent study published by Temple, Barker & Sloane showed an annual growth rate of 10 percent for the total leisure market through the 1980s which deflates the cruise industry's growth rate over the same time period. Instead of having posted a unique growth record, the cruise industry may instead have been part of an overall healthy leisure industry expansion.
According to CIN estimates, the North American cruise capacity will grow from 4 million passengers in 1989 to 4.8 million during the course of 1990, based on the addition of some 10,184 new berths, bringing the total supply to 93,025 berths in the markets for seven-day, three/four-day, two/five day and longer cruises.
The following projections are based on a 1989 industrywide average loadfactor of 82.5 percent (revised by CIN), which probably is somewhat higher for the seven-day an three/four-day cruises of the major cruise lines; and lower for the smaller operators; lower in the two/five-day market; and lower for longer, upscale cruises and exploration type cruises.
In 1989 there were 57,700 berths in the seven day market at the beginning of 1989. During the course of 1990, some 5,560 new berths will be added, bringing about roughly a ten percent increase in this market segment to a total berth capacity of 63,560.
Last year, total cruise capacity in this market was 2.9 million passengers; this year, the total capacity will be 3.2 million passengers.
Based on actual industrywide average load factor of about 82.5 percent in 1989, 2.4 million Americans actually took seven-day cruises in 1989.
With the intensified marketing efforts surrounding the introduction of new ships, CIN estimates that the seven-day market can sustain a growth increase of seven percent in 1990, double that of 1989, which would bring market demand to 2.6 million passengers.
In the three/four-day market, the cruise capacity in 1989 was for 950,000 passengers. New tonnage introduced in 1990 will bring market capacity in this segment to 1.3 million, a jump of 39 percent in supply over the previous year.
At an average load factor of 82.5 percent, however, 783,750 Americans actually went on the shorter cruises in 1989. Allowing for a generous 20 percent market gain in 1990, 940,750 Americans will take three/four-day cruises.
No new tonnage will be introduced in this market in 1990. Present capacity is 143,000 passengers. At an average load factor of 82.5 percent, 117,975 Americans took two- and five-day cruises in 1989. Allowing for a five percent market gain in 1990, 125,000 people will take these short and medium-length cruises.
This market, which consists of upscale luxury vessels and the more luxurious of the exploration type vessels, has approximately 6,925 berths providing an annual capacity of some 175,000 passengers. In 1990, this market segment will see the addition of 1,524 new berths increasing the supply by about 23 percent to 8,449 berths or 215,000 passengers.
At an average load factor of 82.5 percent, however, these ships carried 144,375 passengers in 1989, and allowing for a seven percent gain in 1990, will carry some 154,481 passengers this year.
If these projections materialize, approximately 3.8 million Americans will be taking cruises of two days duration and longer in 1990, up 15 percent from last year's 3.3 million American cruise passengers.
Overall market capacity, however, will be around 4.8 million passengers so that the industry's average loadfactor will decrease from 82.5 percent in 1989 to 79 percent by year's end 1990.
Most of the growth will be taking place in the three/four-day cruise market which may boost the earnings of Carnival Cruise Lines and Royal Caribbean Cruise Line which will have new large ships in this market. Per diems correspond favorably with seven-day cruises while passenger onboard spending is higher, according to cruise line executives. They told CIN that passengers on three/four-day cruises allow the same amount of spending as on a seven-day cruise but do not have to budget for that length of a cruise. On the other hand, the cruise lines have to generate twice as many passengers which mean increased selling and administrative costs.
Based on the weaker loadfactors reported for the upscale market in the first quarter (1990), it may be expected that the market for upscale and longer cruises will become very competitive in 1990 as Crystal Cruises enters the market and as the fleet of Renaissance vessels enter service.
The premium level may also be facing a tough haul at least in the short term with new ships from Chandris Celebrity Cruises and Princess Cruises. Within the next couple of years, new ships for Royal Caribbean Cruise Lines will also be entering this market segment, while it is yet uncertain as to what market segment the new Holland America Line vessels will target.
In the near term, in light of the mild ongoing recession and the introduction of new tonnage, it may be expected that in spite of an optimistic 15 percent growth rate, increased selling and administrative costs will continue to dilute earnings until demand is more on par with supply.
As the high cost of new tonnage may be slowing down the introduction of new ships, it may be expected that demand will equal supply by 1994/95, barring any other unforeseen circumstances, at which point earnings and share values could increase dramatically.