"We can generate our own demand," said Peter Ratcliffe, president of Princess Cruises, at last week's cruise conference in Miami. He said that according to surveys, 67 percent of the U.S. population would like to cruise, but that price is a factor for many. Thus, according to Ratcliffe and other industry executives who spoke at the conference, price can move demand back or forth.
In addition, as the cruise industry develops globally, the cruise companies can tap more source markets and thus become less reliant on one market. Ratcliffe cited passenger growth in the U.K., in Europe overall, and even now in Asia, despite that region's difficulties.
Bob Dickinson, president of Carnival Cruise Lines, further underscored the price elasticity point when he said, "We can cut prices 10 to 15 percent if we have to and still make a profit.
"We have so much wiggle room," he said, adding that the industry faces under-demand rather than over capacity as a record number of new ships come on line in the next several years.
"People still do not understand the value of cruises," Dickinson said. "They pay at least 50 percent more on land to get the same level of experience.
"When people understand the value, we can raise the price, offer discounts, and realize a higher yield."
Vicki Freed, senior vice president of sales and marketing at Carnival and chairperson of the Cruise Lines International Association (CLIA), said that 1998 had been a great year with 5.4 million passengers generated in North America for a record industry capacity utilization of 91.6 percent.
She defined four emerging trends that will continue to provide opportunities as well as challenges for the industry: a growing, diversifying distribution system; continued consolidation on both the supply and retail side; new, more sophisticated cruise products and onboard services; and enhanced consumer awareness about cruising as a vacation alternative.
Freed forecasted that the North American-based lines would grow the market by eight to nine percent in 1999.
Dickinson added that in the case of Carnival, as of March 7, 1999, the bookings were up 19 percent over the previous year. He said that while 1998 had been unprecedented, he would describe 1999 as a normal great year.
"We expect 450,000 to 500,000 more passengers this year than last year," Dickinson said, "by anyone's definition that is a boom year."
Richard Fain, chairman of Royal Caribbean International (RCI) added that the industry has had consistent record growth on a straight line basis and that 1998 was a blip on the high side. "With increased visibility, people read more into the blips," he noted in response to questions of whether the industry boom is over.
According to Ratcliffe, the North American cruise industry is set to grow by 47 percent over the next five years.
Dickinson added that the cruise lines have so far only captured two percent of the market which he said was narrowly defined as travel based on three nights or longer away from home and involving stays in hotels or resorts. Thus, the potential is virtually limitless, according to industry executives.
The industry growth is further supported by a strong and vibrant U.S. economy that has seen a record nine-year boom so far leading cruise line executives to describe the industry as recession resistant. "Even in light of downturn scenarios, we see continued growth," said Ratcliffe, referring to what he said was a fundamental demand for cruises.
According to Joseph Watters, president of Crystal Cruises, the cruise industry has grown every year for the last 20 years except 1994 (due to Jack of new ships).
Dickinson added that cruises get better ratings than land-based vacations. "The industry has created a better vacation mousetrap, " he said.
While executives tried to guess how the distribution system will shape up in the future and how many bookings will come direct via the Internet, Dickinson pointed out that going direct is not an effort to bypass travel agents, but a prudent course of action to reach people who do not use agents.
He said that a large percentage of hotel and resort bookings were direct and that there are people who will not use travel agents. "But once they take a cruise maybe they will go to a travel agent," Dickinson added.
"We (Carnival) are open seven days a week," Dickinson said. "Ninety percent of travel agents are closed on Sundays, when most of the cruise lines advertise, and most are closed in the evening. But most discretionary purchase decisions are made evenings and weekends," Dickinson added.
In the universe of travel agents, Dickinson said that 18 percent of North American travel agents booked 83 percent of Carnival's passengers.
While the cruise lines are expanding, airlines are enjoying their own boom and seats are increasingly scarce. Will this be a problem? asked Peter McMullin of Southeast Research Partners.
Joe Vittoria, chairman and CEO of The Travel Company, answered that his group tries to sell more pre- and post-cruise land stays to spread out the air travel. Freed answered that the air component is a challenge and that Carnival often charters planes to get passengers to the ships.
Fain too conceded airlift is a problem, but noted that virtually any vacation today requires plane travel. "As the air gets worse, the cruise may look better," he said.
Dickinson said that Carnival increasingly tries to position ships in local and regional markets that also support drive traffic, such as Tampa, New Orleans, Los Angeles, and New York City. "It cuts down on some of our reliance on airlines. In addition, we offer more four- and five-day rotations so we are less locked into the seven-day pattern," Dickinson said.
Will there be more consolidation?
"Sure, there will be more," said Dickinson. "There are lines out there that are not making any money. Consolidation can create cost efficiencies that can make these lines profitable," he said.
Responding to speculation about P&O acquiring Norwegian Cruise Line (NCL), Ratcliffe answered, "I am not in the forecasting business and have nothing to add."
Geir Aune, president and CEO of NCL, claimed that as of August NCL will be the third largest cruise company. "Maybe you want to speculate the other way," he said.