State of the Industry: 1996

The "state of the industry" debate at the recent cruise conference in Miami was reduced to petty squabbling and if that is supposed to provide meaningful insight on the industry's future by its leaders, it is a sad state of affairs.

Among the issues in focus were the generic Cruise Lines International Association (CLIA) campaign that the big cruise lines want and the smaller cruise lines will not pay for; the re-eogineering of the distribution system; the "internationalization" of the industry whereby new markets are developed; and the polarization of the industry between the haves and the have-nots.

Al Wallack, Senior Vice President of Marketing and Passenger Services of Celebrity Cruises and Chairman of CLIA, gave the keynote address based on the CLIA platform that declining passenger numbers in 1995 were largely due to ship withdrawals and repositionings; that the industry was doing relatively well; and that the outlook was positive.

That set off Bob Dickinson, President of Carnival Cruise Lines, however, who disagreed strongly and set the tone for the rest of the session with what amounted to verbal attacks on Wallack. while many in the audience squirmed.

Dickinson's comments followed a series of recent confrontations between him and Wallack who is also opposed to the generic CLIA campaign which Dickinson supports.

Wallack meanwhile was critical of what be called the homogenization of the industry (presumably referring to the dominance by the big lines) which he said will narrow its consumer base. He underscored the need for diverse, multi-dimensional products.

Rod McLeod, Executive Vice President of Marketing, Sales and Passenger Services for Royal Caribbean Cruise Line, became a mediator when be suggested that the industry must be regarded over the long term and that it will span cycles.

Nicola Costa, Chairman and President of Costa Crociere, noted that it is difficult to see the direction of the changes the industry is undergoing.

He said he was impressed by the new tonnage coming on Line, but worried by the slower demand growth.

Something Is Not Right

Art Rodney, President of Disney Cruise Line, said that if the industry is basically satisfying the consumer, why are the lines fighting over the passengers; not increasing first-timers, and posting lower yields(?). "We should be fighting off people right now," Rodney said, "instead, we are struggling."

Rodney also underscored the need for a long term view and that the industry should do a better job of communicating the value of cruises.

Rodney suggested that the industry should bring in new talent "who can think out of the box."

Rodney also noted the importance of training crew since "crew are the best sales people we have."

In addition. Rodney said that Disney's participation in the industry is the best form of validation of a young industry. "We will bring in passengers who would never consider a cruise but who have confidence in Disney.

"Disney will do for the industry now what the Love Boat did in the 1970s." Rodney added.

Keys to Survival

Costa said that keys to survival will be economies of scale; implementation of new distribution systems; more sophisticated approaches to new markets; search for new destinations, and the development of new markets in Europe, the Far East, and South America.

John Newbold Division Executive of Global Shipping at Citibank, said that size is crucial since it provides economies of scale and helps manage costs. He added that management is key.

Newhold said that in order to grow, the industry must also artract passengers from all over.

Rodney added that the lines that try to be something for everybody may also fall by the wayside. "We are differentiated," he said, meaning Disney. "We know who we are."

"Any true niche player in the future must also be clearly differentiated." Costa also noted, however, that there are greater marketing costs for every passenger generated beyond the United States as well as greater political risks such as in the Mideast and China.

ln addition, the cruise industry is becoming one of haves and have-nots, according to Dickinson.

Costa said that consolidation will continue but in a more sophisticated way. "It will be an engineering process in the future," he said.

Generic Advertising

Wallack said that with the $200 million to $250 million the cruise lines spend on advertising, he does not believe a $10 million generic campaign will help.

"If we are convinced the generic campaign will help, then we should do it," Wallack added.

McLeod said that the discussion of the generic campaign has moved into a large vs. small debate.

Both McLeod and Rodney said that they had not supported the previously defeated generic CLIA campaign (1985), but that the industry has now changed.

Rodney said that while Disney is not yet a CLIA member, he would be "willing to take a look at it (the campaign), but noted that it was difficult to satisfy all member lines.

Peter Ward, President of Cunard Line, was also hesitant when he said that he has never seen a good generic trade campaign and that they should first find out if such a campaign can be done.

Dickinson noted that the lines which voted against the campaign were those at most risk of going out of business. He added that three-fourths of the industry was "not making a buck" and that the industry is shrinking.

Dickinson also said that brand advertising talks to people who have already cruised, but does nothing for people who does not understand what a cruise is.

McLeod added that the $10 mimon was nothing more than a lousy tip in the big billion dollar picture.

Cruise Industry News would like to make the suggestion that the big three cruise companies simply fund the campaign. After all, it will benefit them the most. They carried almost 70 percent of all the cruise passengers in 1995.

Distribution System

Dickinson said that only 10 to 15 percent of all travel agencies know how to sell; that the vast majority are order takers; and that two-thirds do not make money. He also noted that at least one cruise line, Renaissance Cruises, is selling as much as 40 percent of its cruises directly to passengers.

Dickinson also noted that four out of five travel sales in this country are direct - which, in his opinion, means that there are huge opportunities for agents.

Ward, meanwhile, said that the cruise industry needs to grow up. He drew several parallels to the car industry and said that the sales distribution must be changed.

Ward said that it is very difficult for a travel agent to sell several different products which is the way cruises are sold today. This is also how cars used to be sold, he said, until car companies changed to their own distribution networks.

Caribbean Forum

The Caribbean session was noteworthy both for its turn to tranquility, after years of heated debate on port taxes and other issues, and with only two speakers from the Caribbean, Lieutenant Governor Kenneth Mapp from the U.S.V.l. and Ronald Toppin, Minister of Foreign Affairs, Tourism and International Transport in Barbados.

After a series of mostly self-congratulatory statements, only Toppin raised any issue, that is, port taxes and cruise line investments in port facilities. But he quickly modified his position when he faced massive rejection by the rest of the panel and the audience.

Toppin said first that Barbados would review its port taxes in 1997, but added that a review did not mean that taxes would be raised.

He also suggested that cruise lines could participate as financial partners in the development of new port facilities in Bridgetown, but said also that the new port would be built regardless.

Toppin explained how Barbados has launched a port expansion program that will result in six additional dedicated cruise piers separate from cargo facilities. ln addition, Barbados is also developing a strategic plan for its cruise tourism sector, including revitalization of major urban centers. Moreover, Barbados is expanding its airport to facilitate airlift for homeported ships.

Speaking on behalf of the industry, Richard Fain, Chairman and CEO of Royal Caribbean Cruise Line; Richard Sasso, President of Celebrity; and Stephen Nielsen, Vice President of Caribbean Affairs and Operations, Princess Cruises, all said that the relationship between the cruise lines and the islands is now working extremely well.

"This is an evolution of the last three to five years of work," said Sasso, who is also Chairman of the Florida Caribbean Cruise Association (FCCA) which Mapp praised for its good work.

"We like to be partners with the cruise industry," said Mapp.

"Our goal is not just to bring in the ships, but also to serve the passengers, presenting them with our history and our culture; and to make them interested enough to come back," Mapp said.

"It is in both parties' interest that we work well together," added Fain, but cautioned that logic does not necessarily dictate what will happen. Partnerships require continual efforts of parties on both sides, Fain underscored.

Nielsen added that while the relationship has improved significantly, "we need to anticipate where we will be in the future ." According to Nielsen, the islands also need to understand that bigger ships mean more passengers which means more head taxes. Meanwhile, cruise fares have not gone up, which is another argument against increasing head tax rates.

Fain concurred. "Passengers are extremely sensitive to price," he added.


Mauro Terrevazzi, President of V. Ships, forecasted continued significant growth in Europe to 1.5 million passengers in the year 2000.

ln 1995, Europe generated approximately 1 million passengers, according to Terrevazzi, who also said that the average per diem in Europe was $150, compared to $100 in North America, and that the average length of a cruise was 10 days, compared to 6.5 days in North America. Hence, the European market is already at half the evaluation of the North American market, Terrevazzi noted. Terrevazzi also said that the European market would change substantially as more cruise lines look to enter this market such as RCCL through Costa and Carnival through Airtours.

Pointing out the untapped potential of Europe, William Gibbons, Director of the Passenger Shipping Association (PSA), noted that in 1994 more than one million Brits visited Florida and 570,000 travelled to the Caribbean, while only 80,000 cruised in the region.

Gibbons also attributed much of Airtours' success to what he called that company's complete control of price and product with its own ships, travel agencies and airline.


Peter Ratcliffe, President of Princess, outlined that he believes the image of the cruise industry should be that of a highly regulated industry which is proactive in providing a safe, healthy, secure and caring environment for its passengers and crew; that works to minimize the environmental impact of its operations on the oceans and communities it visits; that provides an outstanding vacation for its passengers; that makes an enormous contribution to the U.S. economy, generating 450,000 jobs for its citizens; and that is growing and successful.

Meanwhile, media and research panel members said the industry's image is largely formed by mass media coverage which by its nature tends to focus on incidents. After all, accidents make news, according to the Miami Herald.

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