State of the Industry: 1987

Present market conditions indicate that there "may be trouble in River City," Richard Fain, managing director of Gotaas-Larson, told delegates at the Seatrade Shipping Conference.

"There is much evidence that the industry is reaching maturity," he said. The increasing cost of attracting incremental passengers, and rampant price-oriented marketing are among the indicators he cited.

"You open the Miami Herald today and all you see is 'we are cheaper.' This should surely be taken as a warning bell."

Product tie-ins, proliferating consultants, and the trend toward consolidation also are signs that demand is leveling out, Fain said.

His views contrasted greatly with those of Einar Kloster, Kirk Lanterman and Jim Godsman, presidents of Kloster Cruise, Holland America and CLIA, respectively. They said "to double the size of the market in the next few years would not be difficult."

A recent release from CLIA claimed that "the cruise industry will break all records in 1987, hosting more than 3 million cruise vacationers."

Godsman also estimated the total potential size of the cruise business to be $4 to $5 billion, a number Jay Lewis of Market Scope said his company's data indicates is closer to $15 billion. Market Scope is currently in the process of collecting a data base that it believes will provide the "most authoritative figure on this subject to date," Lewis added.

Fain warned that although demand has been growing steadily at 9.9 percent annually since 1979, the most growth has occurred in the niche markets. Growth in the "bread and butter" markets has only grown 6.3 percent.

"Innovation cannot increase forever nor can it make up for an underlying weakness in the industry," he said. He added that new tonnage actually decreased seven percent annually between 1972 and 1980, noting that "this may be one reason those years were so good."

Fain also contested claims that the industry has penetrated only 8 percent of the potential market.

Citing CLIA's findings that 60 percent of 40 million Americans surveyed expressed interest in cruising, Fain said the actual potential market is 30 million. "Given that 10 million have already taken a cruise, the actual penetration rate is 30 percent."

"I am not saying that this is a saturation level, but at this rate, each incremental passenger is going to be harder and harder to sell."

As a result, he said, the industry needs to make a more realistic assessment of the market. "Buying more and bigger ships is not going to solve the problem, and further and faster expansion is not practical."

The ultimate outcome, he said, is going to be consolidation, "whether we like it or not."

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