The Limits of Onboard Revenue

The cruise industry has done a remarkable job of making money off its passengers once they board the ship. Yet according to David Stanley, vice president of revenue, Total Guest Satisfaction for Royal Caribbean Cruises (RCC), there is a limit to how much money can be made from cruise passengers: when “relentless promotion” conflicts with the cruise experience itself.

Jean-Pierre Miquel, chairman of Starboard Cruise Services, likewise discusses the limitations of onboard revenue generation, asking, “Might we be pushing passengers to the detriment of the onboard product?”

Another key question, according to Miquel: “Do the passengers have an unlimited amount of funds to spend on their cruise, or is it a finite purse?

This is a question we’ve been asking ourselves, and the answer has an impact on what we should do.” 

The very fact that cruise and concessionaire executives are openly pondering how far to take onboard revenue generation underlies just how successful they’ve been.

Mark Barnard, manager of onboard revenue for Holland America Line (HAL), offered the evidence. According to charts offered by Barnard, HAL’s overall onboard revenue increased between 40-45 percent between 1996 and 2001. Bar revenue per passenger per day increased just under 20 percent; casino revenue was up between 20-25 percent; miscellaneous revenues (including art auctions, bingo, communications, gift orders, Internet cafes, onboard promotions, publishing, and other sources) was up just under 60 percent; photography increased just over 30 percent; spa revenues were up over 50 percent; retail was up almost 40 percent; and shore excursion revenue grew most of all, up around 72 percent compared to 1996.

At RCC, Stanley said the greatest onboard revenue generator in the Caribbean continued to be gaming, followed closely by the bar; in Europe the greatest generator is shore excursions. Relatively new revenue streams which Stanley pegged as “winners”: Internet cafes, specialty restaurants, and weddings.

A number of factors are driving cruise lines’ impressive gains, according to Barnard. To begin, he said, in HAL’s case there is now the ability to share resources throughout the Carnival Corporation fleet, and “to test ideas on one ship and then share-best practices” corporation-wide. In other words, the cruise industry’s consolidation as a whole has led to the creation of more efficient onboard revenue strategies.

New technology also plays a key role. “IT allows us to analyze trends and sales, to test different pricing levels, to compare performance on different ships, and to control inventories,” said Barnard.

New technology has also allowed for the pre-selling of shore excursions. Not ing that shore-excursion revenue has shown the greatest increase for HAL over time, Barnard explained, “In Europe and on world cruises in particular, it is very important for passengers to get their shore excursions pre-booked, and our pre-cruise sales have increased significantly.”

Tony Heuer, president of Fidelio Cruise, supplier of onboard software systems and modules, offered ideas on how IT products such as his own could further increase profits.

“The onboard system knows exactly what packages were sold to which guest and which items are included in these packages. This increases guest satisfaction and greatly reduces administrative and payroll costs.” Before, the high administrative complications allowed for only simple pre-sold packages (i.e., beverages included or not included, etc.). “All other options were very hard to support and involved a great deal of manual work,” said Heuer. But with the latest software packages, marketing departments can develop package combinations of any sellable onboard items, which can be pre-sold before the cruise.

Yuri Polissky, COO of software provider Versonix Corp., urged operators to bundle cruises together with shore excursions, spa packages, beverage packages, etc. through their reservation systems.

Onboard products and options should be offered to the passengers as they make their reservation, he explained - in particular, repeat customers should be offered what they purchased before.

How does a cruise line know what a repeater would want to purchase? Polissky stressed that onboard and shoreside software systems must be integrated, allowing the ship to have information on customer preferences, pre-booked/pre-paid shore excursions, onboard services, and merchandise purchases before they board.

“Not only is it important to send data from the reservation system to the onboard system,” explained Polissky, “it is also crucial to bring data back from onboard to the shoreside system.” Information regarding customer preferences and customer spending levels “can be used to target certain demographics for promotions or discounts. Customer information collected by cruise lines will help tailor future products and service offerings according to customer interest and preferences, while maximizing onboard revenue.”

And both Heuer and Polissky pointed to the advantage of onboard kiosks and interactive TV systems - in particular for booking shore excursions. (According to Stanley, more shore excursions are booked through the interactive TVs aboard RCC vessels than through any other avenue.)

Heuer said Fidelio has created a new Self-Booking Shore Excursion Kiosk, allowing passengers to buy their excursions 24 hours a day. During onboard tests of the new system, the kiosks allowed guests to book excursions after the shore excursion desk itself was closed for the day, thereby allowing the operator to maximize its excursion sales. “Also, it leads to a lot of last-minute sales if the excursions become available due to the cancellation of other guests,” explained Heuer.

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