Page 4 - CIN - Annual Report

Industry Introduction
GROWTH COURSE (I)
All the players have significant growth plans.
The global cruise industry is on an unprecedented
growth course, reflected by its record orderbook of
some 106 new ships slated to enter service during the
next 10 years. The projected capacity of nearly 27 mil-
lion passengers in 2018 can grow to more than 39 mil-
lion by 2027.
Profitable
The largest cruise companies, which are also publicly
traded (Carnival, Royal Caribbean, and Norwegian) and
represent more than 75 percent of the industry, have
forecasted a strong 2018, following solid earnings in
2017.
The new ships should make the companies even more
profitable as passengers are usually willing to pay more
to cruise on the newest vessels, which in turn tend to
offer more spending opportunities onboard, while also
being more efficient to operate.
Furthermore, Carnival and Royal Caribbean have
posted net earnings every single year since the compa-
nies went public in 1987 and 1993, respectively.
Norwegian went public in 2008 and has posted net
earnings since 2009.
6 Cruise Industry News | 2018 – 2019 Annual Report
Also publicly traded is Genting, which has also largely
been profitable, but has not been able to post a profit
every year.
Another large company is MSC Cruises, which is pri-
vately held, but has released financial reports for its
bond holders, showing that its earnings are in the range
of the publicly traded companies.
Flexible
Not only have the large companies been consistently
profitable, they have also achieved these results under
sometimes adverse conditions, such as geopolitical
events, natural disasters and economic downturns, as
well as events of their own making.
Yet the industry has sailed through occasional choppy
waters only to emerge stronger.
Part of the solution has been that ships are movable
assets. If one area becomes less attractive to passen-
gers, ships move to another region.
Another solution has been global sourcing, whereby
cruises are sold in more countries so a downturn in one
market can be compensated for in others.
At the same time, the industry is building larger ships,
offering better economies of scale, while other trends
include the emergence of more new brands offering ex-
pedition and luxury cruises, seeking to tap into the pool
of past cruisers who may be looking for something new
and also the increasing wealth of potential passengers
in the major markets.
Challenges
So what can go wrong?
The biggest challenge facing the industry going for-
ward could be of its own doing. With all the new ships
entering service, the cruise lines will have to generate
about 4.5 percent more passengers on average every
year for the next decade. This pace can only be soft-
ened if older ships are retired.
The United States has always been, and continues to
be, the largest and most stable cruise market, followed
by Western Europe, and emerging markets, such as
China.
But while the United States has been stable, growth
has slowed, and European markets have fluctuated ac-
cording to economic ups and downs. China, which was
on a strong growth course, has slowed down, adjusting
to different business models.
Thus, the challenge for the industry is to continue to
build demand while also delivering a quality experience
to ensure repeat passengers. – Oivind Mathisen