It’s happened again. Yesterday I read another article quoting a North American port official saying how strong their port’s demand for cruises is and they are expecting to have an additional cruise ship homeported there in the not-too-distant future.
Could these people be so myopic they don’t see what is happening in the cruise industry globally? Or are they intentionally misleading their local market?
The complete story appeared in the January 8 edition of Cruise News Daily.
Showing posts with label industry issues. Show all posts
Showing posts with label industry issues. Show all posts
Friday, January 8, 2016
Thursday, February 26, 2015
A Sign of the Times
This week, on two successive days, Princess Cruises released details of their 2016 programs in Europe and Alaska. Aside from the program information itself, in the whole scheme of things, there was actually a major sign of the times very evident that was never mentioned.
Where the ships are should serve as some foreshadowing to established markets.
The complete story appeared in the February 26 edition of Cruise News Daily.
Where the ships are should serve as some foreshadowing to established markets.
The complete story appeared in the February 26 edition of Cruise News Daily.
Tuesday, September 1, 2009
Someone up There Gets It
There's evidence that at least some people in Alaska have figured out that their tourism industry is in trouble now and is headed for more trouble. The Anchorage Daily News ran an article at the end of last week by Tom Bradner, an economist in Alaska, and he has figured out why there's trouble in the 49th State. He came to many of the same conclusions we did in a recent Cruise News Daily article. The recent tourism summit proves that at least some of the leaders are getting it, but they still aren't fully understanding what's causing the problem, so their solutions have little chance of working.
But just when you think there may be a light bulb going on in Alaska, you read the comments from ADN readers at the bottom of Bradner's article, and you see the average citizen in Alaska just doesn't get it.
But just when you think there may be a light bulb going on in Alaska, you read the comments from ADN readers at the bottom of Bradner's article, and you see the average citizen in Alaska just doesn't get it.
Friday, August 21, 2009
Alaskans Are Starting to Get It - But Not Completely and Way Too Late
This week, Alaskans held another "tourism summit," and it shows they are now recognizing their tourism industry is heading into deep trouble, but from the media reports coming from the summit, they still haven't figured out why, but they are jumping ahead to the step of trying to figure out what to do about the declining numbers, especially of cruise ship passengers.
They know that the cruise lines, which are the biggest player in their tourism industry, are going to reduce their capacity there by 140,000 berths next year, so they can expect at least 140,000 fewer visitors. The first big thing they're missing, is that they are trying to figure out how to get more visitors to come to Alaska next year. The cruise lines will adjust their pricing as they always do to make sure they operate completely filled, so no matter how many more visitors they interest in coming to Alaska, the cruise lines aren't going to be able to bring any more. Instead they should be asking the cruise lines why they keep taking ships out of Alaska, and what they can do to keep from losing more. (The cruise lines have been trying to tell them all along, but no one seems to want to listen.)
That brings us to the next big thing that Alaskans are missing. Alaskans have a product/service they want to sell (Alaska), and the cruise lines are the potential customers. They can't set the price (the taxes and fees the cruise lines pay) so high for their product that they aren't competitive with their competition (ports in other areas of the world). Just as a restaurant would market to consumers and offer incentives (to keep regular customers), Alaska needs to be doing things to make their destination as attractive or more attractive to do business with than the port "down the street."
Rather than putting several million dollars into a consumer marketing campaign, as is being proposed, Alaska would probably get much more bang for their bucks if they put that money into incentives for the cruise lines (to keep ships there) to defray the higher fees and taxes imposed on them in Alaska.
A subpoint the folks in Alaska don't understand because the cruise industry changed in the last decade (while Alaska's attention was on figuring out new fees they could charge and restrictions on operations) is that there is a worldwide competition for ships, not only among ports within an area, but also among regions of the world. There are many new emerging source markets, and they all want ships sailing close to their home. Alaska is no longer competing just for Americans to choose to take a cruise there instead of the Caribbean or Mexico. They now have to compete just to keep that ship in the American-sourced market rather than sending it off to the Mediterranean for Europeans, Central America for South Americans, Asia for the Chinese or the South Pacific for Australians.
The next big thing Alaskans are still missing is it's not the downturn in the global economy that's causing their main problem. Certainly that plays a role in people spending less once they get there, and it is also causing the cruise pricing to be reduced to fill the ships, but each ship that comes is operating at or near capacity. Those rates the cruise lines can charge have fallen but at the same time, the costs to cruise lines of doing business in Alaska have also risen dramatically. Ticket prices have fallen all over the globe, and cruise lines are dealing with that. The issue really isn't the price or the cost alone; the big thing to the cruise lines is the profit margin, which in Alaska has shrunk to much less than in other parts of the world. There's not too much Alaskans can do to increase what consumers are willing to spend for a cruise, but there's a lot they can do to reduce the costs of the cruise lines in Alaska.
The last big thing that Alaskans seem to be missing, at least according to the tone of the coverage of this week's summit, is that this is not temporary. When the economy improves, the ships that have left Alaska aren't on rubber bands, so they won't snap back. Removing them from the market has been a slow process as other markets have grown, and the cruise lines have taken time integrating them into other markets globally. When the economy improves, they aren't about to jerk them out of a then-successful market to increase Alaskan capacity, which would depress pricing. Instead, the cruise lines will be thrilled there is more demand for the existing capacity they have in Alaska so that will drive ticket prices up. So Alaska's focus needs to be on keeping the ships they have, rather than letting them sail away, because once they leave, it will be tough to get them back.
Alaska has some smart people living and working there, so it's hard to understand why they aren't seeing the real situation and what needs to be done. Perhaps they've been in a seller's market so long, they just can't think in terms of having to compete. Now is the time they must change their thinking, however, or they are going to be faced with even further shrinkage of the fleet of ships in 2011.
If you'd like to read more about the tourism summit to better understand the thinking in Alaska, there are three articles which should prove interesting. They point out some of the losses Alaskans realize they are facing, and some of the costs which, at the same time they impose.
From the Anchorage Daily News:
http://www.adn.com/money/industries/tourism/story/906010.html
An AP article via the Fairbanks News Miner:
http://newsminer.com/news/2009/aug/20/alaska-tourism-experts-industry-downward-slide/
From the NBC affiliate in Anchorage:
http://www.ktuu.com/Global/story.asp?S=10967488
This article originally appeared in the August 21 (2009) edition of Cruise News Daily.
They know that the cruise lines, which are the biggest player in their tourism industry, are going to reduce their capacity there by 140,000 berths next year, so they can expect at least 140,000 fewer visitors. The first big thing they're missing, is that they are trying to figure out how to get more visitors to come to Alaska next year. The cruise lines will adjust their pricing as they always do to make sure they operate completely filled, so no matter how many more visitors they interest in coming to Alaska, the cruise lines aren't going to be able to bring any more. Instead they should be asking the cruise lines why they keep taking ships out of Alaska, and what they can do to keep from losing more. (The cruise lines have been trying to tell them all along, but no one seems to want to listen.)
That brings us to the next big thing that Alaskans are missing. Alaskans have a product/service they want to sell (Alaska), and the cruise lines are the potential customers. They can't set the price (the taxes and fees the cruise lines pay) so high for their product that they aren't competitive with their competition (ports in other areas of the world). Just as a restaurant would market to consumers and offer incentives (to keep regular customers), Alaska needs to be doing things to make their destination as attractive or more attractive to do business with than the port "down the street."
Rather than putting several million dollars into a consumer marketing campaign, as is being proposed, Alaska would probably get much more bang for their bucks if they put that money into incentives for the cruise lines (to keep ships there) to defray the higher fees and taxes imposed on them in Alaska.
A subpoint the folks in Alaska don't understand because the cruise industry changed in the last decade (while Alaska's attention was on figuring out new fees they could charge and restrictions on operations) is that there is a worldwide competition for ships, not only among ports within an area, but also among regions of the world. There are many new emerging source markets, and they all want ships sailing close to their home. Alaska is no longer competing just for Americans to choose to take a cruise there instead of the Caribbean or Mexico. They now have to compete just to keep that ship in the American-sourced market rather than sending it off to the Mediterranean for Europeans, Central America for South Americans, Asia for the Chinese or the South Pacific for Australians.
The next big thing Alaskans are still missing is it's not the downturn in the global economy that's causing their main problem. Certainly that plays a role in people spending less once they get there, and it is also causing the cruise pricing to be reduced to fill the ships, but each ship that comes is operating at or near capacity. Those rates the cruise lines can charge have fallen but at the same time, the costs to cruise lines of doing business in Alaska have also risen dramatically. Ticket prices have fallen all over the globe, and cruise lines are dealing with that. The issue really isn't the price or the cost alone; the big thing to the cruise lines is the profit margin, which in Alaska has shrunk to much less than in other parts of the world. There's not too much Alaskans can do to increase what consumers are willing to spend for a cruise, but there's a lot they can do to reduce the costs of the cruise lines in Alaska.
The last big thing that Alaskans seem to be missing, at least according to the tone of the coverage of this week's summit, is that this is not temporary. When the economy improves, the ships that have left Alaska aren't on rubber bands, so they won't snap back. Removing them from the market has been a slow process as other markets have grown, and the cruise lines have taken time integrating them into other markets globally. When the economy improves, they aren't about to jerk them out of a then-successful market to increase Alaskan capacity, which would depress pricing. Instead, the cruise lines will be thrilled there is more demand for the existing capacity they have in Alaska so that will drive ticket prices up. So Alaska's focus needs to be on keeping the ships they have, rather than letting them sail away, because once they leave, it will be tough to get them back.
Alaska has some smart people living and working there, so it's hard to understand why they aren't seeing the real situation and what needs to be done. Perhaps they've been in a seller's market so long, they just can't think in terms of having to compete. Now is the time they must change their thinking, however, or they are going to be faced with even further shrinkage of the fleet of ships in 2011.
If you'd like to read more about the tourism summit to better understand the thinking in Alaska, there are three articles which should prove interesting. They point out some of the losses Alaskans realize they are facing, and some of the costs which, at the same time they impose.
From the Anchorage Daily News:
http://www.adn.com/money/industries/tourism/story/906010.html
An AP article via the Fairbanks News Miner:
http://newsminer.com/news/2009/aug/20/alaska-tourism-experts-industry-downward-slide/
From the NBC affiliate in Anchorage:
http://www.ktuu.com/Global/story.asp?S=10967488
This article originally appeared in the August 21 (2009) edition of Cruise News Daily.
Monday, May 25, 2009
Gulfport Mounts Campaign for Cruise Ship
After seeing the money rolling into nearby New Orleans and Mobile from the cruise industry, Gulfport has decided they want a cruise ship homeported at Gulfport.
An article in the Gulfport Sun Hearld talks about the advantages and what the city is starting to do to position itself correctly. The city isn't without any experience because occasionally, ships have used the port when their regular homeport wasn't available. They have done the studies (some of which seem a little dated in their findings), and they understand what's going to make them more attractive to the cruise industry.
The one thing they don't seem to understand, however, is the tremendous competition for ships worldwide. Since the euro began to strengthen a few years ago, and cruise ships became more expensive to build, there has been a big slowdown in building and expansion of the fleets for American brands. Not only that, but at the same time, other lucrative source markets have begun to emerge around the world, so the folks in Gulfport aren't just competing just with Mobile or Charleston for a ship, but also Santos, Singapore and Perth.
If the Sun Herald article is correctly capturing the mindset of the city, unfortunately, they seem to believe that if they invest the money and do what their studies show, they will be successful and cruise lines will be anxious to homeport a ship there. Unfortunately, they can talk to a lot of ports around the country that can tell them that just isn't so. Ironically, the two nearby ports, New Orleans and Mobile, which are used in the article to demonstrate how good the cruise industry can be for a city, are also good examples of how their hopes can be frustrated too. Both cities have been pursuing the cruise lines for additional ships for a few years now without success.
An article in the Gulfport Sun Hearld talks about the advantages and what the city is starting to do to position itself correctly. The city isn't without any experience because occasionally, ships have used the port when their regular homeport wasn't available. They have done the studies (some of which seem a little dated in their findings), and they understand what's going to make them more attractive to the cruise industry.
The one thing they don't seem to understand, however, is the tremendous competition for ships worldwide. Since the euro began to strengthen a few years ago, and cruise ships became more expensive to build, there has been a big slowdown in building and expansion of the fleets for American brands. Not only that, but at the same time, other lucrative source markets have begun to emerge around the world, so the folks in Gulfport aren't just competing just with Mobile or Charleston for a ship, but also Santos, Singapore and Perth.
If the Sun Herald article is correctly capturing the mindset of the city, unfortunately, they seem to believe that if they invest the money and do what their studies show, they will be successful and cruise lines will be anxious to homeport a ship there. Unfortunately, they can talk to a lot of ports around the country that can tell them that just isn't so. Ironically, the two nearby ports, New Orleans and Mobile, which are used in the article to demonstrate how good the cruise industry can be for a city, are also good examples of how their hopes can be frustrated too. Both cities have been pursuing the cruise lines for additional ships for a few years now without success.
Tuesday, May 19, 2009
Someone Up There Understands
CND has often written about how the State of Alaska (with the voters' approval) is making it less and less profitable for cruise lines to operate there. The longer this goes on (and increases), the fewer the number of cruise ships that will be there. The state's economy has benefited much from cruise tourism, and as the industry withdraws it will take a larger and large toll on the state's economy.
There have already started to be direct effects over the last couple of years as the cruise lines stopped expanding for the first time in years. Next year their capacity going to Alaska will start to shrink.
Alaska is now starting to have secondary effects with other businesses recognizing the state's economy will shrink as the cruise ships go away, and because of the shrinking economy, those business no longer want to expand in the state, causing further shrinking of the economy. In a letter to the editor of the Juneau Empire, Gary Droubay, the CEO of Goldbelt, which develops real estate in Alaska, writes about what a bad move it was for the voters to pass the 2006 citizens' initiative, and immediately thereafter his investors canceled a $200 million project near Juneau because they could see the effect the measure would have on the cruise industry and then later, the state's economy.
The letter is worth reading. It's nothing we haven't said, but this time it's coming from someone in Alaska who is watching the economy begin to collapse around him.
There have already started to be direct effects over the last couple of years as the cruise lines stopped expanding for the first time in years. Next year their capacity going to Alaska will start to shrink.
Alaska is now starting to have secondary effects with other businesses recognizing the state's economy will shrink as the cruise ships go away, and because of the shrinking economy, those business no longer want to expand in the state, causing further shrinking of the economy. In a letter to the editor of the Juneau Empire, Gary Droubay, the CEO of Goldbelt, which develops real estate in Alaska, writes about what a bad move it was for the voters to pass the 2006 citizens' initiative, and immediately thereafter his investors canceled a $200 million project near Juneau because they could see the effect the measure would have on the cruise industry and then later, the state's economy.
The letter is worth reading. It's nothing we haven't said, but this time it's coming from someone in Alaska who is watching the economy begin to collapse around him.
Tuesday, April 28, 2009
What are cruise lines doing about swine flu?
Updated April 28, 8:30pm
Late yesterday, the CDC "recommended" people avoid "nonessential" travel to Mexico. It appears that the cruise lines hadn't been anticipating that action coming so soon, and are still dealing with the issue.
The bottom line is that all of the major cruise lines have said they are temporarily suspending calls at all Mexican port for the immediate future.
Each of the lines said they will have specifics of the itinerary changes sometime during the day on Wednesday. Today, most all ships substituted a sea day, but the lines have promised most in the future will substitute another port where possible.
The biggest (literally) question is what Carnival and Royal Caribbean will do with the post-Panamax ships they each just positioned in Southern California for year round 7-day Mexican Riviera cruises, since their itineraries are all Mexico. Royal Caribbean answered the question in general terms today by saying theirs would sail an all-new US West Coast program with a call in Canada. Carnival would not be specific about Carnival Splendor.
Carnival has stated that if there is any passenger who does not want to sail the revised itinerary, they will be allowed to reschedule their travel plans without penalty. The other lines are still formulating their plans and will have them available on Wednesday.
All of the lines confirm they have had no cases of suspected swine flu on their ships. Most have, however, elevated their sanitation protocols to be similar to the ones they use when there is a norovirus outbreak. If a case of swine flu should be brought aboard. this would retard its spread as much as possible.
Late yesterday, the CDC "recommended" people avoid "nonessential" travel to Mexico. It appears that the cruise lines hadn't been anticipating that action coming so soon, and are still dealing with the issue.
The bottom line is that all of the major cruise lines have said they are temporarily suspending calls at all Mexican port for the immediate future.
Each of the lines said they will have specifics of the itinerary changes sometime during the day on Wednesday. Today, most all ships substituted a sea day, but the lines have promised most in the future will substitute another port where possible.
The biggest (literally) question is what Carnival and Royal Caribbean will do with the post-Panamax ships they each just positioned in Southern California for year round 7-day Mexican Riviera cruises, since their itineraries are all Mexico. Royal Caribbean answered the question in general terms today by saying theirs would sail an all-new US West Coast program with a call in Canada. Carnival would not be specific about Carnival Splendor.
Carnival has stated that if there is any passenger who does not want to sail the revised itinerary, they will be allowed to reschedule their travel plans without penalty. The other lines are still formulating their plans and will have them available on Wednesday.
All of the lines confirm they have had no cases of suspected swine flu on their ships. Most have, however, elevated their sanitation protocols to be similar to the ones they use when there is a norovirus outbreak. If a case of swine flu should be brought aboard. this would retard its spread as much as possible.
Sunday, April 26, 2009
What the government says about swine flu and your cruise to Mexico
It's easy to find articles about there being a swine flu outbreak in Mexico, but is it safe to go on a cruise that calls at a Mexican port? So far the US government still isn't exactly saying it's unsafe.
Finding their actual advice can prove challenging among the array of government websites and their medical definitions of swine influenza. So you don't have to, here are the two pages updated constantly with the advice from the US government about travel to Mexico with respect to the swine flu. There is also one from the World Health Organization with specifics of where in Mexico the cases are occurring:
CDC - Centers for Disease Control
US State Department
WHO - World Health Organization
You'll note at this point at least, the outbreaks are not near the popular ports of call. Officially the US government is "recommending" Americans "avoid all nonessential travel" to Mexico, but they aren't exactly saying "don't go."
As of Monday evening, the cruise lines are considering what their course of action will be.
Updated: April 27, 8:44pm
Finding their actual advice can prove challenging among the array of government websites and their medical definitions of swine influenza. So you don't have to, here are the two pages updated constantly with the advice from the US government about travel to Mexico with respect to the swine flu. There is also one from the World Health Organization with specifics of where in Mexico the cases are occurring:
CDC - Centers for Disease Control
US State Department
WHO - World Health Organization
You'll note at this point at least, the outbreaks are not near the popular ports of call. Officially the US government is "recommending" Americans "avoid all nonessential travel" to Mexico, but they aren't exactly saying "don't go."
As of Monday evening, the cruise lines are considering what their course of action will be.
Updated: April 27, 8:44pm
MSC Melody Evades Pirate Attack
MSC Cruises reports that MSC Melody successfully evaded an attack by pirates Saturday evening (April 25, 2009) at approximately 7:35pm GMT (3:35pm eastern time in the US).
MSC said that when the ship came under attack, it initiated avoidance procedures and quickly escaped the pirates. They characterized the encounter as being "relatively brief." There were no injuries to the approximately 1500 passengers and crew, and damage to the ship was "not significant." The line immediately informed the Italian government foreign office, the Maritime Security Center in London and the Coordination Center for Security in Dubai.
The line does confirm that they came under automatic weapon fire from the small boat, and confirms the security force aboard MSC Melody repelled the pirates with fire hoses and evasive maneuvering by the bridge, but does not confirm that the ship's security forces returned the pirates' fire.
The attack came when MSC Melody was approximately 200 miles north of Port Victoria in the Seychelles and almost 700 miles off the Somali coast. As a precaution, a military vessel from the international security forces in the region is escorting MSC Melody as it continues on its scheduled itinerary to its next port of Aqaba, Jordan. Its published schedule shows it due to arrive there on Saturday.
MSC Melody is on a 21-day repositioning voyage that is taking it from South Africa to the Mediterranean which necessitates it travel through the area. It was sailing a revised routing at the suggestion of the International Maritime Organization to avoid the area where pirates were known to be operating. The revised itinerary, reported in Cruise News Daily on April 17, took MSC Melody about 400 miles off its planned itinerary and caused several changes in its ports of call to accommodate the longer distance. This indicates the expanding scope of the pirate operations in the Indian Ocean.
Additional elements of the story will appear in the April 27 edition of Cruise News Daily.
Last updated April 26, 10:56pm
View Pirate attack on MSC Melody in a larger map
MSC said that when the ship came under attack, it initiated avoidance procedures and quickly escaped the pirates. They characterized the encounter as being "relatively brief." There were no injuries to the approximately 1500 passengers and crew, and damage to the ship was "not significant." The line immediately informed the Italian government foreign office, the Maritime Security Center in London and the Coordination Center for Security in Dubai.
The line does confirm that they came under automatic weapon fire from the small boat, and confirms the security force aboard MSC Melody repelled the pirates with fire hoses and evasive maneuvering by the bridge, but does not confirm that the ship's security forces returned the pirates' fire.
The attack came when MSC Melody was approximately 200 miles north of Port Victoria in the Seychelles and almost 700 miles off the Somali coast. As a precaution, a military vessel from the international security forces in the region is escorting MSC Melody as it continues on its scheduled itinerary to its next port of Aqaba, Jordan. Its published schedule shows it due to arrive there on Saturday.
MSC Melody is on a 21-day repositioning voyage that is taking it from South Africa to the Mediterranean which necessitates it travel through the area. It was sailing a revised routing at the suggestion of the International Maritime Organization to avoid the area where pirates were known to be operating. The revised itinerary, reported in Cruise News Daily on April 17, took MSC Melody about 400 miles off its planned itinerary and caused several changes in its ports of call to accommodate the longer distance. This indicates the expanding scope of the pirate operations in the Indian Ocean.
Additional elements of the story will appear in the April 27 edition of Cruise News Daily.
Last updated April 26, 10:56pm
View Pirate attack on MSC Melody in a larger map
Tuesday, April 21, 2009
Compromise on Cruise Wastewater in Alaska
There was a compromise in the Alaskan legislature late last week that delayed until 2015 the implementation of more stringent wastewater standards for cruise ships operating in the state's waters. The tougher standards were mandated in a 2006 citizens ballot initiative, but the cruise industry says the technology does not yet exist that will allow them to meet the standards.
Details were in the April 21 (2009) edition of Cruise News Daily.
Details were in the April 21 (2009) edition of Cruise News Daily.
Sunday, April 12, 2009
More Trouble for Alaska
Cruise lines recently announced cuts that would bring about 100,000 fewer passengers to Alaska in 2010. Part of the reason is that demand for Alaska is down, so rather than discount to fill the ships, they are reducing the supply of berths to more closely match demand and therefore increase pricing. Carnival Corp has already said that if the 2010 cuts aren't enough to move pricing as much as they need, there will be more reductions in capacity in 2011 for their brands (Carnival, Holland America and Princess).
Now the Fairbanks News Miner reports that interest in travel to Alaska is apparently waning because an annual blitz of television shows which spotlight Alaska and normally generates a surge of bookings has failed to produce that flurry of bookings this year.
Meanwhile the state's citizens continue to push for measures to increase the costs for cruise lines operating in Alaska (see our earlier CND article), making it more profitable for cruise lines to deploy their ships elsewhere.
Now the Fairbanks News Miner reports that interest in travel to Alaska is apparently waning because an annual blitz of television shows which spotlight Alaska and normally generates a surge of bookings has failed to produce that flurry of bookings this year.
Meanwhile the state's citizens continue to push for measures to increase the costs for cruise lines operating in Alaska (see our earlier CND article), making it more profitable for cruise lines to deploy their ships elsewhere.
Thursday, April 9, 2009
What's Wrong with Alaska's Thinking
Earlier this week, the Anchorage Daily News published an editorial that, while it's a valid opinion, it also shows the wrong thinking in Alaska that's threatening to destroy their entire tourism industry as they now know it.
The situation the opinion piece addresses is the legislature trying to set the standards for cruise ships' waste water emissions. More strict standards were mandated in the 2006 citizens' initiative (which also added the infamous $50 tax among numerous other taxes and fees), but like everything else in the measure, it was left to the legislature to actually write the law (including the exact specifications) and implement it. According to the cruise lines, equipment with the technology to meet the standards that the state wants to set isn't even on the market yet, and once it is, it will take a couple of years to obtain it and get it installed.
The cruise lines have been working with the legislature to reach some sort of compromise and set some standards under which they can continue to operate. The mechanism the legislature seems to be now leaning toward is creating a panel which would study the ability of the cruise lines to meet the standards and the economic feasibility of it and have the panel report back in 2012 and 2014. Those dates seem to be in line with when the industry says the equipment will come onto the market and when they can get it installed.
The newspaper seems to be assuming that referring the issue to the panel for further study equates to the death of the idea. In the opinion piece, they say they want absolute deadlines set for those dates.
We see this as an example of the mindset in Alaska which could in the end destroy one of the state's most profitable sources of income and employment.
The major assumption this thinking has is that the state holds all the cards and the cruise industry will ultimately accept whatever conditions are placed upon their operation there. It is true that the state can dictate the conditions for cruise lines to operate there, but the fallacious part of the assumption is that the cruise industry will do whatever they need to do to continue to operate cruises to Alaska. If the state sets standards unreasonably high that it will be impossible or very difficult for the cruise industry to meet, they are a very mobile industry which can disappear almost overnight if necessary.
The thinking in Alaska that the ADN represents, forgets that cruise lines exist only to make money for their investors, and times have changed both in the cruise industry and in Alaska. Pricing for cruises is currently down, and the state has already added tremendously to the cost side of the equation in the Alaska market. As a result, there are now other markets where it's more profitable to operate cruises than in Alaska, and there are more opening all the time.
Yes, the cruise lines have assets on land in Alaska that they don't have elsewhere, but the cruise lines are demonstrating their willingness to walk away from those. Next year they are intentionally planning to operate them below capacity as they shrink the supply of cruise berths in the market in an effort to increase pricing. It's much easier today to envision the cruise industry leaving Alaska than it has ever been in the past.
The other part of the mindset that's wrong in Alaska is to not consider a certain degree of pollution by the cruise industry acceptable. It's great to aspire to zero pollution, but in reality Alaskans are already compromising those ideals for themselves. Alaskans are driving cars that are polluting the air, and their cities are putting waste into the water that are nowhere close to the standards they want to require of cruise ships because they know it's economically unfeasible to suddenly require their cars and cities to meet the same air and water standards.
With that in mind, they need to start thinking about there being some middle ground between the ideal they want and what's realistic for the cruise industry to meet at a cost they can afford and that the consumer will be willing to pay to come to Alaska. If Alaskans adhere to the ideal, instead of reality, that's OK, but they must also recognize that it seems they will also be facing a future without a cruise industry - and the economic benefits and jobs it brings to their state.
You can read the Anchorage Daily News editorial on the ADN site, but you will have to scroll down after you click on the link.
This article originally appeared in the April 9, 2009, edition of Cruise News Daily.
The situation the opinion piece addresses is the legislature trying to set the standards for cruise ships' waste water emissions. More strict standards were mandated in the 2006 citizens' initiative (which also added the infamous $50 tax among numerous other taxes and fees), but like everything else in the measure, it was left to the legislature to actually write the law (including the exact specifications) and implement it. According to the cruise lines, equipment with the technology to meet the standards that the state wants to set isn't even on the market yet, and once it is, it will take a couple of years to obtain it and get it installed.
The cruise lines have been working with the legislature to reach some sort of compromise and set some standards under which they can continue to operate. The mechanism the legislature seems to be now leaning toward is creating a panel which would study the ability of the cruise lines to meet the standards and the economic feasibility of it and have the panel report back in 2012 and 2014. Those dates seem to be in line with when the industry says the equipment will come onto the market and when they can get it installed.
The newspaper seems to be assuming that referring the issue to the panel for further study equates to the death of the idea. In the opinion piece, they say they want absolute deadlines set for those dates.
We see this as an example of the mindset in Alaska which could in the end destroy one of the state's most profitable sources of income and employment.
The major assumption this thinking has is that the state holds all the cards and the cruise industry will ultimately accept whatever conditions are placed upon their operation there. It is true that the state can dictate the conditions for cruise lines to operate there, but the fallacious part of the assumption is that the cruise industry will do whatever they need to do to continue to operate cruises to Alaska. If the state sets standards unreasonably high that it will be impossible or very difficult for the cruise industry to meet, they are a very mobile industry which can disappear almost overnight if necessary.
The thinking in Alaska that the ADN represents, forgets that cruise lines exist only to make money for their investors, and times have changed both in the cruise industry and in Alaska. Pricing for cruises is currently down, and the state has already added tremendously to the cost side of the equation in the Alaska market. As a result, there are now other markets where it's more profitable to operate cruises than in Alaska, and there are more opening all the time.
Yes, the cruise lines have assets on land in Alaska that they don't have elsewhere, but the cruise lines are demonstrating their willingness to walk away from those. Next year they are intentionally planning to operate them below capacity as they shrink the supply of cruise berths in the market in an effort to increase pricing. It's much easier today to envision the cruise industry leaving Alaska than it has ever been in the past.
The other part of the mindset that's wrong in Alaska is to not consider a certain degree of pollution by the cruise industry acceptable. It's great to aspire to zero pollution, but in reality Alaskans are already compromising those ideals for themselves. Alaskans are driving cars that are polluting the air, and their cities are putting waste into the water that are nowhere close to the standards they want to require of cruise ships because they know it's economically unfeasible to suddenly require their cars and cities to meet the same air and water standards.
With that in mind, they need to start thinking about there being some middle ground between the ideal they want and what's realistic for the cruise industry to meet at a cost they can afford and that the consumer will be willing to pay to come to Alaska. If Alaskans adhere to the ideal, instead of reality, that's OK, but they must also recognize that it seems they will also be facing a future without a cruise industry - and the economic benefits and jobs it brings to their state.
You can read the Anchorage Daily News editorial on the ADN site, but you will have to scroll down after you click on the link.
This article originally appeared in the April 9, 2009, edition of Cruise News Daily.
Tuesday, April 7, 2009
Vancouver Gets the Fallout from the Alaskan Reduction
As we pointed out in a recent article in Cruise News Daily, Vancouver is the innocent victim in the cruise lines' reduction of cruises to Alaska in 2010 and beyond. An article in today's Globe & Mail details how the effects are reaching much farther in western Canada than just just the loss of the cruise ships. Unfortunately the reality of the economic impact has yet to actually be understood by most Alaskans who will be hit harder and are responsible for the cruise lines' decision - and who are not acting to stop further losses in 2011 and beyond.
Monday, April 6, 2009
Will You Be Cruising to Cuba Anytime Soon?
Will your cruise ship sailing out of Miami be adding a call at a Cuban port anytime soon? No.
The US news media is reporting that the Obama administration will be relaxing travel restrictions on US citizens traveling to Cuba. Most are barely mentioning that this applies only to people traveling to visit relatives in Cuba, and virtually none are mentioning that the US trade embargo will remain unaffected.
Still travel websites are excitedly discussing the possibilities.
As long as the trade embargo remains in effect the cruise lines can't do business with Cuban businesses, so they won't be calling at any Cuban ports unless the trade embargo is abolished.
Aside from that, there are other issues that have always been there. Cruise lines have commitments to call at ports specified numbers of times in a year, and to suddenly substitute some calls at Cuban ports for even a few ships would have to cause major reshuffling within the fleets. Once Cuban calls are possible, it will have to be a process.
Beyond that, there's a political aspect that's not apparent if you are somewhere outside South Florida. There are a lot of Cuban-Americans in South Florida, many working for the cruise lines in their home offices. The Cuban-American community is about evenly divided on the issue of doing business with Cuba, and both sides are very passionate in their views. With that in mind, until the trade embargo is lifted, the cruise lines would prefer not to even address the issue, because no matter which way they would be leaning, it would be very hurtful to many of their employees.
The US news media is reporting that the Obama administration will be relaxing travel restrictions on US citizens traveling to Cuba. Most are barely mentioning that this applies only to people traveling to visit relatives in Cuba, and virtually none are mentioning that the US trade embargo will remain unaffected.
Still travel websites are excitedly discussing the possibilities.
As long as the trade embargo remains in effect the cruise lines can't do business with Cuban businesses, so they won't be calling at any Cuban ports unless the trade embargo is abolished.
Aside from that, there are other issues that have always been there. Cruise lines have commitments to call at ports specified numbers of times in a year, and to suddenly substitute some calls at Cuban ports for even a few ships would have to cause major reshuffling within the fleets. Once Cuban calls are possible, it will have to be a process.
Beyond that, there's a political aspect that's not apparent if you are somewhere outside South Florida. There are a lot of Cuban-Americans in South Florida, many working for the cruise lines in their home offices. The Cuban-American community is about evenly divided on the issue of doing business with Cuba, and both sides are very passionate in their views. With that in mind, until the trade embargo is lifted, the cruise lines would prefer not to even address the issue, because no matter which way they would be leaning, it would be very hurtful to many of their employees.
Friday, April 3, 2009
Why the Cruise Ships Are Leaving Alaska
For the first time in history, Alaska's lucrative tourism industry is going to begin shrinking next summer. Cruise lines are withdrawing ships from the market, probably having a significant impact on the state's economy, and most Alaskans don't even seem to know why.
The local media hasn't put all the pieces together for them. They have covered various aspects of the story, but they don't seem to connect all the parts to show the whole picture.
Most people in Alaska by now have probably seen stories about some ships not coming back in 2010, and they know that's a bad thing, but the stories have never explained why the cruise lines made their decisions. For many, the story probably won't hit home until next spring when seasonal hiring goes down and a lot of people don't find jobs where they always have.
The ships are not leaving Alaska because of the $50 tax enacted in 2006 or because of environmental issues. They aren't leaving because of the economy or lack of passengers. They aren't leaving to punish anyone or to send any kind of message.
The ships are leaving for one reason only: money.
Because the major cruise lines operating in Alaska are publicly traded corporations, they are under constant pressure to maximize profits for investors.
Two things affect those profits in Alaska, as they do everywhere cruise lines operate: The amount of money people are willing to pay to sail on the ship and how much it costs them to operate the ships where they are. The difference between them is the profit, and changes to either or both elements affect the profit.
In Alaska, currently both the income and the costs are moving in ways that adversely affect the cruise lines' profits. There are some aspects of the equation the people in Alaska can do something about if they want to, and some things that are out of their control.
Let's begin by looking at what's affecting the costs.
Alaska has traditionally been an expensive place for cruise lines to operate, for a number of reasons. Lately, however, their costs have been increased by the 2006 citizens' initiative. It added a number of taxes and fees on cruise lines operating in the state, some of which the state is still figuring out how to implement. Those have increased costs of doing business in Alaska for cruise lines beginning in 2007 and will continue to do so as they are implemented.
The other big expense for cruise lines in Alaska is complying with very stringent environmental rules in Alaska and acquiring and operating the special equipment to do so. Add to that when they don't or can't comply, they pay sizable fines. (Whether you believe cruise lines intentionally pollute or not, is a side issue that doesn't affect this one. Whether they comply with the laws or pay fines, these are costs which are much higher when operating in Alaska than when they operate elsewhere.) The state is currently trying to increase the standards which will eventually require additional major investment in new equipment by the cruise lines.
These costs have all risen dramatically.
The other side of the equation is the income, which has been going down.
When the citizens' initiative was passed by voters in 2006, it carried a provision of $50 in taxes and fees which will be assessed on each passenger. Depending who
you are, you either look at this as increasing the price or increasing the cost.
The cruise lines look at it as increasing their cost because they think that at any given moment they are selling their cabins, including all the taxes and fees,
for as much as the consumer is willing to pay. So they look at this as $50 taken out of their price and given to state, and if that tax hadn't been there it would have
been part of the price the cruise line could have kept for itself.
Consumers, on the other hand, tend to look at the $50 tax as pushing their price up by $50 they would not have to pay if they cruised elsewhere. For the person going to Alaska once in his lifetime, it's probably not an issue. But the majority of people cruising in Alaska, especially in the southeastern part of the state, are cruising there because it's convenient and the price is right. That market compares cruising to Alaska against cruising elsewhere or other types of vacations.
Coincidence or not, in 2007 the market for Alaska cruises stopped growing for the first time in history.
The country is also in a recession, and it's hard to get people to travel. The way cruise lines stimulate sales is by decreasing prices until they get to a point where
they fill all their inventory. They are fortunate in that they are the one segment of the travel industry where consumers absolutely respond to these price cuts and fill the inventory; hotels can slash prices to the bone and still not fill all their rooms.
Whether it be the recession or the $50 tax, cruises are selling at all-time lows to fill all the cruise ships in Alaska this summer. Balance that against the rising costs of operating in Alaska, and the profit margin narrows or disappears.
So the cruise lines either want to increase prices or reduce the extra operating expenses they have in Alaska.
They can't do much about the operating expenses. That's up to Alaskans if they want to ease that side of the equation, and so far the cruise lines' requests have
fallen on deaf ears in the Forty-Ninth State.
That leaves the alternative of increasing prices. If the lines do that arbitrarily, not as many consumers will buy, and they will be sailing with empty cabins. So to boost prices without having empty cabins, the cruise lines are turning to the law of supply and demand. They are reducing the supply of cabins (taking ships out of the market to reduce inventory) in 2010 to match the number of consumers who are willing to pay more for them.
Giving more incentive to follow this course is the fact that while prices for cruises are down somewhat in most of the world, the costs of operating elsewhere aren't constantly increasing. There is growing consumer demand for the ships elsewhere, while consumers seem to be demanding Alaska less.
There's still a lot of growth to be done in Europe, although their rapidly expanding market has cooled a little with their recession. There are also newly emerging markets which are experiencing explosive growth such as Australia, South America and Asia.
The cuts in the Alaskan fleet are set for 2010. There's nothing that can be done about those changes now. It will be interesting to see how consumers and Alaska responds, because Carnival's chairman Micky Arison has very clearly said that if the 2010 cuts don't improve the yields to where they want them, there will be more reductions in their brands' capacity in 2011. It's only logical that other companies will follow suit.
No one expects the entire Alaskan fleet to be removed, but there are other markets which will absorb any excess capacity there. The important question now is what toll it will take on Alaska's economy.
The local media hasn't put all the pieces together for them. They have covered various aspects of the story, but they don't seem to connect all the parts to show the whole picture.
Most people in Alaska by now have probably seen stories about some ships not coming back in 2010, and they know that's a bad thing, but the stories have never explained why the cruise lines made their decisions. For many, the story probably won't hit home until next spring when seasonal hiring goes down and a lot of people don't find jobs where they always have.
The ships are not leaving Alaska because of the $50 tax enacted in 2006 or because of environmental issues. They aren't leaving because of the economy or lack of passengers. They aren't leaving to punish anyone or to send any kind of message.
The ships are leaving for one reason only: money.
Because the major cruise lines operating in Alaska are publicly traded corporations, they are under constant pressure to maximize profits for investors.
Two things affect those profits in Alaska, as they do everywhere cruise lines operate: The amount of money people are willing to pay to sail on the ship and how much it costs them to operate the ships where they are. The difference between them is the profit, and changes to either or both elements affect the profit.
In Alaska, currently both the income and the costs are moving in ways that adversely affect the cruise lines' profits. There are some aspects of the equation the people in Alaska can do something about if they want to, and some things that are out of their control.
Let's begin by looking at what's affecting the costs.
Alaska has traditionally been an expensive place for cruise lines to operate, for a number of reasons. Lately, however, their costs have been increased by the 2006 citizens' initiative. It added a number of taxes and fees on cruise lines operating in the state, some of which the state is still figuring out how to implement. Those have increased costs of doing business in Alaska for cruise lines beginning in 2007 and will continue to do so as they are implemented.
The other big expense for cruise lines in Alaska is complying with very stringent environmental rules in Alaska and acquiring and operating the special equipment to do so. Add to that when they don't or can't comply, they pay sizable fines. (Whether you believe cruise lines intentionally pollute or not, is a side issue that doesn't affect this one. Whether they comply with the laws or pay fines, these are costs which are much higher when operating in Alaska than when they operate elsewhere.) The state is currently trying to increase the standards which will eventually require additional major investment in new equipment by the cruise lines.
These costs have all risen dramatically.
The other side of the equation is the income, which has been going down.
When the citizens' initiative was passed by voters in 2006, it carried a provision of $50 in taxes and fees which will be assessed on each passenger. Depending who
you are, you either look at this as increasing the price or increasing the cost.
The cruise lines look at it as increasing their cost because they think that at any given moment they are selling their cabins, including all the taxes and fees,
for as much as the consumer is willing to pay. So they look at this as $50 taken out of their price and given to state, and if that tax hadn't been there it would have
been part of the price the cruise line could have kept for itself.
Consumers, on the other hand, tend to look at the $50 tax as pushing their price up by $50 they would not have to pay if they cruised elsewhere. For the person going to Alaska once in his lifetime, it's probably not an issue. But the majority of people cruising in Alaska, especially in the southeastern part of the state, are cruising there because it's convenient and the price is right. That market compares cruising to Alaska against cruising elsewhere or other types of vacations.
Coincidence or not, in 2007 the market for Alaska cruises stopped growing for the first time in history.
The country is also in a recession, and it's hard to get people to travel. The way cruise lines stimulate sales is by decreasing prices until they get to a point where
they fill all their inventory. They are fortunate in that they are the one segment of the travel industry where consumers absolutely respond to these price cuts and fill the inventory; hotels can slash prices to the bone and still not fill all their rooms.
Whether it be the recession or the $50 tax, cruises are selling at all-time lows to fill all the cruise ships in Alaska this summer. Balance that against the rising costs of operating in Alaska, and the profit margin narrows or disappears.
So the cruise lines either want to increase prices or reduce the extra operating expenses they have in Alaska.
They can't do much about the operating expenses. That's up to Alaskans if they want to ease that side of the equation, and so far the cruise lines' requests have
fallen on deaf ears in the Forty-Ninth State.
That leaves the alternative of increasing prices. If the lines do that arbitrarily, not as many consumers will buy, and they will be sailing with empty cabins. So to boost prices without having empty cabins, the cruise lines are turning to the law of supply and demand. They are reducing the supply of cabins (taking ships out of the market to reduce inventory) in 2010 to match the number of consumers who are willing to pay more for them.
Giving more incentive to follow this course is the fact that while prices for cruises are down somewhat in most of the world, the costs of operating elsewhere aren't constantly increasing. There is growing consumer demand for the ships elsewhere, while consumers seem to be demanding Alaska less.
There's still a lot of growth to be done in Europe, although their rapidly expanding market has cooled a little with their recession. There are also newly emerging markets which are experiencing explosive growth such as Australia, South America and Asia.
The cuts in the Alaskan fleet are set for 2010. There's nothing that can be done about those changes now. It will be interesting to see how consumers and Alaska responds, because Carnival's chairman Micky Arison has very clearly said that if the 2010 cuts don't improve the yields to where they want them, there will be more reductions in their brands' capacity in 2011. It's only logical that other companies will follow suit.
No one expects the entire Alaskan fleet to be removed, but there are other markets which will absorb any excess capacity there. The important question now is what toll it will take on Alaska's economy.
Thursday, March 26, 2009
The Alaskan Picture Becomes Clearer
Tuesday's announcement by Carnival Corp that they intend to decrease capacity in Alaska in 2010 wasn't specific about which brands and how many ships, but Carnival chairman Micky Arison said the impact would be felt in Alaska.
Holland America has confirmed to CND that they will move one of their ships out of Vancouver where has operated on 7-day one way trips between Vancouver and Alaska. Instead they will move it to Seattle where it will operate a new 14-day round trip program from there. While it will still be going to Alaska, it will essentially only carry half the number of people. That translates into about 11,000 fewer passengers over the course of the summer.
Princess had already confirmed to CND that they would remove one ship from the Gulf of Alaska route and deploy it elsewhere. That represents 29% of their capacity in the Gulf, or 16% of their overall Alaska capacity.
Arison indicated that their land operations (tours and hotels) would also be scaled back. Neither company could yet provide data to CND on how many fewer employees they would have in Alaska in 2010.
Last ppdated 530pm EDT March 27, 2009
Holland America has confirmed to CND that they will move one of their ships out of Vancouver where has operated on 7-day one way trips between Vancouver and Alaska. Instead they will move it to Seattle where it will operate a new 14-day round trip program from there. While it will still be going to Alaska, it will essentially only carry half the number of people. That translates into about 11,000 fewer passengers over the course of the summer.
Princess had already confirmed to CND that they would remove one ship from the Gulf of Alaska route and deploy it elsewhere. That represents 29% of their capacity in the Gulf, or 16% of their overall Alaska capacity.
Arison indicated that their land operations (tours and hotels) would also be scaled back. Neither company could yet provide data to CND on how many fewer employees they would have in Alaska in 2010.
Last ppdated 530pm EDT March 27, 2009
Tuesday, March 24, 2009
Bombshell for Alaska
In today's conference call to discuss the last quarter's earnings, Carnival Corp chairman Micky Arison said the effects of Alaska's initiative, which imposed a $50 tax on passengers cruising to the state, are now becoming clear with bookings to Alaska down in the "double digit" percentages for the company. With pricing down, the $50 becomes even more significant.
He announced that Carnival intends to decrease capacity in Alaska in 2010, and specifics will be announced soon. Royal Caribbean International earlier announced reducing their presence in the market next year from three ships to two.
Arison went on to say that if the 2010 cuts don't help stabilize the market and improve yields, there will be additional cuts in 2011 capacity.
In response to one of the questions, Arison said the reduced capacity will also have an impact on their Princess Tours' and Holland America/Westours' land operations.
Proponents of the measure to increase the taxes in Alaska argued the public would not mind the additional taxes and cruise lines would not reduce capacity.
Further details will be in today's edition of CND.
Updated 11:05am EDT
He announced that Carnival intends to decrease capacity in Alaska in 2010, and specifics will be announced soon. Royal Caribbean International earlier announced reducing their presence in the market next year from three ships to two.
Arison went on to say that if the 2010 cuts don't help stabilize the market and improve yields, there will be additional cuts in 2011 capacity.
In response to one of the questions, Arison said the reduced capacity will also have an impact on their Princess Tours' and Holland America/Westours' land operations.
Proponents of the measure to increase the taxes in Alaska argued the public would not mind the additional taxes and cruise lines would not reduce capacity.
Further details will be in today's edition of CND.
Updated 11:05am EDT
Friday, February 27, 2009
Missing the Bigger Picture
There are two types of articles being written about the cruise industry lately. One is consumer-oriented and talks about what good deals there are on cruises at the moment. The others have more of a business orientation and talk about how times are bad for the cruise industry.
The consumer-oriented articles point out how the good value of a cruise has become even better with lower prices being offered. But then they take a slightly darker turn when the writer interviews some other travel writer and that "expert" says how the prices are down because the business is down and indicates how "desperate" the cruise lines are to fill their cabins. That's usually followed by another article by the second writer who interviews the first writer, and that's how these articles proliferate.
The business-oriented articles are usually written by someone who really doesn't know much about the cruise industry. They take some piece of financial information they have picked up and for some authoritative-sounding quote, they go to one of the people who have been quoted in one of the consumer pieces, giving them some title like "industry-watcher." In the end, the article comes off talking about how cruise lines are "scrambling" to fill empty space and indicate that it's a tough time for the cruise industry.
Is it really that bad?
Not really. Yes, the articles are right that prices are generally way down, and there are excellent bargains for the consumer. Those prices do result in lower profits for cruise lines; that's only logical, but there are two important points that those articles are missing, if they'd only step back and look at the big picture.
One is that the lower prices are resulting in LOWER profits, not LOSSES. Sure it's disappointing for investors to be looking at profits that are a fraction of what they were a year earlier, but you don't have to look far to find other businesses - even in the travel industry - that are reporting huge losses.
The other thing that should be noticed is that while the prices are reduced, cruise ships are still being consistently filled. That can't be said for other segments of the hospitality industry.
The time to worry would be if cruise lines CAN'T fill those cabins no matter how low the pricing goes. But not only aren't we there yet, cruise lines have several things, other than price, in their arsenal that can stimulate sales. One is something that the rest of the hospitality industry can't do: relocate their inventory. If a ship isn't selling well one place, it can be moved to a destination people do want to buy.
Moving a ship to a different homeport can also create an "instant discount" of hundreds of dollars in a market for millions of potential customers, by eliminating their need for travel expenses (air fares). The best part for the cruise line is that "discount" on the total price doesn't really cost them anything.
Even when they pick up on one of these concepts, such as moving a ship's homeport to eliminate transportation costs for consumers, many of the writers of these articles are also missing the "big picture" concept. They don't seem to realize that cruise companies today are global operations, sourcing customers from all over the world. They often write about "pulling ships back from Europe," which they see as an expensive destination, but it escapes them that most of the passengers boarding a Southampton-based ship, for example, may be from the UK and have chosen that cruise because it is "local" to them and they can save transportation cost by driving to it.
Another "big picture" concept being missed is that not everyone is out of a job or worried that they may lose theirs tomorrow. Even if the jobless rate were to climb to 10%, it still means 90% of the population has jobs and it's business as normal in their households. The surveys continue to say people who have jobs still want to go on vacation, but they want to spend less doing it. And positioned to fill that desire is the cruise industry, ready with shorter cruises and their bargain rates that are such good values. How are so many of the "industry-watchers" missing this?
It's almost like they are rooting for the cruise industry to have trouble so it will make dramatic headlines for them. A few days ago Royal Caribbean filed a routine form with the SEC about their outlook for this year. In it they discussed how the credit market has changed and how they, when credit was easier to obtain, originally believed they had all their financing in place for Oasis of the Seas. They stated they are now faced with having ongoing negotiations to obtain all the financing they need. It was a routine statement of the situation, but many of the "industry-watchers" excerpted that portion of the lengthy report and created articles talking about how Oasis may be "sunk." With the ship on schedule for handover in November, and whatever economic impact it will have, either delivered or not, do any of these people really believe there is really much of a possibility it will come down to November and Royal Caribbean will just tell STX, "Sorry, we can't pay for it?" Yet there were at least a half dozen articles written with headlines implying that lack of financing could cancel the project.
Anyone who has sold anything for a living knows there are up cycles and down cycles, and good days and bad days. Cruise lines know better days will come. They are not canceling orders for new ships, and those in the pipeline are being built because they know that profit margins will again rise, and they want to be ready when they do.
In the meantime, continue to read the articles by the "industry-watchers," but just be sure when you finish, you step back and see the real picture.
Originally published in Cruise News Daily February 27, 2009. Copyright CND, all rights reserved. This article may not be legally posted elsewhere.
The consumer-oriented articles point out how the good value of a cruise has become even better with lower prices being offered. But then they take a slightly darker turn when the writer interviews some other travel writer and that "expert" says how the prices are down because the business is down and indicates how "desperate" the cruise lines are to fill their cabins. That's usually followed by another article by the second writer who interviews the first writer, and that's how these articles proliferate.
The business-oriented articles are usually written by someone who really doesn't know much about the cruise industry. They take some piece of financial information they have picked up and for some authoritative-sounding quote, they go to one of the people who have been quoted in one of the consumer pieces, giving them some title like "industry-watcher." In the end, the article comes off talking about how cruise lines are "scrambling" to fill empty space and indicate that it's a tough time for the cruise industry.
Is it really that bad?
Not really. Yes, the articles are right that prices are generally way down, and there are excellent bargains for the consumer. Those prices do result in lower profits for cruise lines; that's only logical, but there are two important points that those articles are missing, if they'd only step back and look at the big picture.
One is that the lower prices are resulting in LOWER profits, not LOSSES. Sure it's disappointing for investors to be looking at profits that are a fraction of what they were a year earlier, but you don't have to look far to find other businesses - even in the travel industry - that are reporting huge losses.
The other thing that should be noticed is that while the prices are reduced, cruise ships are still being consistently filled. That can't be said for other segments of the hospitality industry.
The time to worry would be if cruise lines CAN'T fill those cabins no matter how low the pricing goes. But not only aren't we there yet, cruise lines have several things, other than price, in their arsenal that can stimulate sales. One is something that the rest of the hospitality industry can't do: relocate their inventory. If a ship isn't selling well one place, it can be moved to a destination people do want to buy.
Moving a ship to a different homeport can also create an "instant discount" of hundreds of dollars in a market for millions of potential customers, by eliminating their need for travel expenses (air fares). The best part for the cruise line is that "discount" on the total price doesn't really cost them anything.
Even when they pick up on one of these concepts, such as moving a ship's homeport to eliminate transportation costs for consumers, many of the writers of these articles are also missing the "big picture" concept. They don't seem to realize that cruise companies today are global operations, sourcing customers from all over the world. They often write about "pulling ships back from Europe," which they see as an expensive destination, but it escapes them that most of the passengers boarding a Southampton-based ship, for example, may be from the UK and have chosen that cruise because it is "local" to them and they can save transportation cost by driving to it.
Another "big picture" concept being missed is that not everyone is out of a job or worried that they may lose theirs tomorrow. Even if the jobless rate were to climb to 10%, it still means 90% of the population has jobs and it's business as normal in their households. The surveys continue to say people who have jobs still want to go on vacation, but they want to spend less doing it. And positioned to fill that desire is the cruise industry, ready with shorter cruises and their bargain rates that are such good values. How are so many of the "industry-watchers" missing this?
It's almost like they are rooting for the cruise industry to have trouble so it will make dramatic headlines for them. A few days ago Royal Caribbean filed a routine form with the SEC about their outlook for this year. In it they discussed how the credit market has changed and how they, when credit was easier to obtain, originally believed they had all their financing in place for Oasis of the Seas. They stated they are now faced with having ongoing negotiations to obtain all the financing they need. It was a routine statement of the situation, but many of the "industry-watchers" excerpted that portion of the lengthy report and created articles talking about how Oasis may be "sunk." With the ship on schedule for handover in November, and whatever economic impact it will have, either delivered or not, do any of these people really believe there is really much of a possibility it will come down to November and Royal Caribbean will just tell STX, "Sorry, we can't pay for it?" Yet there were at least a half dozen articles written with headlines implying that lack of financing could cancel the project.
Anyone who has sold anything for a living knows there are up cycles and down cycles, and good days and bad days. Cruise lines know better days will come. They are not canceling orders for new ships, and those in the pipeline are being built because they know that profit margins will again rise, and they want to be ready when they do.
In the meantime, continue to read the articles by the "industry-watchers," but just be sure when you finish, you step back and see the real picture.
Originally published in Cruise News Daily February 27, 2009. Copyright CND, all rights reserved. This article may not be legally posted elsewhere.
Tuesday, December 2, 2008
Question: Why Do Cruise Lines Still Send Ships through the Gulf of Aden?
Over the last few weeks, much of the general news media has suddenly discovered the story of piracy of ships in the Gulf of Aden, a story which has been developing and covered by the trade press for several years. In their coverage, and especially with the recent encounter between Nautica and some pirates, they want to bring in the cruise ship angle. They are asking questions like what tools cruise ships have to defend themselves, or, with the rising number of ships being taken, why do cruise lines continue to send their ships through the Gulf.
They have been asking the wrong questions, however. After covering cruise lines for a lot of years, we've come to know cruise lines aren't about to send their ships anywhere they believe there is a significant risk of harm to them and the people aboard. Therefore that means cruise lines are believing there is little risk associated with their passing through the Gulf of Aden. With that in mind, a few weeks ago we started to ask the question why they believe they are safe when the number of ships being taken is steadily increasing. Yesterday, CND had that important question answered during a wide_ranging discussion when we sat down for an exclusive interview with the top security officer of one of the cruise lines that had a ship sailing in the area recently.
While most of the interview was on the record, we agreed to one big condition. We agreed not to reveal the person's name or the cruise line. He agreed to the interview because it is important for the public to know the cruise lines are not putting their ships or passengers at risk. He was speaking only for his own cruise line, but since all major lines share information on this matter, it's safe to assume the industry shares the same thinking. The reason we agreed not to identify the line is that we don't want the other side to construe what was being said as a challenge to them, a challenge to try to take a cruise ship, especially of this particular line. This person was simply answering our questions and explaining why the pirates aren't interested in taking a cruise ship.
Yes, that's right. At this point in time, pirates really aren't interested in cruise ships.
Something that doesn't come across in most of the general news media reports is the pirates in this area are not just a bunch of rogues with boats roaming around out at sea trying to stop any ship they come across. The pirates off the Somali coast are part of larger operations run from ashore by smart business people. They are only interested in making money. They capture a ship, hold it for ransom, get paid and let it go.
The people in charge follow what ships are coming toward the area, decide what would be the easiest (and presumably profitable) to take, and then send the guys in the boats out to get the ship.
Cruise ships don't really fit into that business model. They are quite different from cargo vessels, and wouldn't be nearly as easy of a target. The pirates are looking for the easiest targets, and even within commercial vessels, he said different types of vessels have different rates of being targeted.
Cruise ships are actually quite different from the cargo vessels the pirates have been taking, and would be perhaps the hardest to take. First of all cruise ships generally move much faster than the pirates' small boats. And you should believe when they pass through that area, they are moving fast. Just like when you drive through the bad part of town, you want to be through it as quickly as possible, so you increase your speed and don't stop.
Cruise ships are also built differently than most of the cargo vessels and tankers, and therefore, if the pirates can get alongside, they are not nearly as easy to board.
Staffing is another difference. Cargo vessels generally don't have the numbers of people cruise ships do to watch in all directions around the clock, so a cruise ship will probably have more warning of a potential attack by pirates than a cargo vessel. Along those same lines, cruise ships carry a much larger security force to defend the vessel should there be an attempt to board. It probably will far outnumber the pirates.
Of course, something we did not talk about in any detail is that cruise ships generally have a better arsenal of ways at their disposal to defend themselves than most cargo vessels will.
So with all these things making it more difficult to take a cruise ship, why would the pirates want to go to all the extra trouble to take a cruise ship? It's vastly easier to take a cargo vessel, especially some types.
But there's more. If the pirates did somehow manage to capture a cruise ship, then what? They would face much bigger challenges holding a vessel with several thousand people aboard than they do holding a cargo vessel with a couple dozen people. Again, these pirate groups are smart business people, who have thought this all out. There wouldn't be an overnight solution to the hijacking. The captors don't call the CEO of the company that owns the vessel, agree on a price and funds are wired to the pirates. Instead to protect themselves, the pirates work through several layers of intermediaries, and the process would take several weeks, at best, to be resolved and have the ship released. During that time the pirates would have to provide food probably for a couple thousand people, a large amount of fuel to keep powering the ship even minimally, and it would be almost impossible to keep control of that many people. "It's a very different equation to take on a ship with that number of people than it is to take on a ship with 25 people," he said.
The law of averages says among the passengers there would be ex_military people, off_duty law enforcement officers and people who just wouldn't stand for being held captive. It would also be impossible for the captors to know all the faces, so they would be vulnerable to rescue forces slipping aboard and being among the people waiting for the right time to neutralize the pirates.
It would be an almost impossible situation for the pirates to deal with. Again, there are smart business people behind these operations. They have thought this out, and why would they want to change a successful business model which is working so well for them and add all this extra risk and expense to their operation? There are about 60 cargo vessels per day passing through the area; all of them would offer easier opportunities for success and profit than a cruise ship.
What about the two instances where cruise ships have been attacked, including Sunday's incident with Nautica? He said he has seen no information about either that would lead him to believe that there was any serious attempt to board either ship. He said those may have simply been targets of opportunity, where the guys in the boats were sent out to get a particular ship and didn't see it or failed to get it. The cruise ships then came by and the guys on their own decided that since they were there, they may as well try to see how far they could get with the ship. ("Just messing with them," as he put it.) We'll never know, but they didn't get very far into either attempt before they called them off.
Another surprise in cruise lines' thinking came when I asked about risk levels increasing. About a dozen cruise ships a year move through the Gulf a couple times a year each either as they reposition between seasonal deployments or as part of an already_lengthy cruise, such as a world cruise. It would certainly have a big impact on the company if he decided for some reason the risk was too great for the ship to go through the area. What types of things, I asked, could cause the risk to increase enough that it wouldn't be safe for a ship to transit the area? I was surprised when he said that for almost any increased risk he could think of, there was something he could do to lessen it or counterbalance it. Some of them, of course would be expensive, but they would lessen the risk to a point where the ship could pass though the area safely.
In closing the interview, he said that he feels that it is safe for his line's ships to transit the Gulf. There is a tremendous amount of thought and planning put into how every one of the line's vessels transits the Gulf, and he would be completely comfortable with his grandmother or daughter sailing on them. That says a lot.
I came away from that discussion having a much better understanding of why the cruise ships keep going through the Gulf of Aden, and I feel our readers now should too.
Orginally published in Cruise News Daily December 2, 2008 edition. Copyright CND, all rights reserved. This may not be legally posted elsewhere.
They have been asking the wrong questions, however. After covering cruise lines for a lot of years, we've come to know cruise lines aren't about to send their ships anywhere they believe there is a significant risk of harm to them and the people aboard. Therefore that means cruise lines are believing there is little risk associated with their passing through the Gulf of Aden. With that in mind, a few weeks ago we started to ask the question why they believe they are safe when the number of ships being taken is steadily increasing. Yesterday, CND had that important question answered during a wide_ranging discussion when we sat down for an exclusive interview with the top security officer of one of the cruise lines that had a ship sailing in the area recently.
While most of the interview was on the record, we agreed to one big condition. We agreed not to reveal the person's name or the cruise line. He agreed to the interview because it is important for the public to know the cruise lines are not putting their ships or passengers at risk. He was speaking only for his own cruise line, but since all major lines share information on this matter, it's safe to assume the industry shares the same thinking. The reason we agreed not to identify the line is that we don't want the other side to construe what was being said as a challenge to them, a challenge to try to take a cruise ship, especially of this particular line. This person was simply answering our questions and explaining why the pirates aren't interested in taking a cruise ship.
Yes, that's right. At this point in time, pirates really aren't interested in cruise ships.
Something that doesn't come across in most of the general news media reports is the pirates in this area are not just a bunch of rogues with boats roaming around out at sea trying to stop any ship they come across. The pirates off the Somali coast are part of larger operations run from ashore by smart business people. They are only interested in making money. They capture a ship, hold it for ransom, get paid and let it go.
The people in charge follow what ships are coming toward the area, decide what would be the easiest (and presumably profitable) to take, and then send the guys in the boats out to get the ship.
Cruise ships don't really fit into that business model. They are quite different from cargo vessels, and wouldn't be nearly as easy of a target. The pirates are looking for the easiest targets, and even within commercial vessels, he said different types of vessels have different rates of being targeted.
Cruise ships are actually quite different from the cargo vessels the pirates have been taking, and would be perhaps the hardest to take. First of all cruise ships generally move much faster than the pirates' small boats. And you should believe when they pass through that area, they are moving fast. Just like when you drive through the bad part of town, you want to be through it as quickly as possible, so you increase your speed and don't stop.
Cruise ships are also built differently than most of the cargo vessels and tankers, and therefore, if the pirates can get alongside, they are not nearly as easy to board.
Staffing is another difference. Cargo vessels generally don't have the numbers of people cruise ships do to watch in all directions around the clock, so a cruise ship will probably have more warning of a potential attack by pirates than a cargo vessel. Along those same lines, cruise ships carry a much larger security force to defend the vessel should there be an attempt to board. It probably will far outnumber the pirates.
Of course, something we did not talk about in any detail is that cruise ships generally have a better arsenal of ways at their disposal to defend themselves than most cargo vessels will.
So with all these things making it more difficult to take a cruise ship, why would the pirates want to go to all the extra trouble to take a cruise ship? It's vastly easier to take a cargo vessel, especially some types.
But there's more. If the pirates did somehow manage to capture a cruise ship, then what? They would face much bigger challenges holding a vessel with several thousand people aboard than they do holding a cargo vessel with a couple dozen people. Again, these pirate groups are smart business people, who have thought this all out. There wouldn't be an overnight solution to the hijacking. The captors don't call the CEO of the company that owns the vessel, agree on a price and funds are wired to the pirates. Instead to protect themselves, the pirates work through several layers of intermediaries, and the process would take several weeks, at best, to be resolved and have the ship released. During that time the pirates would have to provide food probably for a couple thousand people, a large amount of fuel to keep powering the ship even minimally, and it would be almost impossible to keep control of that many people. "It's a very different equation to take on a ship with that number of people than it is to take on a ship with 25 people," he said.
The law of averages says among the passengers there would be ex_military people, off_duty law enforcement officers and people who just wouldn't stand for being held captive. It would also be impossible for the captors to know all the faces, so they would be vulnerable to rescue forces slipping aboard and being among the people waiting for the right time to neutralize the pirates.
It would be an almost impossible situation for the pirates to deal with. Again, there are smart business people behind these operations. They have thought this out, and why would they want to change a successful business model which is working so well for them and add all this extra risk and expense to their operation? There are about 60 cargo vessels per day passing through the area; all of them would offer easier opportunities for success and profit than a cruise ship.
What about the two instances where cruise ships have been attacked, including Sunday's incident with Nautica? He said he has seen no information about either that would lead him to believe that there was any serious attempt to board either ship. He said those may have simply been targets of opportunity, where the guys in the boats were sent out to get a particular ship and didn't see it or failed to get it. The cruise ships then came by and the guys on their own decided that since they were there, they may as well try to see how far they could get with the ship. ("Just messing with them," as he put it.) We'll never know, but they didn't get very far into either attempt before they called them off.
Another surprise in cruise lines' thinking came when I asked about risk levels increasing. About a dozen cruise ships a year move through the Gulf a couple times a year each either as they reposition between seasonal deployments or as part of an already_lengthy cruise, such as a world cruise. It would certainly have a big impact on the company if he decided for some reason the risk was too great for the ship to go through the area. What types of things, I asked, could cause the risk to increase enough that it wouldn't be safe for a ship to transit the area? I was surprised when he said that for almost any increased risk he could think of, there was something he could do to lessen it or counterbalance it. Some of them, of course would be expensive, but they would lessen the risk to a point where the ship could pass though the area safely.
In closing the interview, he said that he feels that it is safe for his line's ships to transit the Gulf. There is a tremendous amount of thought and planning put into how every one of the line's vessels transits the Gulf, and he would be completely comfortable with his grandmother or daughter sailing on them. That says a lot.
I came away from that discussion having a much better understanding of why the cruise ships keep going through the Gulf of Aden, and I feel our readers now should too.
Orginally published in Cruise News Daily December 2, 2008 edition. Copyright CND, all rights reserved. This may not be legally posted elsewhere.
Monday, June 2, 2008
Sooner Rather Than Later
In this CND article we looked at the reason why a cruise ship is almost never delivered late anymore, and why so many actually enter service before the original inaugural date the cruise line sets. These "early" deliveries have created problems for cruise lines in that many people who book the inaugural don't just want to be one of the first to sail on the new ship, they want to be on the first sailing no matter when it is. It seems that never really occurred to the cruise lines. In the CND article we looked at why that detail escaped their attention.
Some cruise lines are now understanding that some of their customers want the experience of being on the inaugural cruise and they will change their date willingly to do it. Recently, when they decided to put their new ships into service early, both Princess and Celebrity have employed a solution that comes with a risk to them. For passengers on the inaugural sailing, they have made duplicate reservations on the new inaugural date giving them both same stateroom and their original fare. They then have allowed them a couple of weeks to decide which they want. Of course the risk for the line is that it moves them closer to the sailing dates knowing that they are holding one reservation that will certainly be canceled, and the closer they come to sailing date, the more risk there is to the line that it will be harder to sell the unused space.
CND heard from executives at both lines about how popular the decision has been with customers.
The complete article was published in the June 2, 2008, edition of Cruise News Daily.
Some cruise lines are now understanding that some of their customers want the experience of being on the inaugural cruise and they will change their date willingly to do it. Recently, when they decided to put their new ships into service early, both Princess and Celebrity have employed a solution that comes with a risk to them. For passengers on the inaugural sailing, they have made duplicate reservations on the new inaugural date giving them both same stateroom and their original fare. They then have allowed them a couple of weeks to decide which they want. Of course the risk for the line is that it moves them closer to the sailing dates knowing that they are holding one reservation that will certainly be canceled, and the closer they come to sailing date, the more risk there is to the line that it will be harder to sell the unused space.
CND heard from executives at both lines about how popular the decision has been with customers.
The complete article was published in the June 2, 2008, edition of Cruise News Daily.
Subscribe to:
Posts (Atom)