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Cruise Market - Market Assessment 2008
Key Note Publications Ltd, April 2008, Pages: 240
Two corporations dominate the cruise business: Carnival Corporation and Royal Caribbean. The third most significant line internationally, Star Cruises, includes NCL Holdings, in which the private-equity firm Apollo Management bought a 50% stake in 2007. The ten largest cruise brands represent the three dominating companies — Carnival, Royal Caribbean and Star — as well as the fast-growing privately owned Mediterranean Shipping Company, and Louis Public Company. The US is the largest national market for cruise holidays, followed by the UK.
The popularity of cruises does not vary widely between socio-economic groups, except for a much lower level among social grade E (who are likely to be the least affluent group). The flattish socio-economic profile indicates that lines have suitable products for most levels of income.
With regard to age, cruise-taking has a significant peak between ages 55 and 64. Over the years from 2008 to 2013, the numbers in the prime age group for cruising are not expected to expand. However, there is an opportunity for cruise operators that attract customers aged 65 and over, because the numbers aged 65 to 79 are expected to increase by 13.1% between 2008 and 2013. The holiday industry in general, and cruise operators in particular, are likely to have to make policy adjustments to benefit from the ageing population profile. The adventure and eco cruise market, popular at the younger end of the 50 to 79 spectrum, should benefit from a rising number of customers until approximately 2020, but a tailing off is likely after that.
Cruise ships are becoming huge. Cruise lines want passengers to spend their money on the liners, rather than on shore — and on the new generations of massive ships, opportunities for shore visits will be restricted because few ports can accommodate them. Cruise lines, such as Royal Caribbean, that have faith in a strategy of gigantism risk commodifying the cruise experience. A 220,000-tonner with 5,400 passengers may cut the operating cost per passenger, but is too large for most ports, and arguably too sizeable to provide a personal experience, or to offer either a tranquil or an adventurous holiday.
Most cruise liners fly a `flag of convenience', to reduce regulations and lower their operating costs. Pollution from large cruise ships is an increasing problem, however, and their emissions are believed to contribute to climate change.
Cruise liners are of crucial importance to the future of a handful of shipyards in Europe, and to the economies of the regions in which the yards are located. In 2007, the long-term future of European yards building cruise liners began to look less secure, as Korean yards sought to compete for future business.
There is a trend away from commodified package holidays, but associating a cruise brand with this trend towards independence, while still creating a high and consistent revenue stream, is challenging. The anti-package trend favours freighters and mail lines, which are adding and improving cabins to attract independent holidaymakers.
There is growth in cruises lasting a week or less, especially in the US, but also a trend towards longer cruises in the expanding markets of the UK and continental Europe.
The budget and ultra-premium cruise segments should prove more dynamic than the mega-ship mass market, although all segments are expanding. Nevertheless, the scale of cruise-liner orders for delivery between 2008 and 2012, adding around 33% to ocean-cruising capacity, may be too great for even a strong market. In the early 2000s, when the world's cruise lines began to order the new generation of ships, their research suggested that lack of capacity was holding back demand. Unfortunately, by the time many of these new superliners come into service, consumers' disposable incomes are likely to be under increasing pressure. The scale of discounting in 2007 and 2008 was already a worry for the industry.
A slide in global economic confidence began in 2007 with defaults on sub-prime mortgages in the US, but there are other dangerous factors, including the declining availability of easily extracted, light, fossil-fuel oil, and the substitution of fossil energy with energy from biomass, pushing food prices upwards. The increasing financial pressures on many households since 2004 are reflected in the fact that almost half a million homebuyers in the UK missed at least one monthly mortgage repayment in the second half of 2007.
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