A SEA CHANGE
Today’s strategy can be traced in part to the aftermath of the Sept. 11 terrorist attack in 2001, when Americans were spooked by air travel and cruise lines realized they were too heavily reliant on American passengers, said Teijo Niemelä, editor and publisher of the Cruise Business Review.
“I would say that probably the most vulnerable was the Caribbean, the North America-based source market,” Niemelä said. “They needed to put the eggs in more baskets.”
The baskets that are getting the most attention from North American lines these days are Australia, Brazil and especially Asia, though they still make up a fraction of global deployment. Dubai, where Royal Caribbean International started sailing in 2010, appears to have fizzled; the line is exiting the emirate after this spring because, a spokesman said, “we need to deploy our 22 ships to new and emerging, as well as other established regions around the world that can help drive the best returns for our company.”
Europe is still a heavy deployment area, but cruise lines are realizing it is not the moneymaker they hoped when they started shifting additional ships there several years ago.
“At the time you had a lot of fast-growing economies in Europe, you had Spain, Germany,” said Tony Peisley, a London-based cruise industry analyst and author. “I think part of it was they could see the way the wind was going with airfares.”
While cruise lines would not reveal what kind of investment goes into establishing a new source market, Peisley said it is a multi-million dollar endeavor that varies depending on the location and how developed the infrastructure is.
The downside to that kind of expansion, Peisley said, is now evident as Spain’s economy has faltered along with much of southern Europe. Those woes, he pointed out, “just about wiped out Royal Caribbean’s profits last year” after the parent company took a nearly $414 million write-down on its Spanish-focused Pullmantur brand.
Peisley said cruise lines are reacting, moving capacity back to North America from Europe.
“They got too many ships in anyway probably too quickly, and that’s happening in Australia already,” he warned.
In addition to entering the Australian market last year — with sailings not even listed on its American website— Carnival is marketing aggressively in the UK to attract residents to European cruises. Carnival Cruise Lines will have two ships in Europe this summer, though it scaled back the schedule for one of them. Royal Caribbean Cruises said in an earnings call last month that Europe would make up 27 percent of capacity for 2013, a 10 percent decrease, while Asia-Pacific voyages would increase 45 percent to make up 10 percent of capacity.
“It’s particularly interesting to note how well both Australia and China have held up,” Royal Caribbean Cruises Chairman and CEO Richard Fain said during the call, noting that yields in both destinations were expected to remain steady or tick up despite the addition of capacity and a dispute between Japan and China over islands in the East China Sea that has already forced changes to many port calls.
Australia and Asia will account for 10 percent of capacity as well for Carnival Corp., the world’s largest cruise ship company with 101 ships spread across 10 brands. California-based Princess Cruises, a premium line that will have 17 ships by this summer, is launching a full season of itineraries from Japan in April with the 2,022-passenger Sun Princess. The line has already announced it will add the 2,670-passenger Diamond Princess in 2014 and depart from three ports, including Otaru, which is new to the industry.