The cruise industry: Is Florida losing its home port advantage?
07/13/2014 7:00 PM
07/11/2014 9:20 PM
A cruisegoer for more than 15 years, Richard Biter noticed something interesting on a recent trip: His ship bypassed Ocho Rios, the Jamaican port where many previous cruises had stopped, and headed instead to Falmouth, which had been developed by Royal Caribbean International and the island nation.
Biter, who is assistant secretary for intermodal systems development at the Florida Department of Transportation, started thinking about how Ocho Rios had lost that business — and then started thinking about his own home state.
“I don’t want to see that happen to Florida,” he said. “I’m as competitive as the next person, and I realize that the cruise industry is a competitive industry.”
The result of that train of thought was a report commissioned by the department and released in December that cautioned that Florida ports — which have long dominated the global cruise industry — are at risk of losing business as operators look to destinations around the world such as Asia, Europe and Brazil to grow their passenger base.
The shift has been years in the making as cruise lines have worked to spread a vacation model born in South Florida to new global markets.
“We all aspired to the global emergence of cruising as a mainstream form of holiday,” said Adam Goldstein, president and chief operating officer of Royal Caribbean Cruises. “Many of us have worked at that for decades, and it’s happening and it’s exciting.”
He added: “It certainly bears remembering that Miami still is the cruise capital of the world.”
Florida reported almost 14 million revenue passengers in fiscal 2012, with expectations that the number will grow to 21.6 million by fiscal 2026. Passengers are counted when they get on and off a ship according to the industry standard, so 14 million revenue passengers would equal 7 million individuals. The cruise industry contributed $2.43 billion to Florida’s gross state product in fiscal 2011, according to the report.
While the 29-page report titled “Florida’s Cruise Industry: A Statewide Perspective” suggests that growth in international destinations could eventually be good for Florida, it also warns that the state’s status as a top cruise draw is not guaranteed.
“As tourists in these countries begin to learn about cruising and see the great value of doing so, they will look for other destinations, like Florida, to cruise from,” the report said, noting that Florida is home to the largest ships in the industry. “In order to ensure such future tourism, Florida must retain these elite vessels which offer a unique experience not found anywhere else in the world.”
In the months since the report was issued, the buzz around global deployment in the industry has become almost deafening, even as news from the competitive Caribbean has been glum.
China, with its growing middle class, is expected to become the second-largest cruise market in the world after the United States by 2017. Australia now leads the world in terms of market penetration and passenger growth for cruising, according to a June report from the Cruise Lines International Association. About 3.6 percent of Australians took a cruise last year, compared to previous leader North America, where 3.3 percent of the population cruised. And the numbers of passengers grew 20 percent year over year, with more than 833,000 Australians cruising globally last year.
Last year, 11.7 million North Americans went on cruises to destinations around the world, including the Caribbean.
Miami-based Royal Caribbean announced in April that it would send its newest ship, Quantum of the Seas, to home port in Shanghai following a short introductory season in New Jersey. Sister ship Anthem of the Seas, which had been scheduled to sail from Fort Lauderdale starting next fall, will instead replace Quantum in New Jersey.
Steven Cernak, chief executive and director of Port Everglades, said that while Royal Caribbean will meet its contractual obligations to the port by deploying another ship, he only learned that Anthem of the Seas was not coming to Fort Lauderdale when he read it in the newspaper.
“Of course I was surprised,” Cernak said. “Having said that, it was a business decision on their part, which I have to respect. … They have a right to deploy their ships where they see the opportunity, and from that perspective I understand.”
Until recent years, nearly all major ships launched in South Florida or at least spent part of their inaugural year in Miami or Fort Lauderdale. But Carnival did not send one of its Dream-class ships here until Carnival Breeze, the third in the group, arrived in Miami in late 2012. Norwegian Cruise Line introduced its Breakaway class last year in New York City.
And the decision to move Anthem to the New York area represented a departure for Royal Caribbean, which has long sent ships from new classes to South Florida even if just for the winter cruising season. A third Quantum-class ship is due in 2016, but Royal Caribbean has not said where that will be based.
Royal Caribbean has also announced that it will sail four ships in Australia for the summer season that starts in late 2015, a 47 percent increase in capacity. And megaship Allure of the Seas, which has been based in Port Everglades since it launched in 2010, will spend next summer cruising in Europe, following a mini-season for sister ship Oasis of the Seas in Europe this fall. South Florida has traditionally been busiest in the winter cruising season; summers see many ships head to northern destinations such as Alaska, Bermuda or parts of Europe.
North American cruise lines have increased their presence in Europe over the last several years, especially in the summer months. After a difficult stretch due to economic recession in Southern Europe and negative publicity surrounding the 2012 wreck of the Costa Concordia in Italy, cruise operators say they are encouraged by the strength of the Mediterranean and North European markets this year.
“In percentage terms, clearly South Florida is not going to have the same share of all cruise home port departures that it used to have, because the rest of the world has gotten involved,” Goldstein said. “A number of markets around the world like Australia, Germany, Italy and China are becoming give-or-take million-customer markets per year. That’s attracting ships that may have in the past been in South Florida.”
But UBS Investment Research leisure analyst Robin Farley pointed out that even as some ships leave South Florida, new vessels are likely to find their way here.
“I think what the China opportunity does is give the cruise industry another place to send capacity, not only as a source market but also relieving what is oversupply this year in the Caribbean,” she said. “In general, having China be an alternate port for sourcing basically doesn’t mean that there’s a decline in South Florida at the end of the day.”
Doral-based Carnival Corp., the world’s largest cruise ship company, announced in May that it was bulking up its presence in Asia. By sending the Costa Serena to Shanghai in spring of 2015, the company is basing a total of four Costa Cruises ships in China. The parent company followed that news about a week later by announcing that it was transferring two ships from Holland America Line to the P&O Cruises (Australia) fleet, expanding capacity in that booming cruise market.
Seven of Carnival Corp.’s 10 brands operate in Australia in a given year, said Giora Israel, senior vice president of the company’s global port and destination development group.
Cruising is popular in Australia because the economy is healthy and residents like to vacation but don’t necessarily want to hop on long flights to do so.
“So the economy is very very strong, the desire to go on vacations — or as they call them holidays — in Australia is very, very strong,” Israel said. “The offering of very convenient multiple home ports makes it attractive.”
In such far-flung destinations, cruise companies are aiming primarily at local travelers, tweaking the onboard experience to make it familiar to hometown passengers. While North American travelers are welcome, they are not essential to keep those voyages full — a good thing, travel agents say.
Bob Zweig, who runs a Cruise Planners-American Express franchise from his Cooper City home, said he hasn’t seen any increase in demand from North American clients for cruises in Australia or Asia. In a typical year, he said he tends to have only 20 or 30 couples who want to venture that far, in part because the airfare is so costly.
“That’s a once-in-a-lifetime kind of trip for people,” he said. “If [cruise lines] are leaving the ships over there, they must be getting the money from people in Australia and Asia.”
Industry optimism over new deployments has provided a contrast to weak performance in the Caribbean, where an overabundance of capacity has led to intense pricing pressure.
Kevin Sheehan, president and CEO of Miami-based Norwegian Cruise Line, said the industry grew by 20 percent in Miami this year. He said that when cruise companies were planning their itineraries for 2014 a couple of years back, the Miami market looked strong.
“This is like the lemming theory,” he said. “We all said, ‘Oh my God, Miami looks like a great market.’ We all announced that we were putting more ships into the Miami market.”
But with so many choices for consumers trained to wait for rock-bottom prices, the glut of inventory proved difficult to fill at acceptable prices.
Sheehan’s company launched the nearly 4,000-passenger Norwegian Getaway from Miami in February; it will be joined next year by the larger Norwegian Escape, with room for 4,200 guests.
European line MSC Cruises, which had previously only based a ship in South Florida for the winter, added the 3,502-passenger Divina in late 2013 with plans to keep it in Miami year-round. But after experiencing a competitive environment that one MSC executive called a “bloodbath,” the company announced just a few months later that it was bringing Divina back to Europe to cater to North Americans there instead of Miami for the summer.
“Even in a strong environment, with that much new capacity, you’re going to have a little bit of a challenge,” Sheehan said.
Still, he and other executives said they remain bullish on Miami and other Florida ports.
“We believe it’s a great market for cruising,” Sheehan said. “I think it’s something that gets worked out in time, and I’m hopeful that next season is going to be a lot stronger.”
Michelle Fee, CEO of travel-agent network Cruise Planners-American Express Travel, said agents still focus on the Caribbean because it’s warm year-round and offers a great value.
“Everybody who’s a seller of cruises, it has to be your major market because it’s 12 months of the year,” she said. “So obviously for all of us, the Caribbean has to be a big bulk of our business. And it is great for first-timers.”
With an eye toward drawing new business from the Northeast, cruise lines have also been putting some of their flashiest new hardware in the New York area.
Norwegian launched the first ship in its Breakaway class, Norwegian Breakaway, in New York City last year. And Royal Caribbean said it wanted to bring its newest product to “one of the most critical population centers of the world” when it announced last year that Quantum of the Seas would be based in the Cape Liberty port in Bayonne, New Jersey.
In late May, Royal Caribbean Cruises said it had entered into an agreement with the Port Authority of New York and New Jersey to develop a $55 million project at Cape Liberty, which includes a new terminal, parking garage and pier improvements. The new terminal is expected to be finished in time for Quantum’s arrival in November; Anthem of the Seas will follow the next year.
While Carnival Cruise Lines has 15 home ports in North America that can be reached by car, senior vice president for itinerary development and port operations Terry Thornton said PortMiami and Port Everglades make up the line’s “most important cruising region.” More than 1.2 million of the cruise line’s roughly 4.5 million guests are expected to travel through those ports this year, he said.
Thornton said Miami and Fort Lauderdale are close enough to the Caribbean that Carnival has the flexibility to offer a wide range of itineraries and lengths of cruises.
“The advantage that South Florida has is its proximity to really great destinations,” he said.
Cruise lines, travel agents, passengers and the state’s transportation department agree that South Florida has a lot going for it because of its location. The FDOT study highlights that advantage, as well as the major international airports that land cruise passengers within short drives of those ports.
“We’re always going to have that major draw, but I don’t ever want to be caught siting on our laurels,” said Biter, the assistant secretary for intermodal systems development. “I never want to take it for granted.”
Biter said he wanted the study to address three main issues: How do powerhouse ports including PortMiami, Port Everglades and Port Canaveral keep the business they have now; how can they grow that business and how can they forge solid partnerships with the industry and other groups such as Visit Florida that drive tourism.
The report recommends action in some areas, including:• Developing incentive programs to bring cruise-goers to Florida and encourage longer stays before or after their voyage.
• Pushing for visa waivers so Brazilians and visitors from other countries not currently included in the program can cruise more easily from Florida.
• Working to get more U.S. Customs and Border Protection officers deployed at Florida cruise ports or add automated processing machines.
• Use more state dollars to invest in port infrastructure so ports can accommodate larger cruise ships.
• Invest more state money in “connective infrastructure” to link cruise ports and airports.
Royal Caribbean’s Goldstein said PortMiami lost out on the largest cruise ships in the world — the 5,400-passenger Oasis of the Seas and Allure of the Seas — because its facilities could not accommodate them. Today, the cruise line bases only one ship in Miami, although the company has its headquarters at the port
“We are absolutely hopeful not only to continue our long-term relationship with Miami, but also to grow it,” Goldstein said. “We would love to have the opportunity to put some of our biggest ships at PortMiami and yes, there will have to be some adjustments in the physical plant, which the master plan contemplates. And I think it’s beginning to happen that there’s a very active consideration by the port itself and behind the scenes at the county to consider the right way forward.”
PortMiami is expecting 4.8 million revenue passengers in fiscal 2014 and 2015, or 2.4 million individuals. The port was at maximum capacity during the winter season that just passed and is “aggressively working on expansion plans for new growth,” according to Hydi Webb, the port’s assistant director for business development.
A $2 billion long-term master plan includes three new berth spaces plus the extension of an existing berth; two to four new terminals and a center to consolidate ground transportation.
Goals include landing the supersized Royal Caribbean vessels once the company’s commitment to Port Everglades is up in December of 2018. A third megaship, sibling to Oasis and Allure, launches in 2016, and a fourth is due in 2018.
“We’re putting together our best efforts to offer a proposal that hopefully will bring those ships to Miami,” said PortMiami director Juan Kuryla. “We understand it will be a competition, and we look forward to participating in that competition.”
He said the port has always battled for cruise business, but those efforts have intensified in recent years.
“There is global competition, there is regional competition, there is national competition,” he said. “I think you have many ports — Canaveral, Port Everglades, Miami and Tampa — competing sometimes for the same vessels.”
At Port Everglades, Cernak said this summer brings the ongoing renovation of one terminal, to be followed next year by the lengthening of a slip that serves that terminal. A 20-year master plan calls for $1.6 billion in capital improvement, including several that would affect cruise business. Those upgrades include completing the expansion of a turning notch; improving two terminals; building a new parking garage for two cruise terminals and lengthening a berth to accommodate larger ships.
The Fort Lauderdale port expects 3.77 million multiday revenue passengers in fiscal 2014 and 2015, or nearly 1.9 million people, but anticipates 4.2 million revenue passengers by 2018.
While Cernak hopes Royal Caribbean will decide to extend its agreement to base Oasis and Allure at Port Everglades, he said he knows other ports will be vying for those ships. The Fort Lauderdale port built a terminal for the class of ship in partnership with the cruise line.
“That’s a business decision [Royal Caribbean will] have to make,” he said. “It certainly will leave Port Everglades with a viable asset — a nice terminal that works very well. Let’s just put it this way: It wouldn’t be empty for long.”
He agrees with the FDOT report that, in the long run, global industry expansion could send benefits Florida’s way.
“This new market, cruising is new to them. If they’re of the group that enjoy the experience of a cruise and want to take other cruises, it’s opening up the market to what we have here, too,” he said. “You have to allow the growth in those new markets to take root and grow.”
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