| Journal: TWUK | Section: |
| Title: | Issue Date: 03/07/00 |
| Author: | Page Number: 8 |
| Copyright: Other |
Analysis
Crowded: clockwise from top left are Crystal Harmony, Superstar Gemini, Star Clipper, Royal Viking Sun, Oriana and Norwegian DreamOvercapacity rocks the boat
The cruising business is booming but is the industry in danger of being swamped by so many new ships competing in the market? Tanya Jefferies reports
CRUISELINES’ order books for new ships are bulging. A total of 14 vessels are being launched this year alone and between 2002 and the end of 2005 a further 51 ships – covering the whole spectrum from standard to ultraluxury – are set to enter the marketplace.Cruise passenger volumes have been growing strongly for years now so it is understandable that companies want to exploit this level of demand.
The trouble is that just as the cruiselines have locked themselves into a period of steep capacity growth, prices have started to drop. Cruiselines are already being forced to offer cut-price deals to fill their expanding fleets.
Peter Wild, managing director at independent cruise consultancy GP Wild, estimates that cruise prices have fallen by around 20%-30% this year.
“It’s probably not totally surprising given the amount of new capacity coming on stream,” he said.
Wild said that so far cruiselines appeared to be using tactical price cuts to fill ships rather than embarking on an all-out price war.
He believes that if they stick to this strategy, they may be able to maintain profitability or even enhance it.
But, perhaps inevitably, fears of overcapacity in the cruise market have led to dramatic plunges in the share prices of the world’s leading cruiselines. Wild said Carnival Corporation, P&O Cruises and Royal Caribbean Cruises have seen 60% falls in their share prices since investors first took fright last February.
“Ultimately this will affect their ability to raise money to spend on new ships,” he said. “If the industry is oversupplied, it may not be a bad thing because it may curb their ambitions to build new ships.”
Royal Caribbean managing director for European sales and marketing Patrick Ryan defended the company’s pricing strategy.
“We feel that our fluid pricing policy rewards people who book early so we are happy with our pricing overall,” he said.
“There will always be tactical needs. Our prices are set at competitive levels.”
Ryan believes there are enough potential new cruisers, particularly in Europe, to meet the supply of new ships.
He pointed out that from a US population of 260m, 6.4m people a year are taking cruises.
In Europe, which has a population of 300m, only around 1.6m of the total population are going on cruises. Of these customers, just under half are from the UK.
“Europeans have much longer holidays – on mainland Europe it is five weeks,” said Ryan. “People are also living longer, retiring earlier and they are more affluent. Our job is to generate more customers from Europe.
“If we could even get Europe up to the US level, that is another 5m passengers a year out there for us.”
Meanwhile, agents have been looking at recent events in the cruising industry from a slightly different angle.
Jeremy Scott, manager of Atlantis Cruising in Chigwell, Essex, said that in the past week, he has attended two ship launches – Royal Olympic Cruises’ ship Olympic Voyager in Athens and Celebrity Cruises’ new build Millennium in Southampton.
“That’s an extra 150,000 passengers a year added in the last week, with just two ships,” he said.
But he pointed out that was not bad news from agents’ point of view because it gave them the perfect opportunity to talk customers into trying a cruise.
“We have more product to sell at lower prices. The value is phenomenal,” said Scott.
This view was backed by Eric Patterson, managing director of Travelplan in Belfast, who said his business was booming.
“While prices are going down, the number of people cruising is going up. It’s giving us the opportunity to sell more cruises and make more money. We are selling four times as many cruises as we were four years ago.”
quotes
“Europeans have long holidays – on mainland Europe it is five weeks. People are living longer, retiring earlier and they are more affluent. Our job is to generate more customers from Europe. If we could even get Europe up to the US level, that is another 5m passengers a year out there for us.”
Patrick Ryan, managing director for European sales and marketing, Royal Caribbean
“While prices are going down, the number of people cruising is going up. It’s giving us the opportunity to sell more cruises and make more money. We are selling four times as many cruises as we were four years ago.”
Eric Patterson, managing director, Travelplan in Belfast
“Ultimately share price falls will affect cruiselines’ ability to raise money to spend on new ships. If the industry is over-supplied, that may not be a bad thing because it may curb the companies’ ambitions to build new ships.”
Peter Wild, managing director, cruise consultancy GP Wild