New Ships, Cruising and the Economy

In talking with clients recently, two questions are asked most frequently: Are things busy for you and how is the cruise industry? We're all reading about how hard the travel industry is being hit by the current economic conditions, but what isn't being widely reported is how well the cruise industry is positioned not just to ride it out, but to do well overall.

Recently, both Carnival and Princess announced record call volumes during the peak booking months of January and February. The cruise lines helped drive these calls with some pretty spectacular offers, but there are always offers during the "wave" season. Consumers responded to these offers this year in unprecedented numbers, reinforcing the strength in the industry.

One of the greatest assets the cruise industry has is the mobility of its product. No, not just that the ships go to multiple destinations, but that the industry can react fairly quickly to changing demand. We're about to see the release of the 2010/2011 schedules, and I'm predicting that "home port" cruising from ports such as Baltimore, New York and similar formerly "secondary" markets will see an increase in the number of ships along with larger, newer ships being ported in these locations. Why? Because it's increasingly harder for cruisers to fly to the more "traditional" ports in Florida and the like due to the airline cutbacks. So if the cruisers can't easily get to the ships, the ships will come to the cruisers.

Likewise, I also expect to see more ships sailing in Europe or other areas for longer periods of time. Both with itinerary changes to bring them into the Europe markets earlier in the season (which we're already seeing), more assigned year-round, and also ships being transferred to the European sister brands of the American lines. Just like in the US, Europeans are looking to cruise closer to home, and their market is expanding rapidly, both for the US brands, and also the brands which are based in and targeted toward Europeans. Because of low-cost intra-Europe air and easily-available charters to places such as Dubai, Europeans can more easily travel in that region than fly to the US or the Caribbean, and they're taking advantage of it.

Yes, cruise fares are a bit lower right now overall, but in traditional peak periods, like the spring break period we're going into, the fares and demand both are extremely strong. Summer Caribbean bookings for families are looking similarly positive for the industry.

But what about newbuilds? Can the industry absorb the new ships and berths which are already in the pipeline? I say absolutely, and point to a couple key indicators.

First, there was quite a bit of question until very recently of whether the Norwegian Cruise Line's F3 project was going to be cancelled. Even before the market changes, there were design cost overruns on the ship, and NCL was looking at their options to draw back. But negotiations continued, and the release of the first ship's name (Norwegian Epic) and newly-released design elements for the ship show that this project is going forward to continue the innovations for which NCL is so well known.

An even larger indication of the strength and power new ships have in the market is, quite literally, the Royal Caribbean Oasis of the Seas project. Set to launch in November, 2009 with inaugural sailing in December, this largest-ever ship is selling extremely well. With prices on her commanding a premium, and strong sales, this ground-breaking ship has and will continue to draw market attention from the press and educate and remind cruisers all the aspects a cruise vacation can cover, further shattering the myth of a "typical" cruise vacation. Knowing Royal Caribbean, there will be a huge media and industry campaign, with lots of paid and free press on all aspects of this launch, bringing even more new passengers into the cruising. Yes, there was a blurb in the SEC filing a couple weeks ago that Royal Caribbean was continuing to negotiate the terms of purchase financing, but that was a legally-required statement and shouldn't have surprised anyone in the markets or industry. Along with most in the industry, I look forward to seeing for myself what this industry-changing ship is like late this year.

Finally, you can see not just my optimism, but my company's (my family of companies is the largest retailer of cruises in the world) along with the largest trip insurer's confidence with our announcement two weeks ago of our partnership with TravelGuard to provide the industry's only "job assurance" protection in our standard trip insurance policy. We know that people want to cruise, and took the step to make it easier to book when you want by taking out the worry of a potential job loss. Do you think an insurer would open themselves to this risk if they didn't feel the industry was strong... and that the economy would support the position?

Cruising continues to increase in popularity, and I don't think we'll see a change in that trend any time soon. I just hope you all take advantage of the price advantages we have right now and schedule your own vacation soon. There's no better value in vacation than cruising, and no better way to get away.