The Cruise Business, Post-Financial Meltdown

In a very interesting recent economics blog article by the Christian Science Monitor, an interesting correlation was suggested:  big skyscrapers and big cruise ships alike are indicators of an economy in peril.

Of course, correlation does not equal causation.  Yet it is nonetheless unfortunate for the cruise industry that while the commissioning of such monstrous ships as Royal Caribbean International’s Oasis of the Seas and Allure of the Seas comes before an economy unravels, the debut of those very ships arrives after.  In an industry with perishable inventory, cruise lines have a lot to worry about when their ships can carry nearly 6,300 passengers, as Oasis of the Seas does.  Yes, the ship may be booked solid through 2010, but what happens when the novelty has worn off in 2011 or 2012?

Yet what this blog article also points out is that the cruise industry has not fared as poorly as one might have expected, and there are numerous reasons for cruise lines to be optimistic.  Through the second quarter of 2009, despite an economic recession, cruise passenger nights were 1.5% up from 2008.  (Of course, average fares were down 10.7%, but the fact that cruises were still able to generate demand is impressive.)  Further, the cruise industry has a lot of growth potential:  currently, cruises account for only five percent of the vacation market, and while 80% of cruisers are Americans, only 17% of Americans have cruised.  That leaves a lot of room for growth potential.  

Meanwhile, in order to attract that untapped 83%, cruise lines are turning to their most powerful tool:  the guest experience.  After all, it is the promise of a memorable and unmatched guest experience that compels consumers to choose cruising over other vacation options.  Cruise lines have an awful lot to gain from enhancing the guest experience and attracting new passengers, even if the fare must be lowered in order to do so.  It is estimated that one-quarter of a cruises’ revenue is earned after the ship sets sail, through beverage sales, spa treatments, retail purchases, and shore excursions, which accounts for the largest portion of that post-sailing revenue.  Once the passengers have set sail, they are a captive audience, and if they are Americans, they have a propensity to spend money.

Certainly, the cruise industry has been clever to focus its attention on making the guest experience as diverse and high-quality as possible.  The key is to keep innovating and enhancing the guest experience, so the ‘wow’ factor does not fade once the first-time cruiser departs the ship.

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