Seatrade, The Debate Moves Forward
March 12, 2002Miami Beach
Did the cloudburst drenching Miami Beach signal that a stormy "State of the Industry" Debate was about to begin inside the Convention Center? The stage was set, with Peter Ratcliff, CEO of P&O Princess, flanked on the dais by Jack Williams, President & CEO of Royal Caribbean International and Celebrity Cruises, and Howard S. Frank, Vice Chairman of Carnival Corporation.
Mark S. Conroy, President & CEO of Radisson Seven Seas Cruises and Chairman of Cruise Lines International Association (CLIA), Bob Dickinson, President of Carnival Cruise Lines, Gregg Michel, President of Crystal Cruises, and Colin Veitch, President & CEO of Norwegian Cruise Line, rounded out the panel.
The air at the traditional opening session of Seatrade Cruise Shipping Convention was charged with anticipation as a blaring fanfare signified that this was no ordinary year. In tribute to the citizens of New York City, poignant photographs of great cruise liners passing New York's skyline flashed onto twin screens. Ship photographer Jonathan Atkin's splendid images silently illustrated that things are decidedly different in 2002.
Challenges
Mark Conroy's introductory address was a reminder that the cruise industry has displayed surprising resiliency, despite the difficulties since September 11, 2001. Notwithstanding the demise of American Classic Voyages and Renaissance Cruises (and no government bailout as in the case of the airlines), the cruise industry has rebounded faster than during the period after the Gulf War. However, Colin Veitch noted there was less latent demand following the Gulf War than at present and the cruise industry was much smaller at that time. Still, cruising has outpaced all sectors of the travel industry. "The recovery has been much faster than most or perhaps all of us expected." Veitch said. "I think it says something about the strength of the industry."
Carnival's Bob Dickinson revealed that in the first week following 9/11 there were more cancellations than new bookings. He indicated the move to lower fares was necessary to overcome travel fears. A major consideration according to Dickinson is that cruise lines have "no optimism once ships sail," while land based resorts can remain hopeful for last minute guests. Filling berths with low fare offerings converted many passengers to cruising from land based resorts, particularly in the Caribbean. If they didn't fly to their embarkation ports, they drove.
While ships sailed at reduced capacities in September and October 2001, occupancy rates were at or near normal by the end of October. Late in December 2001, the cruise industry's "Wave Season" began to build momentum. Pent-up demand, low fares, and an improving economy all contributed to record bookings and optimism for growth. Even with the loss of 7,400 berths when American Classic Voyages and Renaissance Cruises pulled up their gangways, steady growth continues. Fifteen new ships (with 19,724 berths) will launch in 2002 and, as Conroy put it, there will be "a cruise for everyone."
Rapid and dramatic redeployment took place following 9/11 as cruise lines moved quickly to bring ships closer to home. Was it too much? too little? Cruise lines report a significant financial impact as removal of capacity from high yield European markets to low yield Caribbean itineraries weakened their bottom lines. Did the industry overreact? That remains to be seen, but bookings for Europe have been strong since the first of the year. People who deferred vacation planning are on the move again and some European deployed ships are sold out already for 2002. Peter Radcliff of P&O Princess predicted that ships will sail full in 2002, at least in part because the cruise industry is global and flexible, resulting in higher capacity levels than other travel options.
Consolidation
Interestingly, about ten years ago Pam Conover of Cunard forecast that by the year 2000 the cruise industry would consist of three big players and one from Asia. Is consolidation, reducing four major cruise lines to three, good or bad? According to Royal Caribbean's Jack Williams, the more relevant question is whether it is good for the consumer and does competition remain in the marketplace.
Howard Frank of Carnival cited Holland America Line as an example of the positives to be gained by consolidation, not only for the industry and consumer, but for the company as well. Once teamed with Carnival, HAL gained access to capital for growth as well as the advantage of economy of scaleresulting in lower operating expenses and lower fares. Carnival's approach has been to keep their member cruise line brands fairly autonomous and operate them in as entrepreneurial a fashion as possible, encouraging them to compete against each other. Frank feels a merger with Carnival would reap similar benefits for Princess. He also stated that Carnival executives were taken by surprise by the proposed Royal Caribbean and Princess deal and that "hostile" is not part of Carnival's intention in making a counter-offer.
On a personal level, the banter between the two suitors and their target was collegial. Peter Radcliff still views the merger between Princess and Royal Caribbean as most advantageous for the two companies to expand their global reach and achieve their full potential. When asked if Royal Caribbean would pull out of the merger as hinted, Jack Williams was coy. He stated they remain in the deal and are watching circumstances unfold. He sees the Royal Caribbean/P&O Princess merger as a great opportunity to build a world class company with compatible brands.
In Bob Dickinson's opinion, "NCL is around today solely because of consolidation." With a strong parent company behind NCL, Colin Veitch offered a bit of levity as he declared he would, "see no, hear no, speak no evil" on the merger matter. He likened his position to that of Finland during World War IIsurrounded on both flanks and trying to remain friends but ultimately being invaded. Asked if parent company Star Cruises has any interest in merging, Veitch said no one has shown up at the door with a bag of cash, but they would probably talk if someone did. However, their business strategy doesn't rely on merging with anyone.
Mark Conroy expressed concerns about competition in the Alaska market and stated that concessions will have to be made if consolidation goes through. Gregg Michel of Crystal Cruises views it as inevitable to bring growth and strength to the cruise line industry. Ultimately, answers to the immediate merger questions are up to federal regulators.
Whatever the outcome of the current consolidation tug-of-war, the leaders of Carnival Corporation, P&O Princess, and Royal Caribbean agreed they will continue to have a harmonious relationship. The current matter is a moment in time that will fade quickly according to Howard Frank, who drew laughter when he turned to Peter Ratcliff and said, "I'm still waiting for Peter to return my call." Ratcliff stated that the industry has common issues and individual cruise lines will continue to work together closely on matters regarding safety, security, and the environment. According to Jack Williams, it is clearly understood that they will work together as professionals.
It's also clear that as passengers we are anxious for the same conclusion as the cruise industry leaderscalm seas, blue skies, and smooth sailing.
Reporting from sunny Miami Beach, Linda Coffman
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